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**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D. C. 20549**

 

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**FORM 10-Q**

 

**QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES**

**EXCHANGE ACT OF 1934 for Quarter Ended June 30, 2002**

 

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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.  Identification No.) |
|                                                             |   |                              |
| **536  Washington Street, Abington, Massachusetts**              |   | **02351**                         |
| (Address of principal  executive offices)                        |   | (Zip Code)                        |
|                                                             |   |                              |
| Registrant’s telephone  number, including area code         |   | **(781) 982-3200**                |

 

Indicate by checkmark whether 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 thenumber of shares outstanding of each of the Registrant’s classes of commonstock, as of the latest practicable date: 3,199,352 shares as of August 6,2002.

 

 

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Certain statements inthis Form 10–Q constitute “forward–looking statements” within themeaning of Section 27A of the Securities Act and Section 21E of the ExchangeAct. Further, any statements contained in this Form 10–Q that are notstatements 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 that may beforward–looking statements. Forward–looking statements involvecertain risks and uncertainties, and actual results may differ materially fromthose contemplated by such statements. For example, actual results may beadversely affected by the following possibilities: (1) competitive pressureamong depository institutions may increase; (2) changes in interest rates mayreduce banking interest margins; (3) general economic conditions and realestate values may be less favorable than contemplated; and (4) adverselegislation or regulatory requirements may be adopted.  Many of such factors are beyond theCompany’s ability to control or predict. Readers of this Form 10–Q are accordinglycautioned not to place undue reliance on forward–looking statements. TheCompany disclaims any intent or obligation to update publicly any of theforward–looking statements herein, whether in response to newinformation, future events or otherwise. 

 

2

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**ABINGTONBANCORP, INC.**

**FORM10-Q**

 

**INDEX**

 
| Part I  Financial Information                                         |
|----------------------------------------------------------------------------|
|                                                                       |
| Item 1.  Financial Statements                                         |
|                                                                       |   |
|                                                                       | Consolidated Balance  Sheets as of June 30, 2002 |
|                                                                       | (Unaudited) and December  31, 2001 |
|                                                                       |   |
|                                                                       | Consolidated  Statements of Operations (Unaudited) for the Three and |
|                                                                       | Six Months Ended  June 30, 2002 and 2001 |
|                                                                       |   |
|                                                                       | Consolidated  Statements of Changes in Stockholders’ |
|                                                                       | Equity  (Unaudited) for the Six Months Ended June 30, 2002 and 2001 |
|                                                                       |   |
|                                                                       | Consolidated  Statements of Comprehensive Income (Unaudited) for the |
|                                                                       | Three  and Six Months Ended June 30, 2002 and 2001 |
|                                                                       |   |
|                                                                       | Consolidated  Statements of Cash Flows (Unaudited) |
|                                                                       | for the Six  Months Ended June 30, 2002 and 2001 |
|                                                                       |   |
|                                                                       | 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                                                             |

 

3

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ABINGTON BANCORP, INC.

 

CONSOLIDATED BALANCE SHEETS

 
|                                                                                                                              |   | **June 30,  2002** |    | **December 31,  2001** |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|------------------------|--------|
|                                                                                                                              |   | **(Unaudited)**    |    |
|                                                                                                                              |   | **(In Thousands)** |    |
| ASSETS                                                                                                                            |   |               |    |                   |   |
| Cash  and due from banks                                                                                                          |   | $                  | 31,886  |                   | $      | 21,706 |   |
| Short-term  investments                                                                                                           |   | 435                |    | 32,870                 |   |
| Total  cash and cash equivalents                                                                                                  |   | 32,321             |    | 54,576                 |   |
|                                                                                                                              |   |               |    |                   |   |
| Loans  held for sale                                                                                                              |   | 9,733              |    | 22,705                 |   |
| Securities  available for sale - at market value                                                                                  |   | 380,064            |    | 277,627                |   |
| Loans                                                                                                                             |   | 347,329            |    | 386,329                |   |
| Less:                                                                                                                             |   |               |    |                   |   |
| Allowance  for possible loan loss                                                                                                 |   | (5,403             | )       | (5,482                 | )      |
| Loans,  net                                                                                                                       |   | 341,926            |    | 380,847                |   |
|                                                                                                                              |   |               |    |                   |   |
| Federal  Home Loan Bank stock, at cost                                                                                            |   | 12,910             |    | 12,910                 |   |
| Banking  premises and equipment, net .                                                                                            |   | 8,621              |    | 8,784                  |   |
| Other  real estate owned, net                                                                                                     |   | —             |    | —                 |   |
| Intangible  assets                                                                                                                |   | 2,151              |    | 2,259                  |   |
| Bank-owned  life insurance - contract value                                                                                       |   | 3,774              |    | 3,678                  |   |
| Deferred  tax asset, net                                                                                                          |   | —             |    | 393                    |   |
| Other  assets                                                                                                                     |   | 6,991              |    | 6,339                  |   |
|                                                                                                                              |   | $                  | 798,491 |                   | $      | 770,118 |   |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                                        |   |               |    |                   |   |
| Deposits                                                                                                                          |   | $                  | 551,384 |                   | $      | 497,459 |   |
| Short-term  borrowings                                                                                                            |   | 9,263              |    | 8,049                  |   |
| Long-term  debt                                                                                                                   |   | 174,500            |    | 193,500                |   |
| Accrued  taxes and expenses                                                                                                       |   | 4,846              |    | 4,100                  |   |
| Other  liabilities                                                                                                                |   | 1,176              |    | 15,696                 |   |
| Total  liabilities                                                                                                                |   | $                  | 741,169 |                   | $      | 718,804 |   |
| Guaranteed  preferred beneficial interest in the Company’s junior subordinated debentures                                    |   | 12,200             |    | 12,163                 |   |
|                                                                                                                              |   |               |    |                   |   |
| Commitments  and contingencies                                                                                                    |   |               |    |                   |   |
| Stockholders’  equity:                                                                                                       |   |               |    |                   |   |
| Serial  preferred stock, $.10 par value, 3,000,000 shares authorized; none issued                                                 |   | —             |    | —                 |   |
| Common  stock, $.10 par value 12,000,000 shares authorized; 4,997,000 and 4,925,000  shares issued in 2002 and 2001, respectively |   | 500                |    | 492                    |   |
| Additional  paid-in capital                                                                                                       |   | 23,358             |    | 23,081                 |   |
| Retained  earnings                                                                                                                |   | 34,451             |    | 31,403                 |   |
|                                                                                                                              |   | 58,309             |    | 54,976                 |   |
|                                                                                                                              |   |               |    |                   |   |
| Treasury  stock 1,807,000 shares in 2002 and 2001, at cost                                                                        |   | (17,584            | )       | (17,584                | )      |
| Compensation  plans                                                                                                               |   | 120                |    | 120                    |   |
| Other  accumulated comprehensive income -                                                                                         |   |               |    |                   |   |
| Net  unrealized gain on available for sale securities, net of taxes                                                               |   | 4,277              |    | 1,639                  |   |
| Total  stockholders’ equity                                                                                                  |   | 45,122             |    | 39,151                 |   |
|                                                                                                                              |   | $                  | 798,491 |                   | $      | 770,118 |   |

 

See accompanying notes to unaudited consolidatedfinancial statements

 

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ABINGTONBANCORP, INC.

