**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D. C. 20549**

** **

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**FORM 10-Q**

 

**QUARTERLY REPORT UNDER SECTION 13OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**For Quarter Ended March 31, 2003**

 

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**CommissionFile Number 0-16018**

 

**ABINGTON BANCORP, INC.**

(Exact name of Registrantas specified in its charter)

 
| **Massachusetts**                                               |   | **04-3334127**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |   | (I.R.S. Employer  identification No.) |
|                                                            |   |                                  |
| **97  Libbey Parkway, Weymouth, Massachusetts**                 |   | **02189**                             |
| (Address of  principal executive offices)                       |   | (Zip Code)                            |
|                                                            |   |                                  |
| **(781) 682-6400**                                              |   |                                  |
| (Registrant’s  telephone number, including area code)      |   |                                  |

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bySection 13 of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

Yes ýNo o

 

Indicate by check markwhether the Registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).    Yes o  No ý

 

Indicate the number ofshares outstanding of each of the Registrant’s classes of common stock, as ofthe latest practicable date: 3,783,905 shares as of May 10, 2003.

 

 

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Certain statements in this Form 10-Q constitute “forward-lookingstatements” within the meaning of Section 27A of the Securities Act and Section21E of the Exchange Act. Further, any statements contained in this Form 10-Qthat are not statements of historical fact may be deemed to be forward-lookingstatements.  Without limiting theforegoing, the words “expect,” “anticipate,” “plan,” “believe,” “seek,”“estimate,” “internal” and similar words are intended to identify expressions thatmay be forward-looking statements. Forward-looking statements involve certainrisks and uncertainties, and actual results may differ materially from thosecontemplated by such statements. For example, actual results may be adverselyaffected by the following possibilities: (1) competitive pressure amongdepository institutions may increase; (2) changes in interest rates may reducebanking interest margins; (3) general economic conditions and real estatevalues may be less favorable than contemplated; and (4) adverse legislation orregulatory requirements may be adopted. Many of such factors are beyond the Company’s ability to control orpredict. Readers of this Form 10-Q are accordingly cautioned not to place unduereliance on forward-looking statements. The Company disclaims any intent or obligationto update publicly any of the forward-looking statements herein, whether inresponse to new information, future events or otherwise.

 

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**ABINGTON BANCORP, INC**.

**FORM 10-Q**

 

**INDEX**

 
| Explanatory  Note |
|-------------------|
|              |   |
| Part I            | Financial Information |
|              |   |
| Item 1.           | Financial Statements |
|              |   |
|              | Consolidated Balance Sheets  (Unaudited) as of March 31, 2003 and December 31, 2002 |
|              |   |
|              | Consolidated  Statements of Operations (Unaudited) for the Three Months Ended March 31,  2003 and 2002) |
|              |   |
|              | Consolidated  Statements of Changes in Stockholders’ Equity (Unaudited) for the Three  Months Ended March 31, 2003 and 2002 |
|              |   |
|              | Consolidated  Statements of Comprehensive Income (Unaudited) for the Three Months Ended  March 31, 2003 and 2002 |
|              |   |
|              | Consolidated  Statements of Cash Flows (Unaudited) for the Three Months Ended March 31,  2003 and 2002 |
|              |   |
|              | 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    |
|              |   |
| Certifications    |

 

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**ABINGTONBANCORP, INC.**

**FORM10-Q**

**For theQuarter Ended March 31, 2003**

 

**EXPLANATORYNOTE**

 

Based on the findings ofan internal accounting review initiated by the Company during the first quarterof 2003, the Company announced that it would revise its 2002 financial resultsthat had previously been announced and would restate its previously issued 2001financial statements.  The revisions andrestatement are necessary to correct accounting errors related to theacceleration of prepayments on mortgage–backed investment securities, errors inrecording prepayments received on various investment securities and certainadjustments related to accruals for income and expense.  See Part I, Item 2, “Management’s Discussionand Analysis of Consolidated Financial Condition and Results of Operation –RECENT DEVELOPMENTS,” and Part I, Item 4 – “Controls and Procedures.”

 

During the internalaccounting review, the Company identified a number of accounting errorsrecorded by the Company’s former controller, including underlying prepaymentassumptions used in the calculation of interest income in 2002 that did notadequately reflect the actual prepayment rates received on a portion of itsmortgage–backed securities (MBS) portfolio and that certain payments receivedon a portion of its MBS portfolio were not properly applied.  It was further determined, based upon theresults of the preliminary review, that it would be necessary to revise theCompany’s previously announced financial results for 2002 and restate theCompany’s financial statements for 2001. The Company engaged its independent auditor, PricewaterhouseCoopers LLP,which replaced Arthur Andersen LLP in mid-2002, to undertake a re-audit of theyear 2001.  Accordingly, the 2002financial information contained in this Form 10-Q for the quarter ended March31, 2002 has been revised.

 

Following is a summary ofthe effect of restatement on the Company’s consolidated financial statements ator for the periods reflected:

 
|                                                |   | **Selected  Balance Sheet Data  At March 31, 2002** |    |
|-----------------------------------------------------|--------|-----------------------------------------------------|---------|
| **(Dollars in thousands)**                          |   | **As  Previously  Reported**                        |    | **As  Restated** |   |
| Securities  available for sale at market value      |   | $                                                   | 376,412 |   | $ | 375,645 |   |
| Other  assets                                       |   | 7,100                                               |    | 6,101 |   |
| Total  assets                                       |   | 849,303                                             |    | 847,537 |   |
| Accrued  taxes and expenses                         |   | 4,541                                               |    | 3,999 |   |
| Other  liabilities                                  |   | 36,229                                              |    | 36,016 |   |
| Retained  earnings                                  |   | 33,052                                              |    | 31,998 |   |
| Other  accumulated comprehensive income, net of tax |   | (803                                                | )       | (555 | ) |
| Total  stockholders’ equity                    |   | 38,576                                              |    | 37,565 |   |
|                                                     |        |                                                     |         |  |  |  |  |

 
|                                    |   | **Summary of  Income Statement Data  Quarter Ended March 31, 2002** |   |
|-----------------------------------------|--------|---------------------------------------------------------------------|--------|
| **(Dollars in thousands)**              |   | **As  Previously  Reported**                                        |   | **As  Restated** |   |
| Interest  and fees on loans             |   | $                                                                   | 6,619  |   | $ | 6,434 |   |
| Interest  on mortgage-backed securities |   | 4,225                                                               |   | 4,450 |   |
| Salaries  and employee benefits         |   | 3,151                                                               |   | 3,230 |   |
| Other  non-interest expense             |   | 1,739                                                               |   | 1,713 |   |
| Provision  for income taxes             |   | 1,130                                                               |   | 1,125 |   |
| Net  income                             |   | 1,974                                                               |   | 1,966 |   |
| Net  income per share:                  |   |                                                                |   |   |   |
| Basic                                   |   | $                                                                   | 0.62   |   | $ | 0.62 |   |
| Diluted                                 |   | $                                                                   | 0.60   |   | $ | 0.60 |   |

 

4

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|                                                                                   |   | **Selected  Cash Flow Data (a)(b)  Quarter Ended March 31, 2002** |   |
|----------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|
| **(Dollars in thousands)**                                                             |   | **As  Previously  Reported**                                      |   | **As  Restated** |   |
| Net  income                                                                            |   | $                                                                 | 1,974  |   | $ | 1,966 |   |
|                                                                                   |   |                                                              |   |   |   |
| Adjustments  to reconcile net income to net cash provided by operating activities:     |   |                                                              |   |   |   |
| Amortization,  accretion and depreciation, net                                         |   | 512                                                               |   | 414 |   |
| Other,  net                                                                            |   | 20,146                                                            |   | 20,337 |   |
| Net  cash provided by operating activities                                             |   | 37,646                                                            |   | 37,731 |   |
|                                                                                   |   |                                                              |   |   |   |
| Cash  flows from investing activities:                                                 |   |                                                              |   |   |   |
| Proceeds  from principal payments on, and maturities of, available for sale securities |   | 22,906                                                            |   | 22,821 |   |
| Net cash provided (used) by investing activities                                       |   | (81,504                                                           | )      | (81,589 | ) |
|                                                                                   |   |                                                              |   |   |   |
| Net  increase in cash and cash equivalents                                             |   | $                                                                 | 14,810 |   | $ | 14,810 |   |

 

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(a) Thepreviously reported amounts for net cash provided by (used in) operatingactivities and investing activities have been adjusted for the effect of therestatement.

(b) As indicated, therehas been no change in the net increase in cash and cash equivalents as a resultof the restatement.

 

In April 2003, shortlyafter the Company announced its intention to restate its financial statements,it was informed by the staff of the United States Securities and ExchangeCommission (“SEC”) that the SEC is conducting an informal inquiry with respectto certain of the matters reflected in the announcement.  The Company is cooperating fully with theinquiry.

 

The restatement andre-audit of the Company’s 2001 financial statements resulted in the Company’sinability to file its 2002 Annual Report on Form 10-K within the timeprescribed by the SEC.  On April 16,2003, the Company received a letter from Nasdaq indicating that Nasdaq had notreceived the Company’s Annual Report on Form 10-K for the year ended December31, 2002  and had commenced the standarddelisting process for companies that have delayed filing required periodicreports with the exchange.  EffectiveApril 18, 2003, the company’s trading symbol “ABBK” was listed as “ABBKE” todenote the Company’s filing delinquency. In addition, the symbol of Abington Bancorp Capital Trust – 8.25%Cumulative Trust Preferred Securities has been changed from “ABBKP” to“APKPE.”  On April 21, 2003, the Companyannounced that it would request a hearing before a Nasdaq Listing QualificationsPanel to discuss the standard delisting process.  Such hearing has been scheduled for May 16, 2003.  The Company believes that, upon the filingof its Annual Report on Form 10-K for the year ended December 31, 2002, andthis Form 10-Q for the quarter ended March 31, 2003, it will have satisfied therequirements for continued Nasdaq listing.

 

RISKS RELATING TO ARTHURANDERSEN LLP

 

Arthur Andersen LLPpreviously audited the Company’s financial statements at December 31, 2001 andfor the three years then ended.  Aspreviously indicated, the Company has restated its financial statements at andfor the year ended December 31, 2001 and has revised the related Notes toFinancial Statements as appropriate.  Asdiscussed in Item 9 of the Company's Annual Report on Form 10-K for the yearended December 31, 2002, as filed with the United States Securities andExchange Commission, the Company

 

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changed independentaccountants on July 1, 2002. The Company's financial statements as of and forthe year ended December 31, 2001, as restated, have been audited byPricewaterhouseCoopers LLP whose report thereon is included as Item 8 of theCompany's Annual Report on Form 10-K for the year ended December 31, 2002. ArthurAndersen LLP has not reissued its previous report on the Company's financialstatements, which previous report is included in Item 8 thereof, nor has itfurnished an updated consent with respect to the incorporation by reference ofsuch financial statements into the Company's registration statements on FormS-8 and Form S-3D. Arthur Andersen LLP did not participate in the preparationor review of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2002. Arthur Andersen LLP was convicted in Federal court ofobstruction of justice on June 15, 2002, and has ceased practice before theSecurities and Exchange Commission. You may have no effective remedy againstArthur Andersen LLP in connection with any material misstatement or omission inthe company's financial statements at and for the year ended December 31, 2000or related disclosure, particularly in the event that Arthur Andersen LLPceases to exist or becomes insolvent as a result of the conviction or otherproceedings against Arthur Andersen LLP.

 

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**PartI      Financial Information**

**Item1.    Financial Statements**

 

ABINGTONBANCORP, INC.