 

CONSOLIDATEDSTATEMENTS of OPERATIONS

(UNAUDITED)

 
|                                                                                                |                                 | **Three Months Ended  June 30**           |   | **Six Months Ended  June 30** |   |
|-----------------------------------------------------------------------------------------------------|--------------------------------------|-------------------------------------------|--------|-------------------------------|--------|
|                                                                                                |                                 | **2002**                                  |   | **2001**                      |   | **2002** |   | **2001** |   |
|                                                                                                |                                 | **(In thousands, except per share data)** |   |
| Interest  and dividend income:                                                                      |                                 |                                      |   |                          |   |   |   |   |   |
| Interest  and fees on loans                                                                         |                                 | $                                         | 6,070  |                          | $      | 7,166 |   | $ | 12,688 |   | $ | 14,407 |   |
| Interest  on mortgage-backed investments                                                            |                                 | 5,021                                     |   | 4,102                         |   | 9,245 |   | 7,629 |   |
| Interest  on bonds and obligations                                                                  |                                 | 560                                       |   | 1,218                         |   | 1,135 |   | 2,670 |   |
| Dividend  income                                                                                    |                                 | 125                                       |   | 264                           |   | 282 |   | 556 |   |
| Interest  on short-term investments                                                                 |                                 | 128                                       |   | 16                            |   | 250 |   | 30 |   |
| Total  interest and dividend income                                                                 |                                 | 11,904                                    |   | 12,766                        |   | 23,600 |   | 25,292 |   |
| Interest  expense:                                                                                  |                                 |                                      |   |                          |   |   |   |   |   |
| Interest  on deposits                                                                               |        | 2,697                                     |   | 3,788                         |   | 5,685 |   | 7,619 |   |
| Interest  on short-term borrowings                                                                  |                                 | 50                                        |   | 370                           |   | 86 |   | 892 |   |
| Interest  on long-term debt                                                                         |                                 | 3,016                                     |   | 2,906                         |   | 5,911 |   | 5,761 |   |
| Total  interest expense                                                                             |                                 | 5,763                                     |   | 7,064                         |   | 11,682 |   | 14,272 |   |
|                                                                                                |                                 |                                      |   |                          |   |   |   |   |   |
| Net  interest income                                                                                |                                 | 6,141                                     |   | 5,702                         |   | 11,918 |   | 11,020 |   |
| Provision  for possible loan losses                                                                 |                                 | (25                                       | )      | 330                           |   | (25 | ) | 330 |   |
| Net  interest income after provision for possible loan losses                                       |                                 | 6,166                                     |   | 5,372                         |   | 11,943 |   | 10,690 |   |
|                                                                                                |                                 |                                      |   |                          |   |   |   |   |   |
| Non-interest  income:                                                                               |                                 |                                      |   |                          |   |   |   |   |   |
| Loan  servicing fees                                                                                |                                 | 38                                        |   | 66                            |   | 82 |   | 144 |   |
| Customer  service fees                                                                              |                                 | 2,110                                     |   | 1,959                         |   | 4,140 |   | 3,672 |   |
| Gain  (loss) on  securities, net                                                               |                                 | 52                                        |   | (135                          | )      | 87 |   | (63 | ) |
| Gain  on sales of mortgage loans, net                                                               |                                 | 643                                       |   | 904                           |   | 1,767 |   | 1,364 |   |
| Gain  on sales and write-down ofother  real  estate owned, net                                 |                                 | —                                    |   | —-                       |   | — |   | — |   |
| Other                                                                                               |                                 | 65                                        |   | 117                           |   | 161 |   | 240 |   |
| Total  non-interest income                                                                          |                                 | 2,908                                     |   | 2,911                         |   | 6,237 |   | 5,357 |   |
|                                                                                                |                                 |                                      |   |                          |   |   |   |   |   |
| Non-interest  expense:                                                                              |                                 |                                      |   |                          |   |   |   |   |   |
| Salaries  and employee benefits                                                                     |                                 | 3,434                                     |   | 3,248                         |   | 6,585 |   | 6,307 |   |
| Occupancy  and equipment expense                                                                    |                                 | 806                                       |   | 828                           |   | 1,638 |   | 1,689 |   |
| Trust  preferred securities expense                                                                 |                                 | 280                                       |   | 280                           |   | 560 |   | 560 |   |
| Other  non-interest expenses                                                                        |                                 | 1,806                                     |   | 1,853                         |   | 3,545 |   | 3,546 |   |
| Total  non-interest expense                                                                         |                                 | 6,326                                     |   | 6,209                         |   | 12,328 |   | 12,102 |   |
| Income  before provision for income taxes and cumulative effect of change in  accounting principles |                                 | 2,748                                     |   | 2,074                         |   | 5,852 |   | 3,945 |   |
|                                                                                                |                                 |                                      |   |                          |   |   |   |   |   |
| Provision  for income taxes                                                                         |                                 | 1,030                                     |   | 741                           |   | 2,160 |   | 1,397 |   |
|                                                                                                |                                 |                                      |   |                          |   |   |   |   |   |
| Net  income before cumulative effect of change in accounting principle                              |                                 | 1,718                                     |   | 1,333                         |   | 3,692 |   | 2,548 |   |
| Cumulative  effect of change in accounting principle, net of tax of                                 |                                 | —                                    |   | —                        |   | — |   | — |   |
| Net  income                                                                                         |                                 | $                                         | 1,718  |                          | $      | 1,333 |   | $ | 3,692 |   | $ | 2,250 |   |
| Earnings  per share                                                                                 |                                 |                                      |   |                          |   |   |   |   |   |
| Basic  -                                                                                            |                                 |                                      |   |                          |   |   |   |   |   |
| Income  before cumulative effect of change in accounting principle                                  |                                 | $                                         | .54    |                          | $      | .43 |   | $ | 1.16 |   | $ | .82 |   |
| Cumulative  effect of change in accounting principle                                                |                                 | —                                    |   | —-                       |   | — |   | (.09 | ) |
| Net  Income                                                                                         |                                 | $                                         | .54    |                          | $      | .43 |   | $ | 1.16 |   | $ | .73 |   |
| Weighted  average common shares                                                                     |                                 | 3,190,000                                 |   | 3,109,000                     |   | 3,185,000 |   | 3,094,000 |   |
| Diluted  -                                                                                          |                                 |                                      |   |                          |   |   |   |   |   |
| Income  before cumulative effect of change in accounting principle                                  |                                 | $                                         | .51    |                          | $      | .41 |   | $ | 1.11 |   | $ | .79 |   |
| Cumulative  effect of change in accounting principle                                                |                                 | —                                    |   | —                        |   | — |   | (.09 | ) |
| Net  Income                                                                                         |                                 | $                                         | .51    |                          | $      | .41 |   | $ | 1.11 |   | $ | .70 |   |
| Weighted  average common shares                                                                     |                                 | 3,344,000                                 |   | 3,236,000                     |   | 3,316,000 |   | 3,222,000 |   |
| Dividends  per  share                                                                          |                                 | $                                         | .10    |                          | $      | .10 |   | $ | .20 |   | $ | .20 |   |

 

See accompanying notes to unaudited consolidated financial statements.

 

5

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**ABINGTON BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**