CONSOLIDATEDBALANCE SHEETS

(Unaudited)

 
| **(Dollars amounts in thousands)**                                                                                                 |   | **March  31,  2003** |    | **December  31,  2002** |   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------|---------|-------------------------|--------|
| ASSETS                                                                                                                             |   |                 |    |                    |   |
| Cash and due from banks                                                                                                            |   | $                    | 30,879  |                    | $      | 31,238 |   |
| Short-term investments                                                                                                             |   | 512                  |    | 77,878                  |   |
| Total cash and cash  equivalents                                                                                                   |   | 31,391               |    | 109,116                 |   |
|                                                                                                                               |   |                 |    |                    |   |
| Loans held for sale                                                                                                                |   | 22,992               |    | 35,629                  |   |
| Securities available for  sale - at market value                                                                                   |   | 509,190              |    | 352,339                 |   |
| Loans                                                                                                                              |   | 392,555              |    | 361,434                 |   |
| Less: allowance for  possible loan loss                                                                                            |   | (4,192               | )       | (4,212                  | )      |
| Loans, net                                                                                                                         |   | 388,363              |    | 357,222                 |   |
|                                                                                                                               |   |                 |    |                    |   |
| Federal Home Loan Bank  stock, at cost                                                                                             |   | 14,042               |    | 14,042                  |   |
| Banking premises and  equipment, net                                                                                               |   | 13,159               |    | 13,364                  |   |
| Goodwill                                                                                                                           |   | 5,762                |    | 5,768                   |   |
| Intangible assets                                                                                                                  |   | 4,466                |    | 4,615                   |   |
| Bank-owned life insurance                                                                                                          |   | 3,904                |    | 3,863                   |   |
| Other assets                                                                                                                       |   | 6,311                |    | 7,262                   |   |
|                                                                                                                               |   | $                    | 999,580 |                    | $      | 903,220 |   |
|                                                                                                                               |   |                 |    |                    |   |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY                                                                                         |   |                 |    |                    |   |
| Deposits                                                                                                                           |   | $                    | 664,578 |                    | $      | 646,628 |   |
| Short-term borrowings                                                                                                              |   | 88,904               |    | 11,006                  |   |
| Long-term debt                                                                                                                     |   | 166,971              |    | 167,009                 |   |
| Accrued taxes and expenses                                                                                                         |   | 5,488                |    | 6,789                   |   |
| Other liabilities                                                                                                                  |   | 1,969                |    | 1,770                   |   |
| Total liabilities                                                                                                                  |   | 927,910              |    | 833,202                 |   |
| Guranteed preferred  beneficial interest in the Company’s junior subordinated debentures                                      |   | 12,257               |    | 12,238                  |   |
|                                                                                                                               |   |                 |    |                    |   |
| 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; 5,592,000 and 5,553,000 shares issued in  2003 and 2002, respectively |   | 559                  |    | 555                     |   |
| Additional paid-in capital.                                                                                                        |   | 34,781               |    | 34,340                  |   |
| Retained earnings                                                                                                                  |   | 36,308               |    | 35,106                  |   |
|                                                                                                                               |   | 71,648               |    | 70,001                  |   |
| Treasury stock, 1,807,000  shares                                                                                                  |   | (17,584              | )       | (17,584                 | )      |
| Compensation plans                                                                                                                 |   | (225                 | )       | 120                     |   |
| Other accumulated  comprehensive income - net unrealized gain on available for sale securities,  net of taxes                      |   | 5,574                |    | 5,243                   |   |
| Total Stockholder’ equity                                                                                                     |   | 59,413               |    | 57,780                  |   |
|                                                                                                                               |   | $                    | 999,580 |                    | $      | 903,220 |   |

 

Seeaccompanying notes to unaudited consolidated financial statements.

 

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ABINGTONBANCORP, INC.

CONSOLIDATEDSTATEMENTS of OPERATIONS

(Unaudited)

 
|                                                          |   | **Three Months Ended March 31,** |   |
|---------------------------------------------------------------|--------|----------------------------------|--------|
| **(Dollar  amounts in thousands, except per share data)**     |   | **2003**                         |   | **2002** |   |
|                                                          |   |                             |   | **(Restated)** |   |
| Interest and dividend  income:                                |   |                             |   |   |   |
| Interest and fees on loans                                    |   | $                                | 6,165  |   | $ | 6,434 |   |
| Interest on mortgage-backed  investments                      |   | 3,669                            |   | 4,450 |   |
| Interest on bonds and  obligations                            |   | 384                              |   | 575 |   |
| Dividend income                                               |   | 236                              |   | 157 |   |
| Interest on short-term  investments                           |   | 156                              |   | 120 |   |
| Total interest and dividend  income                           |   | 10,610                           |   | 11,736 |   |
|                                                          |   |                             |   |   |   |
| Interest expense:                                             |   |                             |   |   |   |
| Interest on deposits                                          |   | 2,331                            |   | 2,987 |   |
| Interest on short-term  borrowings                            |   | 73                               |   | 36 |   |
| Interest on long-term debt                                    |   | 1,893                            |   | 2,895 |   |
| Total interest expense                                        |   | 4,297                            |   | 5,918 |   |
|                                                          |   |                             |   |   |   |
| Net interest income                                           |   | 6,313                            |   | 5,818 |   |
| Provision for loan losses                                     |   | —                           |   | — |   |
| Net interest income after  provision for possible loan losses |   | 6,313                            |   | 5,818 |   |
|                                                          |   |                             |   |   |   |
| Non-interest income:                                          |   |                             |   |   |   |
| Loan servicing fees                                           |   | 31                               |   | 44 |   |
| Customer service fees                                         |   | 2,105                            |   | 2,030 |   |
| Gain on sales of  securities, net                             |   | 641                              |   | 35 |   |
| Gain on sales of mortgage  loans, net                         |   | 1,388                            |   | 1,124 |   |
| Net gain on sales of other  real estate owned                 |   | 33                               |   | — |   |
| Other                                                         |   | 118                              |   | 96 |   |
| Total non-interest income                                     |   | 4,316                            |   | 3,329 |   |
|                                                          |   |                             |   |   |   |
| Non-interest expense:                                         |   |                             |   |   |   |
| Salaries and employee  benefits                               |   | 4,581                            |   | 3,230 |   |
| Occupancy and equipment  expense                              |   | 1,215                            |   | 833 |   |
| Trust preferred securities  expense                           |   | 280                              |   | 280 |   |
| Other non-interest expenses                                   |   | 2,709                            |   | 1,713 |   |
| Total non-interest expense                                    |   | 8,785                            |   | 6,056 |   |
|                                                          |   |                             |   |   |   |
| Income before income taxes                                    |   | 1,844                            |   | 3,091 |   |
| Provision for income taxes                                    |   | 642                              |   | 1,125 |   |
| Net income                                                    |   | $                                | 1,202  |   | $ | 1,966 |   |
|                                                          |   |                             |   |   |   |
| Basic earnings per share                                      |   | $                                | 0.32   |   | $ | 0.62 |   |
| Diluted earnings per share                                    |   | $                                | 0.30   |   | $ | 0.60 |   |
| Dividend declared per  common share                           |   | $                                | — |   | $ | 0.10 |   |
|                                                          |   |                             |   |   |   |
| Average common shares  outstanding (Basic)                    |   | 3,763,000                        |   | 3,182,000 |   |
| Weighted average dilutive  options                            |   | 192,000                          |   | 94,000 |   |
| Diluted weighted average  shares                              |   | 3,955,000                        |   | 3,276,000 |   |

 

Seeaccompanying notes to unaudited consolidated financial statements.

 

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ABINGTONBANCORP, INC.

CONSOLIDATEDSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 
| **(Dollar  amounts in thousands)**                                                |   | **Common  Stock** |   | **Additional  Paid-in  Capital** |   | **Retained  Earnings** |   | **Treasury  Stock** |   | **Net  Unrealized  Gain or  (Loss)  AFS  Securities** |   | **Compensation  Plans** |   | **Total** |   |
|-----------------------------------------------------------------------------------|--------|-------------------|--------|----------------------------------|--------|------------------------|--------|---------------------|--------|-------------------------------------------------------|--------|-------------------------|--------|-----------|--------|
| Balance at December 31,  2002                                                     |   | $                 | 555    |                             | $      | 34,340                 |   | $                   | 35,106 |                                                  | $      | (17,584                 | )      | $         | 5,243  |   | $ | 120 |   | $ | 57,780 |   |
| Net income                                                                        |   | —            |   | —                           |   | 1,202                  |   | —              |   | —                                                |   | —                  |   | 1,202     |   |
| Exercise of stock options                                                         |   | 4                 |   | 441                              |   | —                 |   | —              |   | —                                                |   | —                  |   | 445       |   |
| Unearned compensation                                                             |   | —            |   | —                           |   | —                 |   | —              |   | —                                                |   | (345                    | )      | (345      | )      |
| Change in unrealized gain  (losses) on available for sale securities, net of tax  |   | —            |   | —                           |   | —                 |   | —              |   | 331                                                   |   | —                  |   | 331       |   |
| Balance at March 31, 2003                                                         |   | $                 | 559    |                             | $      | 34,781                 |   | $                   | 36,308 |                                                  | $      | (17,584                 | )      | $         | 5,574  |   | $ | (225 | ) | $ | 59,413 |   |
|                                                                              |   |              |   |                             |   |                   |   |                |   |                                                  |   |                    |   |      |   |
| **(Restated)**                                                                    |   |              |   |                             |   |                   |   |                |   |                                                  |   |                    |   |      |   |
| Balance at December 31,  2001                                                     |   | $                 | 492    |                             | $      | 23,081                 |   | $                   | 30,358 |                                                  | $      | (17,584                 | )      | $         | 1,752  |   | $ | 120 |   | $ | 38,219 |   |
| Net income                                                                        |   | —            |   | —                           |   | 1,966                  |   | —              |   | —                                                |   | —                  |   | 1,966     |   |
| Exercise of stock options                                                         |   | 7                 |   | 211                              |   | —                 |   | —              |   | —                                                |   | —                  |   | 218       |   |
| Change in unrealized gains  (losses) on available for sale securities, net of tax |   | —            |   | —                           |   | —                 |   | —              |   | (2,521                                                | )      | —                  |   | (2,521    | )      |
| Dividends declared ($0.10  per share)                                             |   | —            |   | —                           |   | (326                   | )      | —              |   | —                                                |   | —                  |   | (326      | )      |
| Balance at March 31, 2002                                                         |   | $                 | 499    |                             | $      | 23,292                 |   | $                   | 31,998 |                                                  | $      | (17,584                 | )      | $         | (769   | )  | $ | 120 |   | $ | 37,556 |   |
|                                                                                   |        |                   |        |                                  |        |                        |        |                     |        |                                                       |        |                         |        |           |        |  |  |  |  |  |  |  |  |  |  |

 

Seeaccompanying notes to unaudited consolidated financial statements.

 

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ABINGTON BANCORP, INC.

CONSOLIDATED STATEMENTS of COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 
|                                                                                                           |   | **Three Months Ended March 31,** |   |
|----------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|
| **(Dollar  amounts in thousands)**                                                                             |   | **2003**                         |   | **2002** |   |
|                                                                                                           |   |                             |   | **(Restated)** |   |
| Net income, as reported                                                                                        |   | $                                | 1,202  |   | $ | 1,966 |   |
|                                                                                                           |   |                             |   |   |   |
| Change in unrealized losses  on available for sale securities, net of tax                                      |   | 748                              |   | (2,498 | ) |
|                                                                                                           |   |                             |   |   |   |
| Less: Reclassification  adjustment for available for sale securities gains included in net income,  net of tax |   | 417                              |   | 23 |   |
|                                                                                                           |   |                             |   |   |   |
| Comprehensive income (loss)                                                                                    |   | $                                | 1,533  |   | $ | (555 | ) |

 

Seeaccompanying notes to unaudited consolidated financial statements.

 

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ABINGTONBANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

 
|                                                                                    |   | **Three Months Ended March 31,** |   |
|-----------------------------------------------------------------------------------------|--------|----------------------------------|--------|
| **(Dollar  amounts in thousands)**                                                      |   | **2003**                         |   | **2002** |   |
|                                                                                    |   |                             |   | **(Restated)** |   |
| Cash flows from operating  activities:                                                  |   |                             |   |   |   |
| Net income                                                                              |   | $                                | 1,202  |   | $ | 1,966 |   |
|                                                                                    |   |                             |   |   |   |
| Adjustments to reconcile  net income to net cash provided by operating activities:      |   |                             |   |   |   |
| Amortization, accretion and  depreciation, net                                          |   | 1,656                            |   | 414 |   |
| Net gain on sale of other  real estate owned                                            |   | (33                              | )      | — |   |
| Gain on sales of  securities, net                                                       |   | (641                             | )      | (35 | ) |
| Loans originated for sale  in the secondary market                                      |   | (195,000                         | )      | (49,482 | ) |
| Proceeds from sales of loans                                                            |   | 209,025                          |   | 65,655 |   |
| Gain on sales of mortgage  loans, net                                                   |   | (1,388                           | )      | (1,124 | ) |
| Other, net                                                                              |   | (1,056                           | )      | 20,337 |   |
| Net cash provided by  operating activities                                              |   | 13,765                           |   | 37,731 |   |
|                                                                                    |   |                             |   |   |   |
| Cash flows from investing  activities:                                                  |   |                             |   |   |   |
|                                                                                    |   |                             |   |   |   |
| Proceeds from sales of  available for sale securities                                   |   | 30,551                           |   | 4,625 |   |
| Proceeds from principal  payments on and maturities of available for sale securities    |   | 67,893                           |   | 22,821 |   |
| Purchase of available for  sale securities                                              |   | (254,359                         | )      | (130,386 | ) |
| Loans (originated/purchased) repaid                                                     |   | (31,338                          | )      | 21,547 |   |
| Purchase of banking  premises and equipment and improvements to other real estate owned |   | (299                             | )      | (196 | ) |
| Proceeds from sales of  other real estate owned                                         |   | 33                               |   | — |   |
| Net cash used by investing  activities                                                  |   | (187,519                         | )      | (81,589 | ) |
|                                                                                    |   |                             |   |   |   |
| Cash flows from financing  activities:                                                  |   |                             |   |   |   |
| Net increase in deposits                                                                |   | 18,033                           |   | 28,996 |   |
| Net increase (decrease) in  borrowings with original maturities of three months or less |   | 77,898                           |   | (1,495 | ) |
| Proceeds from short-term  borrowings with maturities in excess of three months          |   | —                           |   | 266 |   |
| Proceeds from issuance of  long-term debt                                               |   | 10,000                           |   | 35,000 |   |
| Principal payments on  long-term debt                                                   |   | (10,002                          | )      | (4,000 | ) |
| Proceeds from exercise of  stock options                                                |   | 445                              |   | 218 |   |
| Purchase of unearned ESOP  stock                                                        |   | (345                             | )      | — |   |
| Cash dividends paid                                                                     |   | —                           |   | (317 | ) |
| Net cash provided by  financing activities                                              |   | 96,029                           |   | 58,668 |   |
| Net (decrease) increase in  cash and cash equivalents                                   |   | (77,725                          | )      | 14,810 |   |
| Cash and cash equivalents  at beginning of period                                       |   | 109,116                          |   | 54,576 |   |
| Cash and cash equivalents  at end of period                                             |   | $                                | 31,391 |   | $ | 69,386 |   |
|                                                                                    |   |                             |   |   |   |
| Supplemental cash flow  information:                                                    |   |                             |   |   |   |
| Interest paid on deposits                                                               |   | $                                | 2,337  |   | $ | 2,944 |   |
| Interest paid on borrowed  funds                                                        |   | 2,193                            |   | 2,870 |   |
| Income taxes paid, net                                                                  |   | 637                              |   | 720 |   |

 

Seeaccompanying notes to unaudited consolidated financial statements.

 

11

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ABINGTON BANCORP,INC.

NOTES TO UNAUDITEDCONSOLIDATED FINANCIAL STATEMENTS

March 31, 2003

 

 

A)                                  BASISOF PRESENTATION

 

The consolidatedfinancial statements include the accounts of Abington Bancorp, Inc. (aMassachusetts Corporation) and its wholly-owned subsidiaries, Abington SavingsBank (the “Bank”) and Abington Bancorp Capital Trust (collectively, the“Company”).  The Bank’s subsidiariesinclude three Massachusetts securities corporations, Abington SecuritiesCorporation, Mass Securities Corporation and Mass SEC Corp II; Old ColonyMortgage Corporation, which originates and sells residential mortgages toinvestors on a servicing released basis; Holt Park Place DevelopmentCorporation and Norroway Pond Development Corporation, each typically owningproperties being marketed for sale; and 70 Quincy Ave. LLC, which owns andoperates property partially occupied by a branch of the Bank.

 

The accompanyingconsolidated financial statements have been prepared by the Company, withoutaudit, in accordance with the instructions to Form 10-Q and do not include allof the information and footnotes required by generally accepted accountingprinciples for complete financial statements. These statements should be read in conjunction with the consolidatedfinancial statements and notes thereto included in the Company’s most recentAnnual Report on Form 10-K for the year ended December 31, 2002,filed with the U. S. Securities and Exchange Commission.

 

In the opinion ofmanagement, all adjustments considered necessary for a fair presentation of thefinancial statements, consisting primarily of normal recurring accruals, havebeen included.  Operating results for thethree month periods presented are not necessarily indicative of the results tobe expected for year or any other interim period.

 

B)                                    RESTATEMENT

 

Based on the findings ofan internal accounting review initiated by the Company during the first quarterof 2003, the Company announced that it would revise its 2002 financial resultsthat had previously been announced to the public and would restate itspreviously issued 2001 financial statements. The revisions and restatement are necessary to correct accounting errorsrelated to the amortization/accretion of premiums/discounts on mortgage-backedinvestment securities due to the acceleration of prepayments, errors in therecording of payments received on various investment securities, interestincome on mortgage loans and certain adjustments related to accruals for incomeand expense.  See “Management’sDiscussion and Analysis of Consolidated Financial Condition and Results ofOperation – RECENT DEVELOPMENTS.”

 

The results of operationsfor the three months ended March 31, 2002 presented herein represent theCompany’s unaudited results for that period as restated.

 

The following tablesummarizes the accounting adjustments for the three months ended March 31, 2002and the effect on net income and earnings per share:

 

12

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|                                                                      |   | **Three  months ended March 31, 2002** |   |
|---------------------------------------------------------------------------|--------|----------------------------------------|--------|
| **(Dollars in thousands, except per  share data)**                        |   | **As  previously  Reported**           |   | **As  Restated** |   |
| Net  income, previously reported                                          |   | $                                      | 1,974  |   | $ | 1,974 |   |
|                                                                      |   |                                   |   |   |   |
| Adjustments:                                                              |   |                                   |   |   |   |
| Premium  amortization on mortgage-backed investment securities            |   | —                                 |   | 98 |   |
| Misapplied  principal and interest payments on mortgage-backed securities |   | —                                 |   | 127 |   |
| Excess  interest accruals on mortgage loans                               |   | —                                 |   | (185 | ) |
| Miscellaneous  expense accruals                                           |   | —                                 |   | (53 | ) |
| Total  adjustments                                                        |   | —                                 |   | (13 | ) |
| Related  taxes                                                            |   | —                                 |   | (5 | ) |
| Net  adjustments                                                          |   | —                                 |   | (8 | ) |
| Net  income, as restated                                                  |   | $                                      | 1,974  |   | $ | 1,966 |   |
|                                                                      |   |                                   |   |   |   |
| Average  common shares outstanding (Basic)                                |   | 3,182                                  |   | 3,182 |   |
| Weighted  average dilutive options                                        |   | 108                                    |   | 94 |   |
| Fully  diluted weighted average shares                                    |   | 3,290                                  |   | 3,276 |   |
|                                                                      |   |                                   |   |   |   |
| Basic  earnings per share                                                 |   | $                                      | 0.62   |   | $ | 0.62 |   |
| Diluted  earnings per share                                               |   | $                                      | 0.60   |   | $ | 0.60 |   |

 

C)                                    ACQUISITION

 

On September 13, 2002,the Company completed the acquisition of Massachusetts Fincorp, Inc. (MAFN),the parent company of The Massachusetts Co-operative Bank.  The transaction was accounted for under thepurchase method of accounting. Accordingly, the acquired assets and liabilities of MAFN and its resultsof operations are included in the Company’s financial statements for reportingperiods subsequent to September 13, 2002.

 

D)                                   STOCKREPURCHASE PROGRAM

 

As of March 31, 2003, theCompany had repurchased 932,600 shares of its common stock at a total cost of$13.9 million.  The stock was purchasedpursuant to three separate authorizations by the Company’s Board ofDirectors.  The Board of Directorsdelegated to senior management the authority to determine the timing andpricing of the repurchases.  Thereremain approximately 109,000 shares approved for repurchase under the currentauthorization.

 

E)                                     EARNINGSPER SHARE

 

Basic earnings per shareis computed by dividing net income available to common shareholders by theweighted average number of common shares outstanding for the period.  Diluted earnings per share reflects thedilution that could occur if securities or other contracts to issue commonstock were exercised or converted into common stock.  The calculation of common stock equivalents for fully diluted pershare computations excludes options which have an exercise price in excess ofthe average closing price of the Company’s common stock for the periodpresented.  The following table showsthe calculation of average common share and common share equivalents forpurposes of earnings per share calculations:

 
|                                              |   | **Three  Months Ended March 31,** |   |
|---------------------------------------------------|--------|-----------------------------------|--------|
| **(Dollars in thousands, except per share data)** |   | **2003**                          |   | **2002** |   |
|                                              |   |                              |   | **(Restated)** |   |
|                                              |   |                              |   |   |   |
| Average  common shares outstanding (Basic)        |   | 3,763                             |   | 3,182 |   |
| Weighted  average dilutive options                |   | 192                               |   | 94 |   |
| Fully  diluted weighted average shares            |   | 3,955                             |   | 3,276 |   |
|                                              |   |                              |   |   |   |
| Net  income                                       |   | $                                 | 1,202  |   | $ | 1,966 |   |
|                                              |   |                              |   |   |   |
| Basic  earnings per share                         |   | $                                 | 0.32   |   | $ | 0.62 |   |
| Diluted  earnings per share                       |   | $                                 | 0.30   |   | $ | 0.60 |   |

 

13

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On April 4, 2003, theBoard of Directors declared a cash dividend in the amount of $0.11 per share,payable on May 1, 2003, to shareholders of record on April 17, 2003.