**(Unaudited)**

 
|                                                                        |   | **Common  Stock**  |   | **Additional  Paid-in  capital** |   | **Retained  Earnings** |   | **Treasury  Stock** |   | **Net  Unrealized  Gain  (Loss) on  Available  for Sale  Securities** |   | **Compensation  Plans** |   | **Total** |   |
|-----------------------------------------------------------------------------|--------|--------------------|--------|----------------------------------|--------|------------------------|--------|---------------------|--------|-----------------------------------------------------------------------|--------|-------------------------|--------|-----------|--------|
|                                                                        |   | **(In thousands)** |   |
| Balance at  December 31, 2001                                               |   | $                  | 492    |                             | $      | 23,081                 |   | $                   | 31,403 |                                                                  | $      | (17,584                 | )      | $         | 1,639  |   | $ | 120 |   | $ | 39,151 |   |
| Net income.                                                                 |   | —             |   | —                           |   | 3,692                  |   | —              |   | —                                                                |   | —                  |   | 3,692     |   |
| Issuance of  stock                                                          |   | 8                  |   | 277                              |   | —                 |   | —              |   | —                                                                |   | —                  |   | 285       |   |
| Increase in  unrealized gain on available for sale securities, net of taxes |   | —             |   | —                           |   | —                 |   | —              |   | 2,638                                                                 |   | —                  |   | 2,638     |   |
| Dividends declared ($.20 per share)                                         |   | —             |   | —                           |   | (644                   | )      | —              |   |                                                                  |   | —                  |   | (644      | )      |
| Balance at June 30, 2002                                                    |   | $                  | 500    |                             | $      | 23,358                 |   | $                   | 34,451 |                                                                  | $      | (17,584                 | )      | $         | 4,277  |   | $ | 120 |   | $ | 45,122 |   |
|                                                                        |   |               |   |                             |   |                   |   |                |   |                                                                  |   |                    |   |      |   |
| Balance at  December 31, 2000                                               |   | $                  | 488    |                             | $      | 22,915                 |   | $                   | 29,570 |                                                                  | $      | (17,584                 | )      | $         | (1,195 | ) | $ | 111 |   | $ | 34,305 |   |
| Net income                                                                  |   | —             |   | —                           |   | 2,250                  |   | —              |   | —                                                                |   | —                  |   | 2,250     |   |
| Issuance of  stock                                                          |   | 4                  |   | 102                              |   | —                 |   | —              |   | —                                                                |   | —                  |   | 106       |   |
| Change in  obligation related to directors deferred stock plan              |   | —             |   | —-                          |   | —                 |   | —-             |   | —                                                                |   | 6                       |   | 6         |   |
| Increase in  unrealized loss on available for sale securities, net of taxes |   | —             |   | —                           |   | —                 |   | —              |   | (384                                                                  | )      | —                  |   | (384      | )      |
| Dividends  declared ($.20 per share)                                        |   | —             |   | —                           |   | (623                   | )      | —              |   | —                                                                |   | —                  |   | (623      | )      |
|                                                                        |   |               |   |                             |   |                   |   |                |   |                                                                  |   |                    |   |      |   |
| Balance at June  30, 2001                                                   |   | $                  | 492    |                             | $      | 23,017                 |   | $                   | 31,197 |                                                                  | $      | (17,584                 | )      | $         | (1,579 | ) | $ | 117 |   | $ | 35,660 |   |

 

See accompanyingnotes to unaudited consolidated financial statements.

 

6

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ABINGTON BANCORP, INC.

CONSOLIDATED STATEMENTSOF COMPREHENSIVE INCOME

(Unaudited)

 
|                                                                                                                      |   | **Three Months Ended  June 30,** |   | **Six Months Ended  June 30,** |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|--------------------------------|--------|
|                                                                                                                      |   | **2002**                         |   | **2001**                       |   | **2002** |   | **2001** |   |
| **(Dollars in thousands)**                                                                                                |   |                             |   |                           |   |   |   |   |   |
| Net  income, as reported                                                                                                  |   | $                                | 1,718  |                           | $      | 1,333 |   | $ | 3,692 |   | $ | 2,250 |   |
| Change  in unrealized gains/(losses) on available for sale securities, net of taxes                                       |   | 5,114                            |   | (1,518                         | )      | 2,695 |   | (425 | ) |
| Less:  Reclassification adjustment for available for sale securities gains (losses)  included in net income, net of taxes |   | 34                               |   | (88                            | )      | 57 |   | (41 | ) |
|                                                                                                                      |   |                             |   |                           |   |   |   |   |   |
| Comprehensive  income (loss)                                                                                              |   | $                                | 6,798  |                           | $      | (97 | ) | $ | 6,330 |   | $ | 1,866 |   |

 

See accompanying notes to unaudited consolidated financial statements.

 

7

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ABINGTONBANCORP, INC.

 

CONSOLIDATED STATEMENTSOF CASH FLOWS

(Unaudited)

 
|                                                                                      |   | **Six Months Ended  June 30,** |   |
|-------------------------------------------------------------------------------------------|--------|--------------------------------|--------|
|                                                                                      |   | **2002**                       |   | **2001** |   |
|                                                                                      |   |                           |   |   |   |
| **(Dollars in thousands)**                                                                |   |                           |   |   |   |
|                                                                                      |   |                           |   |   |   |
| Cash  flows from operating activities:                                                    |   |                           |   |   |   |
| Net  income                                                                               |   | $                              | 3,692  |   | $ | 2,250 |   |
|                                                                                      |   |                           |   |   |   |
| Adjustments  to reconcile net income to net cash provided (used) by operating activities: |   |                           |   |   |   |
| Provision  for loan losses                                                                |   | (25                            | )      | 330 |   |
| (Gain)  loss on sales and write-down of other real estate owned, net                      |   | —                         |   | — |   |
| Amortization,  accretion and depreciation, Net                                            |   | 1,025                          |   | 734 |   |
| (Gain)  loss on sales of securities, net                                                  |   | (87                            | )      | 63 |   |
| Loans  originated for sale in the secondary market                                        |   | (95,478                        | )      | (86,731 | ) |
| Proceeds  from sales of loans                                                             |   | 110,177                        |   | 84,483 |   |
| Gain  on sales of mortgage loans, net                                                     |   | (1,767                         | )      | (1,364 | ) |
| Other,  net                                                                               |   | (15,882                        | )      | 15,785 |   |
|                                                                                      |   |                           |   |   |   |
| Net  cash provided (used) by operating activities                                         |   | 1,655                          |   | 15,550 |   |
|                                                                                      |   |                           |   |   |   |
| Cash  flows from investing activities:                                                    |   |                           |   |   |   |
| Proceeds  from sales of available for sale securities                                     |   | 17,528                         |   | 37,558 |   |
| Proceeds  from principal payments on and maturities of available for sale securities      |   | 41,920                         |   | 41,972 |   |
| Purchase  of available for sale securities                                                |   | (157,513                       | )      | (126,240 | ) |
| Loans  (originated/purchased) paid, net                                                   |   | 38,986                         |   | (19,628 | ) |
| Purchases  of FHLB stock                                                                  |   | —                         |   | — |   |
|                                                                                           |        |                                |        |  |  |  |  |

 

See accompanying notesto unaudited consolidated financial statements.

 

8

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|                                                                                             |   | **Six Months Ended  June 30,** |   |
|--------------------------------------------------------------------------------------------------|--------|--------------------------------|--------|
|                                                                                             |   | **2002**                       |   | **2001** |   |
|                                                                                             |   | **(Dollars in thousands)**     |   |
|                                                                                             |   |                           |   |   |   |
| Purchase  of banking premises and equipment and improvements to other real estate owned          |   | $                              | (605   | )  | $ | (952 | ) |
| Proceeds  from sales of other real estate owned                                                  |   | —                         |   | — |   |
|                                                                                             |   |                           |   |   |   |
| Net  cash provided by (used for) investing activities                                            |   | (59,684                        | )      | (67,290 | ) |
| Cash  flows from financing activities:                                                           |   |                           |   |   |   |
| Net  increase in deposits                                                                        |   | 53,925                         |   | 22,896 |   |
| Net  increase (decrease) in borrowings with original maturities of three months or  less         |   | 1,214                          |   | 3,564 |   |
| Proceeds  from short-term borrowings with maturities in excess of three months                   |   |                           |   |   |   |
| Principal  payments issuance of short-term borrowings with maturities in excess of three  months |   | —                         |   | (10,000 | ) |
| Proceeds  from issuance of long-term debt                                                        |   | 35,000                         |   | 70,000 |   |
| Principal  payments on long term debt                                                            |   | (54,000                        | )      | (33,067 | ) |
| Proceeds  from exercise of stock options                                                         |   | 285                            |   | 106 |   |
| Purchase  of treasury stock                                                                      |   | —                         |   | — |   |
| Cash  paid for dividends                                                                         |   | (650                           | )      | (587 | ) |
|                                                                                             |   |                           |   |   |   |
| Net  cash provided (used) by financing activities                                                |   | 35,  774                       |   | 52,912 |   |
|                                                                                             |   |                           |   |   |   |
| Net  increase (decrease) in cash and cash equivalents                                            |   | (22,255                        | )      | 1,172 |   |
| Cash  and cash equivalents at beginning of period                                                |   | 54,576                         |   | 27,609 |   |
| Cash  and cash equivalents at end of period                                                      |   | $                              | 32,321 |   | $ | 28,781 |   |
|                                                                                             |   |                           |   |   |   |
| Supplemental  cash flow information:                                                             |   |                           |   |   |   |
|                                                                                             |   |                           |   |   |   |
| Interest  paid on deposits                                                                       |   | $                              | 5,615  |   | $ | 7,619 |   |
| Interest  paid on borrowed funds                                                                 |   | 6,233                          |   | 6,718 |   |
| Income  taxes paid                                                                               |   | 2,568                          |   | 1,599 |   |
| Transfer  of loans to other real estate owned, net                                               |   | —                         |   | 355 |   |

 

See accompanying notes to unaudited consolidated financial statements.