 

F)            BUSINESS SEGMENTS

 

SFAS No. 131, *Disclosuresabout Segments of an Enterprise and Related Information,* requirescertain financial and supplementary information to be disclosed on an annualand interim basis for each reportable segment of an enterprise.  Historically, the Company has identified itsreportable business segments as Community Banking and Mortgage Banking based onproducts and services provided to the customers.  Non-reportable operating segments of the Company’s operationswhich do not have similar characteristics to the community banking or mortgagebanking operations and do not meet the quantitative thresholds requiringdisclosure are included in the Other category in the disclosure of the businesssegments below.  These non-reportablesegments include the activity of the Parent Company and Abington BancorpCapital Trust.

 
|                                                       |   | **Community  Banking** |       | **Mortgage  Banking** |       | **Other** |       | **Elimination** |       | **Total** |       |
|------------------------------------------------------------|--------|------------------------|------------|-----------------------|------------|-----------|------------|-----------------|------------|-----------|------------|
| **For the three months ended  March 31, 2003**             |   |                   | ** ** |                  | ** ** |      | ** ** |            | ** ** |      | ** ** |
| Net  interest income                                       |   | $                      | 6,207      |                  | $          | 102       |       | $               | 4          |      | $          | — |   | $ | 6,313 |   |
| Provision  for loan losses                                 |   | —                 |       | —                |       | —    |       | —          |       | —    |       |
| Noninterest  income                                        |   | 2,815                  |       | 1,543                 |       | —    |       | (42             | )     | 4,316     |       |
| Noninterest  expense                                       |   | 7,624                  |       | 923                   |       | 280       |       | (42             | )     | 8,785     |       |
| Net  Income                                                |   | 934                    |       | 431                   |       | (163      | )     | —          |       | 1,202     |       |
| Total  assets                                              |   | 1,240,397              |       | 28,121                |       | 82,019    |       | (350,957        | )     | 999,580   |       |
|                                                       |   |                   |       |                  |       |      |       |            |       |      |       |
| **For  the three months ended  March 31, 2002 (restated)** |   |                   |       |                  |       |      |       |            |       |      |       |
| Net  interest income                                       |   | $                      | 5,721      |                  | $          | 92        |       | $               | 5          |      | $          | — |   | $ | 5,818 |   |
| Provision  for loan losses                                 |   | —                 |       | —                |       | —    |       | —          |       | —    |       |
| Noninterest  income                                        |   | 2,201                  |       | 1,128                 |       | —    |       | —          |       | 3,329     |       |
| Noninterest  expense                                       |   | 5,122                  |       | 654                   |       | 280       |       | —          |       | 6,056     |       |
| Net  Income                                                |   | 1,776                  |       | 338                   |       | (148      | )     | —          |       | 1,966     |       |
| Total  assets                                              |   | 1,019,065              |       | 10,346                |       | 81,274    |       | (263,328        | )     | 847,537   |       |

 

G)            PENSION PLAN TERMINATION

 

The Board of Directorsvoted to freeze the Company’s defined benefit pension plan (the “Plan”) and toterminate the Plan effective December 31, 2001.  In connection therewith, the Company amended the Plan to improvethe benefit formula of current employees and to permit payment of lump sumsfrom the Plan.  Termination of the Planresulted in a gain on settlement of $376,000 ($244,000, net of related taxes)which was recorded as a reduction in salaries and benefits expense in thequarter ended March 31, 2002.  As partof a redesign of retirement benefits, the Company contributes 3% of eachemployee’s W-2 compensation to the Company’s 401(k) program.

 

H)            STOCK BASED COMPENSATION

 

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

 

14

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In December 2002, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards No. 148, “Accounting for Stock-Based Compensation – Transitionand Disclosure,” (“SFAS No. 148”).  SFASNo. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” toprovide alternative methods of transition for a voluntary change to the fairvalue based methods of accounting for stock-based employee compensation.  In addition, SFAS No. 148 amends thedisclosure requirements of SFAS No. 123 to require more prominent disclosureabout the method of accounting for stock based compensation and the effect ofthe method on reported results.

 

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

 
|                                                                                                                               |   | **Three  Months Ended March 31,** |       |
|------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                                                                                               |   | **2003**                          | ** ** | **2002** | ** ** |
|                                                                                                                               |   |                              |       | **(Restated)** | ** ** |
| Net  income                                                                                                                        |   | $                                 | 1,202      |   | $ | 1,966 |   |
|                                                                                                                               |   |                              |       |   |   |
| Deduct:  Total stock-based employee compensation expense determined under fair  value–based method for all awards, net of tax |   | —                            |       | 7 |   |
| Pro  forma net income                                                                                                              |   | $                                 | 1,202      |   | $ | 1,959 |   |
|                                                                                                                               |   |                              |       |   |   |
| Earnings  per share:                                                                                                               |   |                              |       |   |   |
| Basic:                                                                                                                             |   |                              |       |   |   |
| As  reported                                                                                                                       |   | $                                 | 0.32       |   | $ | 0.62 |   |
| Pro  forma                                                                                                                         |   | $                                 | 0.32       |   | $ | 0.62 |   |
| Diluted:                                                                                                                           |   |                              |       |   |   |
| As  reported                                                                                                                       |   | $                                 | 0.30       |   | $ | 0.60 |   |
| Pro  forma                                                                                                                         |   | $                                 | 0.30       |   | $ | 0.60 |   |

 

I)             LOANS AND DEPOSITS

 

Following is a summary ofthe Company’s consolidated loans and deposits as of the dates shown:

 
| **(Dollars in thousands)**           |   | **March 31,  2003** |    | **December  31,  2002** | ** ** | **March 31,  2002** | ** ** |
|--------------------------------------|--------|---------------------|---------|-------------------------|------------|---------------------|------------|
|                                 |   |                |    | **(Restated)**          | ** ** | **(Restated)**      | ** ** |
| Loans:                               |   |                |    |                    |       |                |       |
| Residential                          |   | $                   | 247,651 |                    | $          | 233,503             |       | $ | 250,190 |   |
| Home  equity                         |   | 34,829              |    | 33,702                  |       | 28,124              |       |
| Commercial  real estate              |   | 116,627             |    | 112,374                 |       | 73,119              |       |
| Other                                |   | 16,440              |    | 17,484                  |       | 20,995              |       |
| Total  loans and loans held for sale |   | $                   | 415,547 |                    | $          | 397,063             |       | $ | 372,428 |   |
|                                 |   |                |    |                    |       |                |       |
| Deposits                             |   |                |    |                    |       |                |       |
| Demand                               |   | $                   | 93,259  |                    | $          | 90,960              |       | $ | 73,606 |   |
| NOW                                  |   | 113,849             |    | 105,047                 |       | 86,196              |       |
| Savings  and money market            |   | 272,162             |    | 260,480                 |       | 203,788             |       |
| Core  deposits                       |   | 479,270             |    | 456,487                 |       | 363,590             |       |
| Time                                 |   | 185,308             |    | 190,147                 |       | 162,865             |       |
| Total  deposits                      |   | $                   | 664,578 |                    | $          | 646,628             |       | $ | 526,455 |   |

 

 

15

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**Item 2.****    Management’sDiscussion and Analysis of Consolidated Financial Condition and Results ofOperation**

 

The following discussionshould be read in conjunction with the financial statements, notes and tablesincluded in the Company’s Annual Report on Form 10-K for the fiscal year endedDecember 31, 2002 filed with the Securities and Exchange Commission.  The discussion contains certainforward-looking information regarding the future performance of theCompany.  All forward-lookinginformation is inherently uncertain and actual results may differ materiallyfrom the assumptions, estimates or expectations reflected or contained in theforward-looking information.  Pleaserefer to “Cautionary Statement Regarding Forward-Looking Information” of thisForm 10-Q for a further discussion.

 

RECENT DEVELOPMENTS

 

Based on the findings ofan internal accounting review initiated by the Company during the first quarterof 2003, the Company announced that it would revise its 2002 financial resultsthat had previously been announced and would restate its previously issued 2001financial statements.  The revisions andrestatement are necessary to correct accounting errors related to theamortization/accretion of premiums/discounts on mortgage-backed investmentsecurities due to the acceleration of prepayments, errors in recording paymentsreceived on various investment securities, interest income on mortgage loansand certain adjustments related to accruals for income and expense.  See “EXPLANATORY NOTE” preceding Part I ofthis Quarterly Report on Form 10-Q and Part I, Item 4 -"Controls and Procedures."

 

During the internalaccounting review, the Company identified a number of accounting errorsrecorded by the Company's former controller, including underlying prepaymentassumptions used in the calculation of interest income in 2002 that did notadequately reflect the actual prepayment rates received on a portion of itsmortgage-backed securities (MBS) portfolio, and that certain payments receivedon a portion of its MBS portfolio were not properly applied.  It was further determined, based upon theresults of the preliminary review, that it would be necessary to revise theCompany’s previously announced financial results for 2002 and restate theCompany’s financial statements for 2001. The Company engaged its independent auditor, PricewaterhouseCoopers LLP,which replaced Arthur Andersen LLP in mid-2002, to undertake a re-audit of theyear 2001.  As a result of theserevisions, the financial statements and notes thereto contained in thisquarterly report on Form 10-Q as of and for the three months ended March 31,2002, have been revised.  In addition,certain 2002 financial information contained in this discussion and analysis offinancial condition and results of operation has been changed whereappropriate.

 

In April 2003, shortlyafter the Company announced its intention to restate its financial statements,it was informed by the staff of the United States Securities and ExchangeCommission (“SEC”) that the SEC is conducting an informal inquiry with respectto certain of the matters reflected in the announcement.  The Company is cooperating fully with theinquiry.

 

On April 16, 2003, the Companyreceived a letter from Nasdaq indicating that Nasdaq had not received theCompany’s Annual Report on Form 10-K for the year ended December 31, 2002 andhad commenced the standard delisting process for companies that have delayedfiling required periodic reports with the exchange.  Effective April 18, 2003, the company’s trading symbol “ABBK” waslisted as “ABBKE” to denote the Company’s filing delinquency.  In addition, the symbol of Abington BancorpCapital Trust – 8.25% Cumulative Trust Preferred Securities has been changedfrom “ABBKP” to “APKPE.”  On April 21,2003, the Company announced that it would request a hearing before a NasdaqListing Qualifications Panel to discuss the standard delisting process.  Such hearing has been scheduled for May 16,2003.  The Company believes that, uponthe filing of its Annual Report on Form 10-K for the year ended December 31,2002, and this Form 10-Q for the quarter ended March 31, 2003, it has satisfiedthe requirements for continued Nasdaq listing.

 

OVERVIEW

 

Net income for thequarter ended March 31, 2003 was $1.3 million, or $0.33 per diluted share,compared with the restated $2.0 million, or $0.60 per diluted share, for thesame period of 2002.  This quarter’searnings include the operations of the former Massachusetts Fincorp, Inc.(MAFN) acquired in September of 2002 under the purchase method ofaccounting.  Under the purchase methodof accounting, the results of operations of MAFN are included from the date ofacquisition forward and are excluded from the Company’s operating results inthe quarter ended March 31, 2002.  Netinterest income increased by $495 thousand or 8.5% over the first quarter of2002.  This resulted from a combinationof additional volumes of earning assets and interest bearing liabilitiesacquired in the MAFN transaction.  Inaddition, the Company recorded growth in both investment securities andloans.  No provision for loan losses wasrecorded in either the first quarter of 2003 or the first quarter of last year,as credit quality remained strong and delinquencies remained low.  Net charge-offs during the quarter were anominal $20 thousand.  Non-interestincome improved by $987 thousand during the current quarter over the firstquarter of 2002.

 

16

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This was due to growth infee based services and products and the addition of the MAFN customerbase.  Realized gains on securitiesexceeded the prior year quarter by $606 thousand while gains from the sale ofloans increased by $264 thousand. Non-interest expense increased by $2.7 million or 45.1% over the firstquarter of 2002.  Increases in personnelcosts, occupancy and data processing expense all reflect the addition ofbranches and processing volumes acquired in the MAFN transaction.  In addition, the Company accruedapproximately $300 thousand for legal and accounting costs associated with therevision of 2002 operating results and the re-audit of 2001.

 

FINANCIAL CONDITION

 

Total assets increased byapproximately $96.4 million or 10.7% to $999.6 million from the $903.2 millionreported for December 31, 2002.  Thisreflects a net increase in available-for-sale securities of $156.9 million anda $31.1 million increase in loans.  Thisincrease includes growth within the commercial real estate portfolio and thepurchase of residential mortgage loan pools from third parties coupled with theretention of residential mortgage loans originated by the Company’s indirectsubsidiary, Old Colony Mortgage Corp. (OCM). Loans held for sale, originated by OCM, were $23.0 million at March 31,2003 compared with $35.6 million at March 31, 2002.  Short-term investments and funds sold decreased by $77.4million.  The growth in investmentsecurities and portfolio loans was funded by a combination of cash flowprovided by a reduction in funds sold, a reduction in loans held for sale, andborrowings from the Federal Home Loan Bank.