 

9

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ABINGTON BANCORP, INC.

NOTES TO UNAUDITEDCONSOLIDATED FINANCIAL STATEMENTS

June 30,  2002

 

A)           SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

 

The consolidated financial statements include the accounts of AbingtonBancorp, Inc. (the “Company”), a Massachusetts corporation and its wholly-ownedsubsidiaries, Abington Savings Bank (the “Bank”) and Abington Bancorp CapitalTrust. The Bank also includes its wholly-owned subsidiaries Abington SecuritiesCorporation, which invests primarily in obligations of the United StatesGovernment and its agencies and equity securities;  Old Colony Mortgage Corporation, which originates and sellsresidential mortgages to investors on a servicing released basis; and Holt ParkPlace Development Corporation and Norroway Pond Development Corporation, eachtypically owning properties being marketed for sale.

 

The accompanying consolidated financial statements as of June 30, 2002and for the three and six month periods ended June 30, 2002 and 2001 have beenprepared by the Company without audit, and reflect all adjustments which, inthe opinion of management, are necessary to reflect a fair statement of theresults of the interim periods presented.

 

Certain information and footnote disclosures normally included in theannual consolidated financial statements which are prepared in accordance withaccounting principles generally accepted in the United States have beencondensed or omitted. Accordingly, the Company believes that although thedisclosures are adequate to make the information presented not misleading,these consolidated financial statements should be read in conjunction with thefootnotes contained in the Company’s consolidated financial statements as ofand for the year ended December 31, 2001, which are included in the Company’sAnnual Report on Form 10-K. Interim results are not necessarily indicative of resultsto be expected for the entire year. All significant intercompany balances andtransactions have been eliminated in consolidation.

 

B)            DIVIDENDDECLARATION

 

In June 2002, the Board of Directors of Abington Bancorp, Inc. declareda cash dividend of $.10 per share to holders of its common stock  payable on July 25, 2002 to stockholders ofrecord as of the close of business as of July 11, 2002.

 

C)            STOCKREPURCHASE PROGRAM

 

Since March 1997, the Company has repurchased 932,000 shares of itscommon stock at a total cost of $13,882,000. The stock was repurchased pursuant to three separate authorizations bythe Board of Directors — on March 27, 1997, February 24, 1998 and March 25,1999 – for management to repurchase, in each case, up to 10% of the Company’soutstanding common stock.  The Boarddelegated to the discretion of senior management the authority to determiningthe timing of the repurchases and the prices at which the stock would berepurchased.

 

10

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D)            Earningsper Share

 

The primary difference between basic and fully dilutedaverage common shares outstanding for the periods presented relates to optionsissued to officers and directors which are not anti-dilutive. The calculationof common stock equivalents for fully diluted per share computations excludesoptions which  have an exercise price inexcess of the average closing price of the Company’s stock for the periodpresented. The following table shows the computation of average common shareand common share equivalents for the purposes of earnings per sharecaculations:

 
|                                   |   | **Three Month Ended June 30,** |   | **Six Months Ended June 30,** |   |
|----------------------------------------|--------|--------------------------------|--------|-------------------------------|--------|
|                                   |   | **2002**                       |   | **2001**                      |   | **2002** |   | **2001** |   |
|                                   |   |                           |   |                          |   |   |   |   |   |
| Average  Common Shares Outstanding     |   | 3,190,000                      |   | 3,109,000                     |   | 3,185,000 |   | 3,094,000 |   |
|                                   |   |                           |   |                          |   |   |   |   |   |
| Weighted  Average Dilutive Options     |   | 154,000                        |   | 127,000                       |   | 131,000 |   | 128,000 |   |
|                                   |   |                           |   |                          |   |   |   |   |   |
| Fully  Diluted Weighted Average Shares |   | 3,344,000                      |   | 3,236,000                     |   | 3,316,000 |   | 3,222,000 |   |

 

E).           Acquisitionof Massachusetts Fincorp, Inc.

 

On April 10, 2002, the Company signed a definitiveagreement to acquire Massachusetts Fincorp, Inc.(“Fincorp”) the parent companyof Massachusetts Co-Operative Bank with three branches in the Greater Bostonarea, for $30.00 per share in cash and stock for a total purchase price of$17.3 million.  Massachusetts Fincorpstockholders will be permitted to elect to receive either shares of the Companystock or cash, subject to election and pro-ration procedures intended to ensurethat 60% of the outstanding shares of Fincorp common stock are exchanged forstock and 40% for cash.  The transactionis intended to qualify as a tax-free reorganization for federal income taxpurposes.  The Company will remain“well-capitalized” by current regulatory standards at the time the transactionis closed.

 

The transaction is subject to Regulatoryapprovals.  It is anticipated that thetransaction will be completed by late in the third quarter of 2002.

 

F)            BusinessSegments

 

 

 
| **June 30, 2002**                   |   | **Community  Banking** |    | **Mortgage  Banking** |   | **Other** |   | **Elimination** |   | **Total** |   |
|-------------------------------------|--------|------------------------|---------|-----------------------|--------|-----------|--------|-----------------|--------|-----------|--------|
|                                |   |                   |    |                  |   |      |   |            |   |      |   |
| Securities                          |   | $                      | 380,064 |                  | $      | —    |   | $               | — |      | $      | — |   | $ | 380,064 |   |
| Net  loans                          |   | 351,598                |    | 9,733                 |   | —    |   | (9,672          | )      | 351,659   |   |
| Net  assets                         |   | 799,862                |    | 12,771                |   | 53,963    |   | (68,105         | )      | 798,491   |   |
| Total  deposits                     |   | 554,864                |    | —                |   | —    |   | (3,480          | )      | 551,384   |   |
| Total  borrowings                   |   | 183,763                |    | 9,672                 |   | —    |   | (9,672          | )      | 183,763   |   |
| Total  liabilities                  |   | 743,677                |    | 10,317                |   | 327       |   | (13,152         | )      | 741,169   |   |
|                                |   |                   |    |                  |   |      |   |            |   |      |   |
| Three  months ended                 |   |                   |    |                  |   |      |   |            |   |      |   |
|                                |   |                   |    |                  |   |      |   |            |   |      |   |
| Total  interest income              |   | $                      | 11,840  |                  | $      | 122       |   | $               | 7      |      | $      | (65 | ) | $ | 11,904 |   |
| Total  interest expense             |   | 5,763                  |    | 65                    |   | —    |   | (65             | )      | 5,763     |   |
| Net  interest income                |   | 6,077                  |    | 57                    |   | 7         |   | —          |   | 6,141     |   |
| Provision  for possible loan losses |   | (25                    | )       | —                |   | —    |   | —          |   | (25       | )      |
| Total  non-interest income          |   | 2,253                  |    | 655                   |   | —    |   | —          |   | 2,908     |   |
| Total  non-interest expense         |   | 5,590                  |    | 456                   |   | 280       |   | —          |   | 6,326     |   |
| Net  income(loss)                   |   | 1,744                  |    | 154                   |   | (180      | )      | —          |   | 1,718     |   |
|                                |   |                   |    |                  |   |      |   |            |   |      |   |
| Six  months ended                   |   |                   |    |                  |   |      |   |            |   |      |   |
|                                |   |                   |    |                  |   |      |   |            |   |      |   |
| Total  interest income              |   | $                      | 23,439  |                  | $      | 329       |   | $               | 12     |      | $      | (180 | ) | $ | 23,600 |   |
| Total  interest expense             |   | 11,682                 |    | 180                   |   | —    |   | (180            | )      | 11,682    |   |
| Net  interest income                |   | 11,757                 |    | 149                   |   | 12        |   | —          |   | 11,918    |   |
| Provision  for possible loan losses |   | (25                    | )       | —                |   | —    |   | —          |   | (25       | )      |
| Total  non-interest income          |   | 10,659                 |    | 1,783                 |   | —    |   | —          |   | 6,237     |   |
| Total  non-interest expense         |   | 11,799                 |    | 1,109                 |   | 560       |   | —          |   | 12,328    |   |
| Net  Income (loss)                  |   | 3,529                  |    | 492                   |   | (329      | )      | —          |   | 3,692     |   |
|                                     |        |                        |         |                       |        |           |        |                 |        |           |        |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

11

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| **June 30, 2001:**                  |   | **Community  Banking** |    | **Mortgage  Banking** |   | **Other** |   | **Elimination** |   | **Total** |   |
|-------------------------------------|--------|------------------------|---------|-----------------------|--------|-----------|--------|-----------------|--------|-----------|--------|
|                                |   |                   |    |                  |   |      |   |            |   |      |   |
| Securities                          |   | $                      | 336,572 |                  | $      | —    |   | $               | — |      | $      | — |   | $ | 336,572 |   |
| Net  loans                          |   | 396,655                |    | 8,328                 |   | —    |   | (8,290          | )      | 396,693   |   |
| Net  assets                         |   | 801,773                |    | 10,457                |   | 50,274    |   | (6,127          | )      | 801,377   |   |
| Total  deposits                     |   | 479,241                |    | —                |   | —    |   | (1,598          | )      | 477,643   |   |
| Total  borrowings                   |   | 252,629                |    | 8,290                 |   | —    |   | 8,290           |   | 252,629   |   |
| Total  liabilities                  |   | 754,616                |    | 8,864                 |   | —    |   | 9,888           |   | 753,592   |   |
|                                |   |                   |    |                  |   |      |   |            |   |      |   |
| Three months ended                  |   |                   |    |                  |   |      |   |            |   |      |   |
|                                |   |                   |    |                  |   |      |   |            |   |      |   |
| Total  interest income              |   | $                      | 12,744  |                  | $      | 168       |   | $               | 4      |      | $      | (180 | ) | $ | 12,766 |   |
| Total  interest expense             |   | 7,083                  |    | 161                   |   | —    |   | (180            | )      | 7,064     |   |
| Net  interest income                |   | 5,691                  |    | 7                     |   | 4         |   | —          |   | 5,702     |   |
| Provision  for possible loan losses |   | 330                    |    | —                |   | —    |   | —          |   | 330       |   |
| Total  non-interest income          |   | 2,002                  |    | 909                   |   | —    |   | —          |   | 2,911     |   |
| Total  non-interest expense         |   | 5,382                  |    | 547                   |   | 280       |   | —          |   | 6,209     |   |
| Net  income (loss)                  |   | 1,306                  |    | 208                   |   | (181      | )      | —          |   | 1,333     |   |
|                                |   |                   |    |                  |   |      |   |            |   |      |   |
| Six  Months Ended                   |   |                   |    |                  |   |      |   |            |   |      |   |
|                                |   |                   |    |                  |   |      |   |            |   |      |   |
| Total  interest income              |   | $                      | 25,319  |                  | $      | 311       |   | $               | 12     |      | $      | (350 | ) | $ | 25,292 |   |
| Total  interest expense             |   | 14,322                 |    | 300                   |   | —    |   | (350            | )      | 14,272    |   |
| Net  interest income                |   | 10,997                 |    | 11                    |   | 12        |   | —          |   | 11,020    |   |
| Provision  for possible loan losses |   | 330                    |    | —                |   | —    |   | —          |   | 330       |   |
| Total  non-interest income          |   | 3,993                  |    | 1,364                 |   | —    |   | —          |   | 5,357     |   |
| Total  non-interest expense         |   | 10,586                 |    | 956                   |   | 560       |   | —          |   | 12,102    |   |
| Net  income (loss)                  |   | 2,383                  |    | 226                   |   | (361      | )      | —          |   | 2,250     |   |
|                                     |        |                        |         |                       |        |           |        |                 |        |           |        |  |  |  |  |  |  |  |  |  |  |

 

G.            PensionPlan Termination

 

As part of a program to redesign the Company’s employee retirementbenefits, the Board of Directors voted to freeze the Company’s defined benefitpension plan (the “Plan”) effective as of October 31, 2000 and to terminate thePlan effective on December 31, 2001.  Inconnection therewith, the company amended the Plan to improve the benefitformula for current employees and to permit payment of lump sums from the Plan.

 

As part of the redesign of retirement benefits effective January 2001,the Company contributes to the 401(k) of each eligible plan participant anamount equal to 3% of the employees’ W-2 compensation, regardless of whetherthe employee separately makes contribution to the 401(k) plan.

 

During the first quarter of 2002, the Company settled the remainingobligations of the terminated pension plan. This resulted in a gain on settlement of $537,000 (approximately$349,000, net of applicable taxes) which is netted against salaries andbenefits expense.

 

 

12

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

CONSOLIDATEDFINANCIAL CONDITION AND RESULTS OFOPERATIONS

 

GENERAL

 

The Company’sresults of operations depend primarily on its net interest income afterprovision for possible loan losses, its revenue from other banking services andnon–interest expenses.  TheCompany’s net interest income depends upon the net interest rate spread betweenthe yield on the Company’s loan and investment portfolios and the cost offunds, consisting primarily of interest expense on deposits and Federal HomeLoan Bank advances.  The interest ratespread is affected by the match between the maturities or repricing intervalsof the Company’s assets and liabilities, the mix and composition of interest sensitiveassets and liabilities, economic factors influencing general interest rates,loan prepayment speeds, loan demand and savings flows, as well as the effect ofcompetition for deposits and loans.  TheCompany’s net interest income is also affected by the performance of its loanportfolio, amortization or accretion of premiums or discounts on purchasedloans and mortgage—backed securities, and the level of non–earningassets.  Revenues from loan fees andother banking services depend upon the volume of new transactions and themarket level of prices for competitive products and services.  Non–interest expenses depend upon theefficiency of the Company’s internal operations and general market and economicconditions.

 

NET INTERESTINCOME

 

Net interest incomeis affected by the mix and volume of assets and liabilities, the movement andlevel of interest rates and interest spread, which is the difference betweenthe average yield received on earning assets and the average rate paid ondeposits and borrowings. The Company’s net interest rate spread was 3.26% and3.19%  for the quarter and six monthsended June 30, 2002, respectively and 3.17% and 3.12% for the quarter and sixmonths ended June 30, 2001, respectively. The interest rate spread was positively affected in the aforementionedperiod in 2002 as compared to the corresponding periods in 2001 generally dueto a steeper yield curve which has resulted in costs of funding dropping at afaster rate than available yields on earnings assets.  Please see later discussion in “Management’s Discussion andAnalysis” for more detailed explanations of the interest rate environment.

 

The level ofnonaccrual (impaired) loans and other real estate owned can have an impact onnet interest income but balances in these categories have generally beenimmaterial in 2002 and 2001.  At June30, 2002, the Company had $3,335,000 in non-accrual loans, and no other realestate owned, compared to $3,881,000 in non-accrual loans and no other realestate owned as of December 31, 2001 and $631,000 in non-accrual loans and$355,000 in other real estate owned as of June 30, 2001.