 

Total deposits during thequarter increased by $18.0 million or 2.8% to $664.6 million from the $646.6million reported at December 31, 2002. Certificates of deposit declined by $4.8 million from year-end to $185.3million at March 31, 2003 as maturing higher yielding certificates havemigrated from the time deposit category to the more liquid money marketaccount.  Transaction accounts(primarily demand deposits and NOW accounts) increased by $11.1 million fromyear-end.  Balances reflect the currentrate environment and uncertainty in the stock market as reflected in thestability of core retail and commercial accounts.

 

Short-term borrowingstotaled $88.9 million at quarter end compared to $11.0 million at December 31,2002, reflecting increased borrowings incurred to provide short-term fundingfor asset purchases during the quarter. It is expected that these borrowings will be repaid by cash flow frominvesting activities.  Longer termborrowings from the Federal Home Loan Bank at March 31, 2003 were unchangedfrom year end 2002 and totaled $167.0 million at March 31, 2003.

 

Stockholders’ equity was$59.4 million at March 31, 2003, as compared to $57.8 million at December 31,2002.  The increase in stockholders’equity is primarily due to growth in retained earnings during the quarter.

 

The return on averageequity and average assets was 8.11 percent and 0.50 percent, respectively, thisquarter compared with 19.81 percent and 0.98 percent for the comparablerestated 2002 quarter.

 

NET INTEREST INCOME

 

Net interest income isthe difference between interest earned on earning assets such as loans andinvestments and interest paid on interest bearing liabilities such as depositsand borrowings.  Net interest income isaffected by the mix and volume of assets and liabilities, changes in interestrates and the interest rate spread. Additional factors affecting net interest income in a lower rateenvironment are accelerated prepayments of higher yielding investmentsecurities coupled with loan origination and refinancings at lower availableyields.

 

Net interest incomeincreased by $495 thousand for the three months ended March 31, 2003 comparedto the comparable period of 2002.

 

Interest and dividendincome decreased by $709 thousand during the three month period ended March 31,2003 compared to the first quarter of 2002, as lower available earning assetyields were partially offset by increases in the volume of average earningassets.  The increased earning assetvolume resulted from a combination of assets acquired in the MAFN acquisition,increases in the portfolio of investment securities and a combination ofinternal loan growth and asset purchases. The yield on earning assets decreased to 5.34% in the three months endedMarch 31, 2003 as compared to 6.70% for the same period of 2002.

 

17

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Interest expense for thequarter ended March 31, 2003 decreased by $1.4 million compared to the firstquarter of 2002, generally due to lower rates paid on deposits and borrowedfunds.  Interest expense also reflects ashift in mix as higher cost maturing time deposits were transferred to the moreliquid lower cost money market accounts. Deposit liabilities increased by $18.0 million during the 2003 firstquarter over the comparable prior year quarter.  Transaction accounts (demand and NOW accounts) grew byapproximately $11.1 million while non-transaction accounts (savings, moneymarket and time deposits) increased by $6.8 million, with declines incertificates of deposit offset by growth in money market accounts.  Rates paid on borrowed funds also declinedduring the current quarter from the prior year quarter as new borrowings wereincurred at lower short-term rates.

 

The table below presentsthe components of interest income and interest expense for the major categoriesof assets and liabilities for the periods indicated.

 
|                                                   |   | **Three  Months Ended March 31,** |       |
|--------------------------------------------------------|--------|-----------------------------------|------------|
| **(Dollars in thousands)**                             |   | **2003**                          | ** ** | **2002** | ** ** |
|                                                   |   |                              |       | **(Restated)** | ** ** |
| Interest  and dividend income:                         |   |                              |       |   |   |
| Interest  and fees on loans                            |   | $                                 | 6,165      |   | $ | 6,434 |   |
| Interest  on mortgage-backed securities                |   | 3,669                             |       | 4,450 |   |
| Interest  and dividends on bonds and other obligations |   | 620                               |       | 732 |   |
| Interest  on short-term investments                    |   | 156                               |       | 120 |   |
| Total  interest and dividend income                    |   | $                                 | 10,610     |   | $ | 11,736 |   |
|                                                   |   |                              |       |   |   |   |   |
| Interest  expense:                                     |   |                              |       |   |   |
| Interest  on deposits                                  |   | $                                 | 2,331      |   | $ | 2,987 |   |
| Interest  on short-term borrowings                     |   | 73                                |       | 36 |   |
| Interest  on long-term borrowings                      |   | 1,893                             |       | 2,895 |   |
| Total  interest expense                                |   | $                                 | 4,297      |   | $ | 5,918 |   |

 

A breakdown of thecomponents of the Company’s net interest rate spread is a follows:

 
|                                                   |   | **March 31** |   |
|--------------------------------------------------------|--------|--------------|--------|
|                                                   |   | **2003**     |   | **2002** | ** ** |
|                                                   |   |         |   | **(Restated)** |   |
| Weighted  average yield earned on:                     |   |         |   |   |   |
| Loans                                                  |   | 6.86         | %      | 6.94 | % |
| Mortgage-backed  investments                           |   | 4.27         |   | 6.80 |   |
| Bonds  and obligations                                 |   | 2.88         |   | 5.09 |   |
| Short-term  investments                                |   | 1.57         |   | 1.92 |   |
|                                                   |   |         |   |   |   |
| Weighted  average yield on interest earning assets     |   | 5.24         |   | 6.53 |   |
|                                                   |   |         |   |   |   |
| Weighted  average rate paid on:                        |   |         |   |   |   |
| Total  deposits                                        |   | 1.69         |   | 2.79 |   |
| Short-term  borrowings                                 |   | 1.29         |   | 1.99 |   |
| Long-term  debt                                        |   | 4.60         |   | 5.67 |   |
|                                                   |   |         |   |   |   |
| Weighted  average rate paid on deposits and borrowings |   | 2.32         |   | 3.70 |   |
|                                                   |   |         |   |   |   |
| Interest  rate spread                                  |   | 2.91         |   | 2.83 |   |
|                                                   |   |         |   |   |   |
| Net  interest margin                                   |   | 3.12         |   | 3.24 |   |

 

18

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Rate/Volume Analysis

 

The following tablepresents, for the periods indicated, the change in interest income and thechange in interest expense attributable to the change in interest rates and thechange in the volume of earning assets and interest-bearing liabilities.  The change attributable to both volume andrate has been allocated proportionately to the change due to volume and the changedue to rate.

 
|                                |   | **Three  Months Ended March 31,**          |       |
|-------------------------------------|--------|--------------------------------------------|------------|
|                                |   | **2003  versus 2002  Increase (decrease)** | ** ** |
| **(Dollars in thousands)**          |   | **Due to  Volume**                         |       | **Due to  Rate** | ** ** | **Total** | ** ** |
| Interest and dividend income:       |   |                                       |       |   |   |   |   |
| Loans                               |   | $                                          | (193       | ) | $ | (76 | ) | $ | (269 | ) |
| Mortgage-backed  securities         |   | 1,159                                      |       | (1,940 | ) | (781 | ) |
| Bonds  and obligations              |   | 63                                         |       | (175 | ) | (112 | ) |
| Short-term  investments             |   | 61                                         |       | (25 | ) | 36 |   |
| Total  interest and dividend income |   | 1,090                                      |       | (2,216 | ) | (1,126 | ) |
|                                |   |                                       |       |   |   |   |   |
| Interest  expense:                  |   |                                       |       |   |   |   |   |
| Total  deposits                     |   | 912                                        |       | (1,568 | ) | (656 | ) |
| Short-term  borrowings              |   | 53                                         |       | (16 | ) | 37 |   |
| Long-term  debt                     |   | (508                                       | )          | (494 | ) | (1,002 | ) |
| Total  interest expense             |   | 457                                        |       | (2,078 | ) | (1,621 | ) |
|                                |   |                                       |       |   |   |   |   |
| Net  interest income                |   | $                                          | 633        |   | $ | (138 | ) | $ | 495 |   |

 

19

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PROVISION FOR LOAN LOSSES

 

The provision for loanlosses and the level of the allowance are evaluated periodically by managementand the Board of Directors.  Theprovisions result from the Company’s internal loan review, historical loan lossexperience, trends in delinquent and non-accrual loans, known and inherent risksin the nature and volume of the loan portfolio, adverse situations which mayaffect the borrower’s ability to repay, collateral values, an estimate ofpotential loss exposure on significant credits, concentrations of credit andeconomic conditions based on facts then known.

 

While management usesavailable information to assess probable losses on loans, future additions tothe allowance may be necessary based on increases in non-performing loans,changes in economic conditions or for other reasons.  In addition, regulatory agencies and independent third partyconsultants review the adequacy of the Company’s Allowance for Loan Losses andmay require or suggest that the Company provide additions to the allowancebased on their assessment, which may differ from management’s.

 

There was no provisionfor loan losses recorded in either the first quarter of 2003 or 2002.  The absence of a provision for both periodsis generally attributable to the asset quality factors discussed above and methodologiesthat management uses to measure and evaluate the adequacy of the allowance,which include delinquency rates, charge-offs, problem or “watched” assets andanticipated losses.  Credit qualityremained strong and net charge-offs of only $20 thousand were recorded in thecurrent quarter.  See “Credit Qualityand Allowance for Loan Losses” for additional discussion of credit quality.

 

NON-INTEREST INCOME

 

Total non-interest incomeincreased $987 thousand or 29.6% for the three months ended March 31, 2003 overthe first quarter of 2002.  Customerservice fees, consisting of deposit service charges, ATM and debit card fees,remained relatively unchanged between the periods.  Income from the sale of mutual funds and annuities declinedslightly from the 2002 first quarter.  Gainson sales of mortgage loans increased by $264 thousand in the quarter endedMarch 31, 2003, a direct result of a higher volume of loans originated duringthe fourth quarter of 2002 which were sold during the first quarter of 2003.  Realized gains of $641 thousand wererecorded from the sale of investment securities with appreciated market valueduring the quarter compared to realized gains of $35 thousand recorded duringthe first quarter of 2002.

 

NON-INTEREST EXPENSE

 

Non-interest expense forthe quarter ended March 31, 2003 increased by $2.7 million or 45.1% over thecomparable 2002 quarter.  Salaries andemployee benefits increased by $1.4 million or 41.8%.  This resulted from the addition of branch and operationspersonnel in connection with the MAFN acquisition during the third quarter of2002 and continuation of higher commissions paid to loan originators and othermortgage company subsidiary incentives. Occupancy and equipment costs rose by $382 thousand or 45.9% over theprior year quarter reflecting overhead associated with the acquired MAFNbranches and costs incurred in the operation of the Company’s corporateheadquarters, first occupied in late 2002. All other non-interest expense in the 2003 quarter increased by$996  thousand over the prior year andincluded general and administrative associated with the addition of the MAFNbranches, additional volume related data processing fees, increased marketingand advertising costs, and approximately $300 thousand in legal and accountingfees associated with the revisions and re-audit of historical financialstatements.

 

PROVISION FOR INCOMETAXES

 

The Company’s effectiveincome tax rate for the quarter ended March 31, 2003 was 34.9% compared to36.4% for the quarter ended March 31, 2002.  The lower effective tax rate in comparison to statutory rates forboth periods is reflective of income earned by certain non-bank subsidiaries,which are taxed, for state tax purposes, at lower rates.  The 2003 effective tax rate was lower due toa higher portion of consolidated earnings being contributed by these non-banksubsidiaries.