 

13

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MANAGEMENT’SDISCUSSION AND ANALYSIS

 

The table below presents the components ofinterest income and expense for the major categories of assets and liabilitiesfor the periods indicated.
|                                     |   | **Three  Months Ended  June 30** |   | **Six Months  Ended  June 30** |   |
|------------------------------------------|--------|----------------------------------|--------|--------------------------------|--------|
|                                     |   | **2002**                         |   | **2001**                       |   | **2002** |   | **2001** |   |
|                                     |   | **(In thousands)**               |   |
|                                     |   |                             |   |                           |   |   |   |   |   |
| Interest and  dividend income:           |   |                             |   |                           |   |   |   |   |   |
| Interest and  fees on loans              |   | $                                | 6,070  |                           | $      | 7,166 |   | $ | 12,688 |   | $ | 14,407 |   |
| Interest on  mortgage-backed investments |   | 5,021                            |   | 4,102                          |   | 9,245 |   | 7,629 |   |
| Interest on  bonds and obligations       |   | 560                              |   | 1,218                          |   | 1,135 |   | 2,670 |   |
| Dividend income                          |   | 125                              |   | 264                            |   | 282 |   | 556 |   |
| Interest on short-term  investments      |   | 128                              |   | 16                             |   | 250 |   | 30 |   |
| Total interest  and dividend income      |   | $                                | 11,904 |                           | $      | 12,766 |   | $ | 23,600 |   | $ | 25,292 |   |
|                                     |   |                             |   |                           |   |   |   |   |   |
| Interest  expense:                       |   |                             |   |                           |   |   |   |   |   |
| Interest on  deposits                    |   | $                                | 2,697  |                           | $      | 3,788 |   | $ | 5,685 |   | $ | 7,619 |   |
| Interest on  short-term borrowings       |   | 50                               |   | 370                            |   | 86 |   | 892 |   |
| Interest on  long-term debt              |   | 3,016                            |   | 2,960                          |   | 5,911 |   | 5,761 |   |
| Total interest  expense                  |   | 5,763                            |   | 7,064                          |   | 11,682 |   | 14,272 |   |
|                                     |   |                             |   |                           |   |   |   |   |   |
| Net interest  income                     |   | $                                | 6,141  |                           | $      | 5,702 |   | $ | 11,918 |   | $ | 11,020 |   |

 

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

 
|                                                      |   | **Three  Months Ended  June 30** |   | **Six Months  Ended  June 30** |   |
|-----------------------------------------------------------|--------|----------------------------------|--------|--------------------------------|--------|
|                                                      |   | **2002**                         |   | **2001**                       |   | **2002** |   | **2001** |   |
|                                                      |   | **(In  thousands)**              |   |
|                                                      |   |                             |   |                           |   |   |   |   |   |
| Weighted average  yield earned on:                        |   |                             |   |                           |   |   |   |   |   |
| Loans                                                     |   | 6.98                             | %      | 7.70                           | %      | 7.09 | % | 7.74 | % |
| Mortgage-backed  investments                              |   | 6.35                             |   | 6.62                           |   | 6.35 |   | 6.74 |   |
| Bonds and  obligations                                    |   | 4.80                             |   | 7.69                           |   | 4.58 |   | 7.46 |   |
| Marketable and  other equity securities                   |   | 3.27                             |   | 4.77                           |   | 3.62 |   | 5.02 |   |
| Short-term  investments                                   |   | 1.87                             |   | 4.31                           |   | 1.89 |   | 5.10 |   |
|                                                      |   |                             |   |                           |   |   |   |   |   |
| Weighted average  yield earned on interest-earning assets |   | 6.32                             |   | 7.22                           |   | 6.37 |   | 7.29 |   |
|                                                      |   |                             |   |                           |   |   |   |   |   |
| Weighted average  rate paid on:                           |   |                             |   |                           |   |   |   |   |   |
| NOW and  non-interest NOW deposits                        |   | .29                              |   | .36                            |   | .29 |   | .38 |   |
| Savings deposits                                          |   | 2.08                             |   | 2.15                           |   | 2.00 |   | 2.18 |   |
| Time deposits                                             |   | 3.82                             |   | 5.91                           |   | 4.24 |   | 5.95 |   |
| Total deposits                                            |   | 2.07                             |   | 3.23                           |   | 2.22 |   | 3.30 |   |
| Short-term  borrowings                                    |   | 2.22                             |   | 4.41                           |   | 2.10 |   | 5.13 |   |
| Long-term debt                                            |   | 5.43                             |   | 5.96                           |   | 5.50 |   | 6.14 |   |
|                                                      |   |                             |   |                           |   |   |   |   |   |
| Weighted average  rate paid on deposits and borrowings    |   | 3.06                             |   | 4.05                           |   | 3.18 |   | 4.17 |   |
|                                                      |   |                             |   |                           |   |   |   |   |   |
| Net  interest-rate spread                                 |   | 3.26                             | %      | 3.17                           | %      | 3.19 | % | 3.12 | % |

 

14

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RATE/VOLUMEANALYSIS

 

The following tables present, for the periods indicated, the change ininterest income and the change in interest expense attributable to the changein interest rates and the change in the volume of earning assets and interest–bearingliabilities. The change attributable to both volume and rate has been allocatedproportionately to the change due to volume and the change due to rate.

 
|                                |   | **Three  Months Ended June 30** |    |
|-------------------------------------|--------|---------------------------------|---------|
|                                |   | **2002**                        | **vs.** | **2001** |   |
|                                |   | **Increase  (decrease)Due to**  |    |
|                                |   | **Volume**                      |    | **Rate** |   | **Total** |   |
| Interest and  dividend income:      |   |                            |    |   |   |   |   |
| Loans                               |   | $                               | (449    | ) | $ | (647 | ) | $ | (1,096 | ) |
| Mortgage-backed  investments        |   | 1,092                           |    | (173 | ) | 919 |   |
| Bonds and  obligations              |   | (271                            | )       | (387 | ) | (658 | ) |
| Equity  securities                  |   | (69                             | )       | (70 | ) | (139 | ) |
| Short-term  investments             |   | 126                             |    | (14 | ) | 112 |   |
| Total  interest and dividend income |   | 429                             |    | (1,291 | ) | (862 | ) |
|                                |   |                            |    |   |   |   |   |
| Interest  expense:                  |   |                            |    |   |   |   |   |
| NOW deposits                        |   | 16                              |    | (22 | ) | (6 | ) |
| Savings deposits                    |   | 402                             |    | (27 | ) | 375 |   |
| Time deposits                       |   | (575                            | )       | (885 | ) | (1,460 | ) |
| Short-term  borrowings              |   | (191                            | )       | (129 | ) | (320 | ) |
| Long-term debt                      |   | 385                             |    | (275 | ) | 110 |   |
| Total interest expense              |   | 37                              |    | (1,338 | ) | (1,301 | ) |
| Net interest income                 |   | $                               | 392     |   | $ | 47 |   | $ | 439 |   |

 

15

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|                                |   | **Six Months  Ended June 30**                          |   |
|-------------------------------------|--------|--------------------------------------------------------|--------|
|                                |   | **2002  vs.       2001** |   |
|                                |   | **Increase  (decrease)  Due to**                       |   |
|                                |   | **Volume**                                             |   | **Rate** |   | **Total** |   |
|                                |   |                                                   |   |   |   |   |   |
| Interest and  dividend income:      |   |                                                   |   |   |   |   |   |
|                                |   |                                                   |   |   |   |   |   |
| Loans                               |   | $                                                      | (543   | ) | $ | (1,176 | ) | $ | (1,719 | ) |
| Mortgage-backed  investments        |   | 2,817                                                  |   | (1,201 | ) | 1,616 |   |
| Bonds and  obligations              |   | (679                                                   | )      | (856 | ) | (1,535 | ) |
| Equity securities                   |   | (141                                                   | )      | (133 | ) | (274 | ) |
| Short-term  investments             |   | 287                                                    |   | (67 | ) | 220 |   |
|                                |   |                                                   |   |   |   |   |   |
| Total interest  and dividend income |   | 1,741                                                  |   | (3,433 | ) | (1,692 | ) |
|                                |   |                                                   |   |   |   |   |   |
| Interest  expense:                  |   |                                                   |   |   |   |   |   |
| NOW deposits                        |   | 85                                                     |   | (110 | ) | (25 | ) |
| Savings deposits                    |   | 835                                                    |   | (350 | ) | 485 |   |
| Time deposits                       |   | (886                                                   | )      | (1,508 | ) | (2,394 | ) |
| Short-term  borrowings              |   | (445                                                   | )      | (351 | ) | (806 | ) |
| Long-term debt                      |   | 1,479                                                  |   | (1,329 | ) | 150 |   |
| Total interest  expense             |   | 1,058                                                  |   | (3,648 | ) | (2,590 | ) |
|                                |   |                                                   |   |   |   |   |   |
| Net interest income                 |   | $                                                      | 683    |   | $ | 215 |   | $ | 898 |   |

 

16

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COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001

 

GENERAL. Net income for the quarter ended June 30, 2002 was $1,718,000or $.51 per diluted share compared to net income of $1,333,000 or $ .41 perdiluted share in the corresponding period of 2001, a net increase of $385,000or 28.9% in net income or 24.4% in diluted earnings per share. The overallincrease in net income was mainly attributable to increases in net interestincome, customer service fees and decreases in provisions for possible loanlosses partially offset by increases in non-interest expenses and provisionsfor income taxes and decreases in gains on sales of mortgage loans.