 

20

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CREDIT QUALITY ANDALLOWANCE FOR LOAN LOSSES

 

The Company regularlymonitors its asset quality to determine the level of its loan loss allowancethrough periodic credit reviews by members of the Company’s Management CreditCommittee.  The Management CreditCommittee, which reports to the Loan Committee of the Board of Directors, alsoworks on the collection of non-accrual loans and disposition of real estateacquired by foreclosure.  The allowancefor possible loan losses is determined by the Management Credit Committee afterconsideration of several key factors including, without limitation, potentialrisk in the current portfolio, levels and types of non-performing assets anddelinquency, levels of potential problem loans, which generally have varyingdegrees of loan collateral and repayment issues,  and watched asset reports. Workout approach and financial conditions of borrowers are also keyconsiderations to the evaluation of non-performing loans.

 

Non-performing assetswere $2.2 million at March 31, 2003, compared with $2.0 million at December 31,2002, an increase of $168 thousand.  TheCompany’s percentage of delinquent loans to total loans was 1.36% at March 31,2003 and 1.13% at December 31, 2002. The following table presents a number of credit quality trends:

 
| **(Dollars in thousands)**                         |   | **March 31,  2003** | ** ** | **December  31,  2002** | ** ** | **March 31,  2002** | ** ** |
|----------------------------------------------------|--------|---------------------|------------|-------------------------|------------|---------------------|------------|
| Non-performing  loans                              |   | $                   | 2,199      |                    | $          | 2,031               |       | $ | 3,862 |   |
| Allowance  for loan losses to non-performing loans |   | 190.6               | %          | 207.4                   | %          | 146.1               | %          |
| Non-performing  assets to total assets             |   | 0.22                | %          | 0.22                    | %          | 0.45                | %          |
| Allowance  for loan losses to total loans          |   | 1.01                | %          | 1.06                    | %          | 1.52                | %          |
|                                                    |        |                     |            |                         |            |                     |            |  |  |  |

 

Non-performing loans areprimarily comprised of loans that are more than 90 days past due and stillaccruing interest and non-accrual loans. Non-performing assets are comprised of non-performing loans and OtherReal Estate Owned (OREO) acquired as a result of foreclosure.

 

The Company maintains itsallowance for loan losses to absorb future charge-offs of loans within theexisting portfolio.  The reserve isincreased when a loan loss provision is recorded in the income statement.  When a loan, or portion thereof, isconsidered uncollectible, it is charged against the allowance.  Recoveries on amounts previously charged-offare added to the allowance when collected. Following is an analysis of the allowance for possible loan losses forthe three month periods ended March 31, 2003 and 2002.

 

|                                        |   | **Three  Months Ended March 31,** |       |
|---------------------------------------------|--------|-----------------------------------|------------|
| **(Dollars in thousands)**                  |   | **2003**                          | ** ** | **2002** | ** ** |
| Balance  at beginning of period             |   | $                                 | 4,212      |   | $ | 5,482 |   |
| Charge-offs                                 |   | (71                               | )          | (54 | ) |
| Recoveries  on loans previously charged-off |   | 51                                |       | 44 |   |
| Net  charge-offs                            |   | (20                               | )     | (10 | ) |
| Provision  for possible loan losses         |   | —                            |       | — |   |
| Balance  at end of period                   |   | $                                 | 4,192      |   | $ | 5,472 |   |

 

No portion of theallowance is restricted to any loan or group of loans, and the entire reserveis available to absorb future realized losses. The amount and timing of realized losses and future reserve allocationsmay vary from current estimates.  Anallocation of the allowance for loan losses to each category of loans ispresented below.

 
| **(Dollars in thousands)**       |   | **March 31,  2003** | ** ** | **December  31,  2002** | ** ** | **March 31,  2002** |
|----------------------------------|--------|---------------------|------------|-------------------------|------------|---------------------|
| Residential  real estate         |   | $                   | 771        |                    | $          | 804                 |   | $ | 817 |
| Commercial  real estate          |   | 2,247               |       | 2,008                   |       | 1,578               |
| Construction                     |   | 289                 |       | 299                     |       | 243                 |
| Other  commercial                |   | 173                 |       | 229                     |       | 2,206               |
| Consumer                         |   | 282                 |       | 356                     |       | 267                 |
| Non-specific                     |   | 430                 |       | 516                     |       | 361                 |
| Total  allowance for loan losses |   | $                   | 4,192      |                    | $          | 4,212               |   |   | 5,472 |

 

 

21

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A portion of theallowance is not allocated to any specific segment of the loan portfolio.  This non-specific allowance is maintainedfor two primary purposes:  (a) marketrisk factors, such as the effects of economic variability on the entireportfolio, and (b) unique portfolio risk factors that are inherentcharacteristics of the loan portfolio.

 

ASSET/LIABILITYMANAGEMENT AND INTEREST RATE RISK

 

The objective ofasset/liability management is to ensure that liquidity, capital and market riskare prudently managed. Asset/liability management is governed by policiesreviewed and approved annually by the Company’s Board of Directors (Board). TheBoard delegates responsibility for asset/liability management to the corporateAsset/Liability Management Committee (ALCO). ALCO sets strategic directivesthat guide the day-to-day asset/liability management activities of the Company.ALCO also reviews 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 thesensitivity of income to variations in interest rates over both short-term andlong-term time horizons. The primary objective of interest rate risk managementis to control this risk within limits approved by the Board and by ALCO. Theselimits and guidelines reflect the Company’s tolerance for interest rate risk.The Company attempts to control interest rate risk by identifying potentialexposures and developing tactical plans to address such potential exposures.The Company quantifies its interest rate risk exposures using simulation andvaluation models, as well as a more simple gap analysis. The Company manages itsinterest rate exposures by generally using on-balance sheet strategies, whichis most easily accomplished through the management of the durations and ratesensitivities 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 usessimulation analysis to measure the exposure of net interest income to changesin interest rates over a 1 to 5 year time horizon. Simulation analysis involvesprojecting future interest income and expense from the Company’s assets,liabilities, and off-balance sheet positions under various interest ratescenarios.

 

The Company’s limits oninterest rate risk specify that if interest rates were to increase or decreaseby 200 basis points over a 12 month period, estimated net interest income forthe next 12 months should decline by less than 10%. Given the unusually lowinterest rate environment at March 31, 2003, the Company assumed a 100 basispoint decline in interest rates rather than the normal 200 basis points.

 

The following tablereflects the Company’s estimated exposure, as a percentage of estimated netinterest income for the next 12 months, based upon the Company’s currentmethodology:

 

| **Rate Change  (Basis Points)** |   | **Estimated  Exposure as a  % of Net Interest Income** | ** ** |
|---------------------------------|--------|--------------------------------------------------------|------------|
| +200                            |   | (0.59                                                  | )%         |
| -100                            |   | (0.71                                                  | )%         |

 

22

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

 

The Company’s policy isto match, as well as possible, the interest rate sensitivities of its assetsand liabilities.  Generally, residentialmortgage loans originated by the Company are sold in the secondary market.  Residential mortgage loans that the Companycurrently originates, from time to time, or purchases for the Company’s ownportfolio are primarily 1-year, 3-year, 5-year and 7-year adjustable ratemortgages and shorter term (generally 15-year or seasoned 30-year) fixed ratemortgages.

 

The Company alsoemphasizes loans with terms to maturity or repricing of five years or less,such as certain commercial mortgages, business loans, residential constructionloans and home equity loans.

 

Management desires toexpand its interest earning asset base in future periods primarily throughgrowth in the Company’s loan portfolio. The Company intends to continue to be competitive in the residentialmortgage market but plans to place greater emphasis on the origination of homeequity and commercial loans.  TheCompany also expects to become more active in pursuing wholesale opportunitiesto purchase loans.  During the firstthree months of 2003, the Company acquired approximately $47.7 million ofresidential first mortgages which are serviced by others.  No such purchases were made during the firstquarter of 2002.

 

The Company has also usedmortgage-backed investments (typically with weighted average lives of five toseven years) as a vehicle for fixed and adjustable rate investments and as anoverall asset/liability tool. These securities have been highly liquid givencurrent levels of prepayments in the underlying mortgage pools and, as aresult, have provided the Company with greater reinvestment flexibility.

 

Management believes thecurrent interest rate environment is at the lower end of the interest ratecycle.  As a result, management has beenvery selective in the types and terms of loans and investments that are addedto the Company’s balance sheet.  TheCompany continues to purchase investment securities of shorter duration inorder to position the Company in a more favorable environment as rateseventually rise.

 

During the first threemonths of 2003, the Company continued to experience high levels of prepaymentactivity in its mortgage-related assets (residential mortgages andmortgage-backed securities) which comprise approximately 85.4% of the Company’sbalance sheet as of March 31, 2003. To the extent these prepayment levels continue, the Company’s netinterest spread will be negatively affected.

 

The volume of liquidassets and the mix of its investments may vary, depending upon management’sjudgment as to market trends, the quality of specific investment opportunitiesand the relative attractiveness of their maturities and yields.  Management continues to aggressively promotethe Company’s core deposit products, particularly checking and NOWaccounts.  The success of this promotionhas favorably impacted the overall deposit growth to date, despite interestrate and general market pressures, and has helped the Company to increase itscustomer base.  However, given thehistorically low long-term economic interest rates, the Company and many of itspeers have begun to see lower levels of growth in time deposits as compared toprior years as customers reflect their desire to remain liquid from currentmarket conditions.

 

Management believes thatthe markets for future time deposit growth, particularly with terms of 1 to 2years, will remain highly competitive. Management will continue to evaluatefuture funding strategies and alternatives and to continue its focus onattracting core, retail deposit relationships.

 

The Company is avoluntary member of the Federal Home Loan Bank of Boston (“FHLBB”).  The available borrowing capacity from theFHLBB affords options to the Company in managing its asset/liability growth,since it may be advantageous to borrow money from the FHLBB than to raise moneythrough non-core deposits (i.e. certificates of deposit).  Borrowed funds at March 31, 2003 totaled$255.9 million compared to $178.0 million at December 31, 2002.  These borrowings are primarily comprised ofFHLBB advances and have primarily funded residential loan originations andpurchases as well as mortgage-backed investments and investment securities.

 

23

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In June, 1998, theCompany issued, through Abington Bancorp Capital Trust (the “Trust”), 1,265,000shares of 8.25% trust preferred securities, $10 per share liquidation value,due June 2029, but callable by the Company no earlier than June, 2003, ifcertain conditions are met.  The abilityto apply Tier 1 capital treatment, up to 25% of such capital, as well as thedeductibility of interest on the subordinated debentures for tax purposes,provided the Company with a cost effective way to raise funds and supplementregulatory capital.

 

The following table setsforth maturity and repricing information relating to interest sensitive assetsand liabilities at March 31, 2003. The balance of such accounts has beenallocated among the various periods based upon the terms and repricingintervals of the particular assets and liabilities. For example, fixed rateresidential mortgage loans and mortgage-backed securities, regardless of“available for sale” classification, are shown in the table in the time periodscorresponding to projected principal amortization computed based on theirrespective weighted average maturities and weighted average rates usingprepayment data available from the secondary mortgage market.

 

Adjustable rate loans andsecurities are allocated to the period in which the rates would be nextadjusted. The following table does not reflect partial or full prepayment ofcertain types of loans and investment securities prior to scheduled contractualmaturity. Additionally, all securities or borrowings which are callable at theoption of the issuer or lender are reflected in the following table based uponthe likelihood of call options being exercised by the issuer on certaininvestments or borrowings in a most likely interest rate environment. Sinceregular passbook savings and NOW accounts are subject to immediate withdrawal,such accounts have been included in the “Other Savings Accounts” category andare assumed to mature within six months. This table does not includenon-interest bearing deposits.

 

While this table presentsa cumulative negative gap position in the six month to five year horizon, theCompany considers its earning assets to be more sensitive to interest ratemovements than its liabilities. In general, assets are tied to increases thatare immediately impacted by interest rate movements while deposit rates aregenerally driven by market area and demand which tend to be less sensitive togeneral interest rate changes. In addition, other savings accounts and moneymarket accounts are substantially stable core deposits, although subject torate changes. A substantial core balance in these type of accounts isanticipated to be maintained over time.

 

24

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At March 31, 2003

 

 

Repricing/Maturity Interval

 
|                                                                                                 |   | **0-6 MOS** |    | **6-12 MOS** |   | **1-2 YRS** |   | **2-3 YRS** |   | **3-5 YRS** |   | **5 YRS** |   | **Total** |
|------------------------------------------------------------------------------------------------------|--------|-------------|---------|--------------|--------|-------------|--------|-------------|--------|-------------|--------|-----------|--------|-----------|
|                                                                                                 |   |        |    |         |   |        |   |        |   |        |   |      |   |      |
| Assets subject to interest rate adjustments:                                                         |   |        |    |         |   |        |   |        |   |        |   |      |   |      |
|                                                                                                 |   |        |    |         |   |        |   |        |   |        |   |      |   |      |
| Short Term  Investments                                                                              |   | $           | 511     |         | $      | —      |   | $           | — |        | $      | —    |   | $         | — |   | $ | — |   | $ | 511 |   |
|                                                                                                 |   |        |    |         |   |        |   |        |   |        |   |      |   |      |
| Bonds &  obligations                                                                             |   | 6,239       |    | —       |   | 12,232      |   | 12,631      |   | 10,039      |   | 3,804     |   | 44,945    |   |
|                                                                                                 |   |        |    |         |   |        |   |        |   |        |   |      |   |      |
| Mortgage-backed  investments                                                                         |   | —      |    | —       |   | —      |   | 201         |   | 904         |   | 465,822   |   | 466,927   |   |
|                                                                                                 |   |        |    |         |   |        |   |        |   |        |   |      |   |      |
| Mortgage loans  subject to rate review                                                               |   | 92,571      |    | 31,822       |   | 32,663      |   | 28,204      |   | 24,388      |   | —    |   | 209,648   |   |
|                                                                                                 |   |        |    |         |   |        |   |        |   |        |   |      |   |      |
| Fixed rate  mortgage loans                                                                           |   | 30,663      |    | 20,624       |   | 27,812      |   | 19,026      |   | 29,158      |   | 33,064    |   | 160,347   |   |
|                                                                                                 |   |        |    |         |   |        |   |        |   |        |   |      |   |      |
| Commercial &  Other                                                                              |   | 29,534      |    | 3,401        |   | 3,440       |   | 2,555       |   | 2,135       |   | 4,487     |   | 45,552    |   |
|                                                                                                 |   |        |    |         |   |        |   |        |   |        |   |      |   |      |
| Total                                                                                                |   | $           | 159,518 |         | $      | 55,847      |   | $           | 76,147 |        | $      | 62,617    |   | $         | 66,624 |   | $ | 507,177 |   | $ | 927,930 |   |
|                                                                                                 |   |        |    |         |   |        |   |        |   |        |   |      |   |      |
| Liabilities subject to interest rate adjustments:                                                    |   |        |    |         |   |        |   |        |   |        |   |      |   |      |
| Money Market  deposit accounts                                                                       |   | $           | 90,019  |         | $      | —      |   | $           | — |        | $      | —    |   | $         | — |   | $ | — |   | $ | 90,019 |   |
|                                                                                                 |   |        |    |         |   |        |   |        |   |        |   |      |   |      |
| Savings  deposits-term certificates                                                                  |   | 74,428      |    | 38,560       |   | 43,498      |   | 15,190      |   | 13,631      |   | —    |   | 185,307   |   |
|                                                                                                 |   |        |    |         |   |        |   |        |   |        |   |      |   |      |
| Other savings  accounts                                                                              |   | 389,251     |    | —       |   | —      |   | —      |   | —      |   | —    |   | 389,251   |   |
|                                                                                                 |   |        |    |         |   |        |   |        |   |        |   |      |   |      |
| Borrowed funds                                                                                       |   | 104,904     |    | 37,500       |   | 20,000      |   | 12,000      |   | 6,500       |   | 74,971    |   | 255,875   |   |
|                                                                                                 |   |        |    |         |   |        |   |        |   |        |   |      |   |      |
| Total                                                                                                |   | $           | 658,602 |         | $      | 76,060      |   | $           | 63,498 |        | $      | 27,190    |   | $         | 20,131 |   | $ | 74,971 |   | $ | 920,452 |   |
|                                                                                                 |   |        |    |         |   |        |   |        |   |        |   |      |   |      |
| **Guaranteed preferred beneficial  interest in junior subordinated****debentures**                   |   | $           | —  |         | $      | —      |   | $           | — |        | $      | —    |   | $         | — |   | $ | 12,257 |   | $ | 12,257 |   |
|                                                                                                 |   |        |    |         |   |        |   |        |   |        |   |      |   |      |
| **Excess(deficiency) of rate  sensitive****assets over rate sensitive liabilities**                  |   | (499,084    | )       | (20,213      | )      | 12,649      |   | 35,427      |   | 46,493      |   | 419,949   |   | (4,779    | ) |
|                                                                                                 |   |        |    |         |   |        |   |        |   |        |   |      |   |      |
| **Cumulative excess (deficiency) of  rate****sensitive assets over rate sensitive**

**liabilities** |   | (499,084    | )       | (519,297     | )      | (506,648    | )      | (471,221    | )      | (424,728    | )      | (4,779    | )      | —    |   |
|                                                                                                 |   |        |    |         |   |        |   |        |   |        |   |      |   |      |
| **Rate sensitive assets as a  percentage of****rate sensitive liabilities (cumulative)**             |   | 24.2        | %       | 29.3         | %      | 36.5        | %      | 42.9        | %      | 49.8        | %      | 99.5      | %      |      |

** **

 

25

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LIQUIDITY AND CAPITALRESOURCES

 

Payments and prepaymentson the Company’s loan and mortgage-backed investment portfolios, sales of fixedrate residential loans, increases in deposits, borrowed funds and maturities ofvarious investments comprise the Company’s primary sources of liquidity. TheCompany is also a voluntary member of the FHLB of Boston and, as such, isentitled to borrow an amount up to the value of its qualified collateral thathas not been pledged to outside sources. Qualified collateral generallyconsists of residential first mortgage loans, securities issued, insured orguaranteed by the U.S. Government, its agencies, or government sponsoredentities, and funds on deposit at the FHLB of Boston. Short-term advances maybe used for any sound business purpose, while long-term advances may be usedonly for the purpose of providing funds to finance housing.

 

At March 31, 2003, theCompany had outstanding commitments to originate and sell residential mortgageloans in the secondary market amounting to $96.4 million.  The Company also has outstanding commitmentsto grant advances under existing home equity lines of credit amounting to $24.9million.  Unadvanced commitments underoutstanding commercial and construction loans totaled $5.3 million as March 31,2003. The Company believes it has adequate sources of liquidity to fund thesecommitments.

 

The Company’s totalstockholders’ equity was $59.4 million or 5.94% of total assets at March 31,2003, compared with $57.8 million or 6.4% of total assets at December 31,2002.  The increase in totalstockholders’ equity resulted from a combination of the issuance of stock fromstock option exercises, the net change in the unrealized gains on the marketvalue of available for sale securities, and net income of $1.2 million.

 

The Company and the Bankare subject to various regulatory capital requirements administered by theFederal Reserve and the FDIC.  Failureto meet minimum capital requirements can initiate certain mandatory – andpossibly additional discretionary - actions by the regulators that, ifundertaken, could have a direct material effect on the company’s financialstatements.  Quantitative measuresestablished by regulation to ensure capital adequacy require the Company andits banking subsidiary to maintain minimum amounts and ratios of Total and Tier1 capital to risk-weighted assets, and of Tier 1 capital to average assets (allas defined in the regulations).

 

As previously noted, theCompany issued $12,650,000 or 8.25% Trust Preferred Securities in June1998.  Under current regulatoryguidelines, trust preferred securities are allowed to represent up toapproximately 25% of the Company’s Tier 1 capital with any excess amountsavailable as Tier 2 capital. As of March 31, 2003, all of these securities wereincluded in Tier 1 capital.

 

At March 31, 2003, theCompany had a Tier 1 risk-based capital ratio of 13.29% and a total risk-basedcapital ratio of 14.29%.  The Bank had aTier 1 risk-based capital ratio of 13.75% and a Total risk-based capital ratioof 14.75%.  Also, at March 31, 2003, theCompany and the Bank had Tier 1 leverage capital ratios of 5.59% and 5.76%,respectively.  Management believes that,as of March 31, 2003, that the Company and the Bank meet all of theirrespective capital adequacy requirements.

 

CRITICAL ACCOUNTINGPOLICIES

 

We considered thedisclosure requirements of FR-60 regarding Critical Accounting Policies andFR-61 regarding liquidity and capital resources, certain trading activities andrelated party/certain other disclosures, and concluded that nothing hasmaterially changed during the quarter that would warrant further disclosureunder these releases.

 

26

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PROPOSED ACCOUNTINGPRONOUNCEMENTS

 

In April, 2003, theFinancial Accounting Standards Board issued SFAS No. 149, "Amendment ofStatement 133 on Derivative and Hedging Activities." This Statement amendsand clarifies financial accounting and reporting for derivative instruments,including certain derivative instruments embedded in other contracts and forhedging activities under SFAS No. 133. SFAS No. 149 is effective for contractsentered into or modified after June 30, 2003, except for certain contracts thatrelate to SFAS No. 133 Implementation Issues that have been effective forfiscal quarters that began prior to June 15, 2003. The Company has notcompleted an analysis to determine the potential impact of this statement, butdoes not believe that it will have a material impact on the Company's financialposition or results of operation.

 

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Item3.    Quantitative AndQualitative Disclosures About Market Risk

 

The required informationis included in Item 2, Part I, of this report under the caption, “Management’sDiscussion and Analysis of Consolidated Financial Condition and Results ofOperation – ASSET/ LIABILITY MANAGEMENT AND INTEREST RATE RISK.”

 

Item 4.    Controls and Procedures

 

In March, 2003, the Company strengthened itsaccounting function with the addition of a new corporate controller. The formercontroller was initially retained on staff. In the process of closing the books for the month of February, the newcontroller discovered some facts which led her to conclude that certainaccounting errors had been recorded by the former controller which impactedhistorical financial results.  Theerrors initially identified were related to misapplied cash payments onmortgage-backed securities(MBS), inaccurate amortization of premiums on MBS,accrued interest receivable overstatements on MBS, and suspense accountsactivity.

 

Management promptly notified the Audit Committee andits outside auditors, PricewaterhouseCoopers LLP, of the errors identified,initiated a comprehensive review of the accounting records to determine theextent and magnitude of the accounting errors, and withheld the filing of itsForm 10-K for the year ended December 31, 2002 pending the results of thisreview.  Subsequent review identified anadditional error related to interest accruals on mortgage loans, and this errorwas deemed material to the Company’s 2001 financial statements as well as tothe first three quarters of 2002.  As aresult, the Company engaged PricewaterhouseCoopers LLP (which had replacedArthur Andersen LLP as the Company’s independent auditor in mid-2002) toundertake a re-audit of the year ended December 31, 2001.

 

The Company’s management believes that PricewaterhouseCoopersLLP will conclude that certain material weaknesses existed for the year endedDecember 31, 2002 under standards established by the American Institute ofCertified Public Accountants (“AICPA”) with regard to the effectiveness of theCompany’s internal control environment.

 

Following the discovery of these accounting errors,the Company initiated a number of improvements in its disclosure controls andprocedures as well as its internal controls. Most of these improvements were designed to reduce the opportunity forhuman error, which was the primary cause of each of the identified errors. Forexample, management has implemented several changes in the process of recordingtransactions and related recordkeeping in those areas where the errors occurred,including: (a) automation of investment portfolio accounting (previouslyprocessed on a manual basis), (b) improved reconcilement procedures and yieldanalyses, (c) the utilization of third party resources and advisory servicesand, (d) additional training and oversight of personnel within the accountingdivision.  In addition, the Company hasretained the services of a new Chief Financial Officer and has furthersupplemented its accounting staff with the addition of a senior accountingofficer.  Both of these individuals havesignificant experience in bank accounting matters and internal controls.