 

INTEREST AND DIVIDEND INCOME. Interest and dividend income decreased$862,000 or 6.8% during the three month period ended June 30, 2002, as comparedto the same period in 2001. The decrease was attributable to decreases in theyield on earning assets partially offset by increases in average balance ofearning assets.  The balance of averageearning assets for the three month period ended June 30, 2002 was approximately$753,639,000 as compared to $707,043,000 for the same period in 2001, anoverall increase of $46,596,000 or 6.6%.

 

The increase in earning assets was primarily driven by increases inaverage mortgage-backed investments and short-term investments offset bydecreases in loans and investment securities (bonds and obligations), discussedbelow.  Average mortgage-backedinvestments and short-term investments were $316,448,000 and $27,400,000,respectively, for the quarter ended June 30, 2002 as compared to $248,024,000and $1,484,000 respectively, for the same period in 2001. These balances whencombined increased $94,340,000 or 37.8%. The yield on mortgage backed and short term investments decreased to6.35% and 1.87%, respectively in the three months ended June 30, 2002 ascompared to 6.62% and 4.31%, respectively, in the same period of 2001. Theseyields decreased primarily due to the declining interest rate environment whichexisted for most of 2001. From January 2001 to December 2001, the FederalReserve Bank decreased rates 475 basis points.

 

The average balance of loans decreased to $347,812,000 for the threemonths ended March 30, 2002 from $372,034,000 for the same period in 2001, adecline of $24,222,000 or 6.5%. These balances declined as a result of fewerresidential loans being purchased and/or originated for the Company’s loanportfolio in late 2001 and thus far in 2002. The yield on loans decreased to 6.98% in the second quarter of 2002 ascompared to 7.70% for the same period in 2001. This was generally due to thelower rate environment which existed for most of 2001, which impacted new loanoriginations and also loan payoffs-refinances of loans held in portfolio withhigher interest rates.

 

INTEREST EXPENSE. Interest expense for the quarter ended June 30, 2002decreased $1,301,000 or 18.4% compared to the same period in 2001, generallydue to decreases in the rates paid on deposits and borrowed funds.  The average balance of core and timedeposits rose to $369,469,000 for the second quarter of 2002 as compared to$272,496,000 for the second quarter of 2001 for an increase of 35.6%.  The average balances of total deposits rose11.1% for the three months ended June 30, 2002 as compared to the same periodin 2001.  This was due to the Company’scontinued success in attracting core deposits and also due to a shift from timedeposits to money markets (which are included in core deposits) over this sametime period.  Time deposits decreased22.9% in the second quarter of 2002 as compared to the same period in 2001, generallydue to the lower interest rate environment and customers’ desire to invest ininstruments with shorter terms such as money markets noted above.  The Company will continue to closely manageits cost of deposits by continuing to seek methods of acquiring new coredeposits and maintaining its current core deposits while prudently adding timedeposits at reasonable rates in comparison to local markets and other fundingalternatives, including borrowings.  Theaverage balances of borrowed funds remained relatively flat during the secondquarter of 2002 as compared to 2001, at $231,315,000 as compared to$228,626,000, an increase of  1.1%.  Borrowings were kept consistent as a resultof the Company’s success in attracting deposits over the past year and thefavorable rates on longer term borrowings over the past year.

 

The blended weighted average rate paid on deposits and borrowed fundswas 3.06% for the three months ended June 30, 2002 as compared to 4.05% for thesame period in 2001.  The overall weightedaverage rates paid on borrowed funds decreased to approximately 5.30% for thequarter ended June 30, 2002 from 5.73% in the second quarter of 2001.  This decrease is reflective of actions takenby the Federal Reserve Bank in 2001.  Itis anticipated, given the current rate environment, that the rates paid onborrowed funds could decline further in future quarters as borrowings arerefinanced as they reach maturity.  TheCompany will continue to evaluate the use of borrowing as an alternativefunding source for asset growth in future periods. See “Asset/LiabilityManagement” for further discussion of the competitive market for deposits andoverall strategies for uses of borrowed funds. The weighted average rates paidon deposits was 2.07% for the quarter ended June 30, 2002 as compared to 3.23%for the same period in 2001. The overall cost of deposits has decreased in thesecond quarter of 2002 generally due to the interest rate environment whichexisted in 2001.

 

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NON-INTEREST INCOME.  Totalnon-interest income decreased $3,000 or .1% in the second quarter of 2002 incomparison to the same period in 2001. Customer service fees, increased $151,000 or 7.7% to $2,110,000 for thequarter ended June 30, 2002 from $1,959,000 for 2001, primarily due to growthin deposit accounts, primarily NOW and checking account portfolios, continuedsuccess in cross selling customers, debit card activity, and sales of mutualfunds and annuities.  Loan servicingfees and gains on sales of mortgage loans were $38,000 and $644,000,respectively, for the second quarter of 2002 as compared to $66,000 and$904,000, respectively, for the same period in 2001.  Gains on sales of mortgage loans decreased $260,000 or 28.7% inthe second quarter of 2002 as compared to the same period in 2001.  While the mortgage loan environmentcontinued to be strong in the second quarter of 2002 as mortgage rates remainedlow, the volumes of loan sales were higher in the same period in 2001.  As the Company has been selling loansgenerally on a servicing released basis since 1996, the portfolio of loansserviced for others has declined which has resulted in the continued drop inloan servicing income.

 

Realized gains on securities, net, were $52,000 for the second quarterof 2002 as compared to a loss of $135,000 for 2001, for an increase of$187,000.  The results for the secondquarter of 2002 are reflective of current market conditions for bonds as wellas management’s decision to sell the remainder of its corporate bond portfolioin the second quarter of 2002.  Theresults for the second quarter of 2001 were largely influenced by declines inthe equity markets in the first half of 2001 and the losses ultimately recognizedupon sale.

 

NON-INTEREST EXPENSES. Non-interest expenses for the quarter ended June 30, 2002 increased$117,000 or 1.9% compared to the same period in 2001.  Salaries and employee benefits increased 5.7% or $186,000.  This increase was primarily the result ofthe opening of a branch office in Hanover (July 2001) ($46,000), otherincentive increases ($81,000) and increased costs for health insurance($49,000), with the remaining increase generally relating to general pay rateincreases over the past year.  Occupancyexpenses decreased $22,000 or 2.7%. This decrease was primarily related to lower levels of maintenance andrepairs to facilities, as well as lower costs associated with snow removal andutilities in the second quarter of 2002 as compared to 2001.  The decrease was offset in part due tohigher costs associated with the Hanover branch (approximately $30,000).  Other non-interest expenses, including trustpreferred expenses, also decreased $47,000 or 2.5% for the quarter ended June30, 2002 in comparison to the same period in 2001.  These results include the effect of the Company’s adoption ofSFAS No. 142, “Goodwill and Other Intangible Assets” as of January 1, 2002which resulted in approximately $86,000 less in goodwill amortization expensebeing recorded in the second quarter of 2002 as compared to 2001.  Excluding the effect of this change,non-interest expenses, including trust preferred securities expense, increased$133,000 or 6.2%.  These increasesprimarily relate to costs associated with increased volumes of accounts and transactions which have occurred overthe past year.