 

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

 

Since the date of the evaluation described in thepreceding paragraph, there have been no significant changes in the Company’sinternal accounting controls or in other factors that could significantlyaffect those controls.  Before the mostrecent evaluation was conducted, however, the Company did make changes toimprove its internal accounting controls, as discussed above.

 

Disclosure controls and procedures are our controlsand other procedures that are designed to ensure that information required tobe disclosed by us in the reports that we file or submit under the Exchange Actis recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controlsand procedures designed to ensure that information required to be disclosed byus in the reports that we file under the Exchange Act is accumulated andcommunicated to our management, including our Chief Executive Officer and ChiefFinancial Officer.

 

PartII.    Other Information

 

Item1.    Legal Proceedings.

 

The Company is adefendant in various legal matters, none of which is believed by management tobe material to the consolidated financial statements.

 

Item 2.    Changes inSecurities.

 

(a) Not applicable.

(b) Not applicable.

(c) Not applicable.

(d) Not applicable.

 
| Item 3. |   | Defaults Upon Senior Securities.                                                                                                                                                                                     |
|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                 |
|    |   | None.                                                                                                                                                                                                                |
|    |   |                                                                                                                                                                                                                 |
| Item 4. |   | Submission of Matters to a Vote of Security Holders.                                                                                                                                                                 |
|    |   |                                                                                                                                                                                                                 |
|    |   | None                                                                                                                                                                                                                 |
|    |   |                                                                                                                                                                                                                 |
| Item 5. |   | Other Information.                                                                                                                                                                                                   |
|    |   | Certification under  Sarbanes-Oxley Act                                                                                                                                                                              |
|    |   |                                                                                                                                                                                                                 |
|    |   | The Company’s chief  executive officer and chief financial officer have furnished to the SEC the  certification with respect to this Report that is required by Section 906 of  the Sarbanes-Oxley Act of 2002. |
|    |   |                                                                                                                                                                                                                 |
| Item 6. |   | Exhibits and Reports on Form 8-K                                                                                                                                                                                     |
|    | 2.1    |                                                                                                                                                                                                                 | Plan of Reorganization  and Acquisition dated as of October 15, 1996 between the Company and Abington  Savings Bank incorporated by reference to the Registration Statement on Form  8-A, effective January 13, 1997. |
|    |   |                                                                                                                                                                                                                 |   |
|    | 2.2    |                                                                                                                                                                                                                 | Amended and Restated  Agreement and Plan of Merger dated as of April 10, 2002 and Amended and  Restated on May 23, 2002 (as of April 10, 2002) among the Company,  Abington Acquisition |
|         |        |                                                                                                                                                                                                                      |  |  |  |  |

 

28

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|   |   | Corp., and  Massachusetts Fincorp, Inc., incorporated by reference to the Company’s S-4  filed on May 31, 2001.                                                                                                                                                                                                                                |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 3.1    |   | Articles of  Organization of the Company incorporated by reference to the Company’s  Registration Statement on Form 8-A, effective January 13, 1997.                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 3.2    |   | By-Laws of the Company,  incorporated by reference to the Company’s quarterly report on Form 10-Q for  the first quarter of 2000, filed on May 12, 2000.                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 4.1    |   | Specimen stock  certificate for the Company’s Common Stock incorporated by reference to the  Company’s Registration Statement on Form 8-A, effective January 31, 1997.                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 4.2    |   | Form of Indenture  between Abington Bancorp, Inc. and State Street Bank and Trust Company  incorporated by reference to Exhibit 4.1 of the Registration Statement on  Form S-2 of the Company and Abington Bancorp Capital Trust, filed on May 12,  1998.                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 4.3    |   | Form of Junior  Subordinated Debenture incorporated by reference to Exhibit 4.2 of the  Registration Statement on Form S-2 of the Company and Abington Bancorp  Capital Trust, filed on May 12, 1998.                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 4.4    |   | Form of Amended and  Restated Trust Agreement by and among the Company, State Street Bank and  Trust Company, Wilmington Trust Company and the Administrative Trustees of  the Trust incorporated by reference to Exhibit 4.4 of the Registration  Statement on Form S-2 of the Company and Abington Bancorp Capital Trust,  filed on May 12, 1998. |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 4.5    |   | Form of Preferred  Securities Guarantee Agreement by and between the Company and State Street  Bank and Trust Company incorporated by reference to Exhibit 4.6 of the  Registration Statement on Form S-2 of the Company and Abington Bancorp  Capital Trust, filed on May 12, 1998.                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| *10.27 |   | Special  Termination Agreement dated as of April 24, 2003 by and between the Bank and  W. Cleveland Cogswell, filed herewith.                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 99.1   |   | Certification  required by Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.                                                                                                                                                                                                                                                           |

 

----

* Management contract orcompensatory plan or arrangement

 

(b) Reports on Form 8-K.

 

January 28, 2003 –related to fourth quarter and year ended December 31, 2002 earnings release

January 28, 2003 –related to stock purchase plans for ESOP and charitable foundation

April 2, 2003 – relatedto Form 12b-25 to extend filing of 2002 Annual Report on Form 10-K

April 4, 2003 – relatedto announcement of a quarterly dividend payment

April 9, 2003 – relatedto restatement of 2002 and 2001 financial statements and appointment of newChief Financial Officer

 

29

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Company has dulycaused this report to be signed on its behalf by the undersiged thereunto dulyauthorized.

 
|                     | ABINGTON  BANCORP, INC. |                                   |
|--------------------------|-------------------------|----------------------------------------|
|                     | (Company)               |                                   |
|                     |                    |                                   |
|                     |                    |                                   |
| Date: May 15, 2003       | By:                     | /s/ James P. McDonough                 |   |
|                     |                    | James  P. McDonough                    |
|                     |                    | President  and Chief Executive Officer |
|                     |                    |                                   |
|                     |                    |                                   |
| Date:  May 15, 2003 | By:                     | /s/ James K. Hunt                      |   |
|                     |                    | James  K. Hunt                         |
|                     |                    | Treasurer  and Chief Financial Officer |
|                     |                    | (Principal  Financial Officer)         |
|                          |                         |                                        |  |  |

 

30

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**CERTIFICATIONS**

 

I,James P. McDonough, certify that:

 
| 1.     |   | I  have reviewed this quarterly report on Form 10-Q of Abington Bancorp, Inc.;                                                                                                                                                                                                                                                                                                                      |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.     |   | Based  on my knowledge, this quarterly report does not contain any untrue statement  of a material fact or omit to state a material fact necessary to make the  statements made, in light of the circumstances under which such statements  were made, not misleading with respect to the period covered by this  quarterly report;                                                                 |
| 3.     |   | Based  on my knowledge, the financial statements, and other financial information  included in this quarterly report, fairly present in all material respects  the financial condition, results of operations and cash flows of the  registrant as of, and for, the periods presented in this quarterly report;                                                                                     |
| 4.     |   | The  registrant’s other certifying officers and I are responsible for establishing  and maintaining disclosure controls and procedures (as defined in Exchange  Act Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                                                                                   |
|   | a)     | designed  such disclosure controls and procedures to ensure that material information  relating to the registrant, including its consolidated subsidiaries, is made  known to us by others within those entities, particularly during the period  in which this quarterly report is being prepared;                                                                                                 |
|   | b)     | evaluated  the effectiveness of the registrant’s disclosure controls and procedures as  of a date within 90 days prior to the filing date of this quarterly report  (the “Evaluation Date”); and                                                                                                                                                                                     |
|   | c)     | presented  in this quarterly report our conclusions about the effectiveness of the  disclosure controls and procedures based on our evaluation as of the  Evaluation Date;                                                                                                                                                                                                                          |
| 5.     |   | The  registrant’s other certifying officers and I have disclosed, based on our  most recent evaluation, to the registrant’s auditors and the audit committee  of registrant’s board of directors (or persons performing the equivalent  function):                                                                                                                                   |
|   | a)     | all  significant deficiencies in the design or operation of internal controls  which could adversely affect the registrant’s ability to record, process,  summarize and report financial data and have identified for the registrant’s  auditors any material weaknesses in internal controls; and                                                                                        |
|   | b)     | any  fraud, whether or not material, that involves management or other employees  who have a significant role in the registrant’s internal controls; and                                                                                                                                                                                                                                       |
| 6.     |   | The  registrant’s other certifying officers and I have indicated in this quarterly  report whether or not there were significant changes in internal controls or  in other factors that could significantly affect internal controls subsequent  to the date of our most recent evaluation, including any corrective actions  with regard to significant deficiencies and material weaknesses. |
|        |        |                                                                                                                                                                                                                                                                                                                                                                                                     |  |  |

 
| Date:  May 15,  2003 | By:    | /s/ James P. McDonough                            |   |
|---------------------------|--------|---------------------------------------------------|--------|
|                      |   |   James P. McDonough                    |
|                      |   |   President and Chief Executive Officer |

 

31

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I,James K. Hunt, certify that:

 
| 1.     |   | I  have reviewed this quarterly report on Form 10-Q of Abington Bancorp;                                                                                                                                                                                                                                                                                                                            |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.     |   | Based  on my knowledge, this quarterly report does not contain any untrue statement  of a material fact or omit to state a material fact necessary to make the  statements made, in light of the circumstances under which such statements  were made, not misleading with respect to the period covered by this  quarterly report;                                                                 |
| 3.     |   | Based  on my knowledge, the financial statements, and other financial information  included in this quarterly report, fairly present in all material respects  the financial condition, results of operations and cash flows of the  registrant as of, and for, the periods presented in this quarterly report;                                                                                     |
| 4.     |   | The  registrant’s other certifying officers and I are responsible for establishing  and maintaining disclosure controls and procedures (as defined in Exchange  Act Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                                                                                   |
|   | a)     | designed  such disclosure controls and procedures to ensure that material information  relating to the registrant, including its consolidated subsidiaries, is made  known to us by others within those entities, particularly during the period  in which this quarterly report is being prepared;                                                                                                 |
|   | b)     | evaluated  the effectiveness of the registrant’s disclosure controls and procedures as  of a date within 90 days prior to the filing date of this quarterly report  (the “Evaluation Date”); and                                                                                                                                                                                     |
|   | c)     | presented  in this quarterly report our conclusions about the effectiveness of the  disclosure controls and procedures based on our evaluation as of the  Evaluation Date;                                                                                                                                                                                                                          |
| 5.     |   | The  registrant’s other certifying officers and I have disclosed, based on our  most recent evaluation, to the registrant’s auditors and the audit committee  of registrant’s board of directors (or persons performing the equivalent  function):                                                                                                                                   |
|   | a)     | all  significant deficiencies in the design or operation of internal controls  which could adversely affect the registrant’s ability to record, process,  summarize and report financial data and have identified for the registrant’s  auditors any material weaknesses in internal controls; and                                                                                        |
|   | b)     | any  fraud, whether or not material, that involves management or other employees  who have a significant role in the registrant’s internal controls; and                                                                                                                                                                                                                                       |
| 6.     |   | The  registrant’s other certifying officers and I have indicated in this quarterly  report whether or not there were significant changes in internal controls or  in other factors that could significantly affect internal controls subsequent  to the date of our most recent evaluation, including any corrective actions  with regard to significant deficiencies and material weaknesses. |
|        |        |                                                                                                                                                                                                                                                                                                                                                                                                     |  |  |

 
| Date:  May 15, 2003 | By:    | /s/ James K. Hunt                       |   |
|--------------------------|--------|-----------------------------------------|--------|
|                     |   | James K. Hunt                           |
|                     |   | Chief  Financial Officer  and Treasurer |

 

32

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