 

PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loanlosses for the quarters ended June 30, 2002 and 2001 were ($25,000) and$330,000, respectively.  The levels ofprovision in both periods is generally attributable to the continued strengthof asset quality factors that management uses to measure and evaluate theadequacy of loan loss reserve levels, which include delinquency rates, chargeoffs, problem or “watched” assets and anticipated losses.  At June 30, 2002, the Company’snon-performing asset and delinquency statistics were higher than a year agoprimarily due to an impaired loan relationship (telecom), which was on nonaccrual at June 30, 2002 and December 31, 2001, which totaled approximately$3.3 million.  See “Liquidity andCapital Resources” for additional discussion of credit quality statistics andtrends.  The resulting level ofallowance for possible loan loss  wasapproximately 1.50% of period end loans at June 30, 2002 as compared to 1.34%and 1.04% at December 31, and June 30, 2001, respectively.

 

PROVISION FOR INCOME TAXES. The Company’s effective income tax rate forthe quarter ended June 30, 2002 was 37.4% compared to 35.7% for the quarterended June 30, 2001. The lower effective tax rate in comparison to statutoryrates for both periods is reflective of income earned by certain non-banksubsidiaries which are taxed, for state tax purposes, at lower rates.  The 2001 effective rate was lower due to ahigher portion of the consolidated earnings being contributed by subsidiarieswhich are taxed at lower rates for state purposes.

 

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COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001

 

GENERAL. Net income for the six months ended June 30, 2002 was$3,692,000 or $1.11 per diluted share compared to net income of $2,250,000 or $..70 per diluted share in the corresponding period of 2001, a net increase of$1,442,000 or 64.1% in net income or 58.6% in diluted earnings per share. Theoverall increase in net income was mainly attributable to increases in netinterest income, customer service fees and gains on sales of mortgage loans,gain on pension settlement (presented as a net reduction in salaries andbenefits expense) and decreases in cumulative effect of change in accountingfor cost of sales incentives and provisions for possible loan losses partiallyoffset by increases in non-interest expenses and provisions for income taxes.

 

INTEREST AND DIVIDEND INCOME. Interest and dividend income decreased$1,692,000 or 6.7% during the six month period ended June 30, 2002, as comparedto the same period in 2001. The decrease was attributable to decreases in theyield on earning assets partially offset by increases in average balance ofearning assets.  The balance of averageearning assets for the six month period ended June 30, 2002 was approximately$740,659,000 as compared to $693,577,000 for the same period in 2001, anoverall increase of $47,082,000 or 6.8%.

 

The increase in earning assets was primarily driven by increases inaverage mortgage-backed investments and short-term investments offset bydecreases in loans, discussed below. Average mortgage-backed investments and short-term investments were$291,032,000 and $26,397,000, respectively for the six months ended June 30,2002 as compared to $226,219,000 and $1,176,000, respectively for the sameperiod in 2001. These balances when combined increased $90,034,000 or39.6%.  The yield on mortgage-backed andshort term investments decreased to 6.35% and 1.89%, respectively, in the sixmonths ended June 30, 2002 as compared to 6.74% and 5.10%, respectively, in thesame period of 2001. These yields decreased primarily due to the declininginterest rate environment which existed for most of 2001. From January 2001 toDecember 2001, the Federal Reserve Bank decreased rates 475 basis points.

 

The average balance of loans decreased to $358,049,000 for the sixmonths ended June 30, 2002 from $372,464,000 for the same period in 2001, adecline of $14,415,000 or 3.9%. These balances declined as a result of fewerresidential loans being purchased and/or originated for the Company’s loanportfolio in late 2001 and thus far in 2002. The yield on loans decreased to 7.09% in the first six months of 2002 ascompared to 7.74% for the same period in 2001. This was generally due to thelower rate environment which existed for most of 2001, which impacted new loanoriginations and also payoffs or increased levels of refinancings of loans with higher interest rates.

 

INTEREST EXPENSE. Interest expense for the six months ended June 30,2002 decreased $2,590,000 or 18.1% compared to the same period in 2001,generally due to decreases in the rates paid in deposits and borrowedfunds.  The average balances of coredeposits rose to $347,582,000 for the first six months of 2002 as comparedto  $264,665,000 for the same period in2001 for an increase of $82,917,000 or 31.3%. The average balances of total deposits rose 10.8% for the six monthsended June 30, 2002 as compared to the same period in 2001%.  This was due to the Company’s continuedsuccess in attracting core deposits and also due to a shift from time depositsto money market accounts (which are included in core deposits) over this sametime period.  Time deposits decreased16.9% or $33,305,000 in the first six months of 2002 as compared to the sameperiod in 2001, generally due to the lower interest rate environment andcustomers’ desire to invest in instruments with shorter terms.  The Company will continue to closely manageits cost of deposits by continuing to seek methods of acquiring new coredeposits and maintaining its current core deposits while prudently adding timedeposits at reasonable rates in comparison to local markets and other funding alternatives,including borrowings.  The averagebalances of borrowed funds remained relatively flat during the first six monthsof 2002 as compared to 2001, at $222,973,000 as compared to $222,437,000, anincrease of .2%.  Borrowings were keptconsistent as a result of the Company’s success in attracting deposits over thepast year as well as favorable rates on longer term borrowings over the pastyear.

 

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The blended weighted average rate paid on deposits and borrowed fundswas 3.18% for the six months ended June 30, 2002 as compared to 4.17% for thesame period in 2001.  The overallweighted average rates paid on borrowed funds decreased to approximately 5.38%for the six months ended June 30, 2002 from 5.98% in the same period of2001.  This decrease is reflective ofactions taken by the Federal Reserve Bank in 2001.  It is anticipated, given the current rate environment, that therates paid on borrowed funds could decline further in future quarters as borrowingsare refinanced as they reach maturity. The Company will continue to evaluate the use of borrowings as analternative funding source for asset growth in future periods. See“Asset/Liability Management” for further discussion of the competitive marketfor deposits and overall strategies for uses of borrowed funds. The weightedaverage rates paid on deposits was 2.22% for the six months ended June 30, 2002as compared to 3.30% for the same period in 2001. The overall cost of depositshas decreased in the first half of 2002 generally due to the interest ratewhich existed in 2001.

 

NON-INTEREST INCOME.  Totalnon-interest income increased $880,000 or 16.4% in the first six months of  2002 in comparison to the same period in2001.  Customer service fees, increased$468,000 or 12.7% to $4,140,000 for the six months ended June 30, 2002 from$3,672,000 for 2001 primarily due to growth in deposit accounts, primarily NOWand checking account portfolios, continued success in cross selling customers,debit card activity, and sales of mutual funds and annuities.  Loan servicing fees and gains on sales ofmortgage loans were $82,000 and $1,767,000, respectively, for the first sixmonths of 2002 from $144,000 and $1,364,000, respectively, for the comparableperiod in 2001.  Gains on sales ofmortgage loans increased $403,000 or 29.5% in the first six months of 2002 ascompared to the same period in 2001. This was generally due to a more favorable market for loan originationsand related higher volume of loans being originated and sold in the first halfof 2002 as compared to the same period in 2001.  As the Company has been selling loans generally on a servicingreleased basis since 1996, the portfolio of loans serviced for others hasdeclined which has caused the continued drop in loan servicing income.

 

Realized gains on securities, net, were $87,000 for the first sixmonths of 2002 as compared to a loss of $63,000 for 2001 for an increase of$150,000.  The results from the firstsix months of 2002 are reflective of current market conditions for bonds aswell as management’s decision to sell the remainder of its corporate bondportfolio in the second quarter of 2002. The results for 2001 were largely influenced by declines in the equitymarket in the first half of 2001 and the losses ultimately recognized uponsale.

 

NON-INTEREST EXPENSES. Non-interest expenses for the six months ended June 30, 2002 increased$226,000 or 1.9% compared to the same period in 2001.  Salaries and employee benefits increased 4.4% or $278,000 on anet basis.  This increase was actually$815,000 or 12.9% excluding the one-time favorable impact of $537,000 whichresulted from the Company’s settlement of its previously terminated pensionplan.  This increase was primarily theresult of higher commissions paid to loan originators and other mortgagecompany incentives ($298,000), the opening a new branch in Hanover (July 2001)($91,000), other incentive increases ($160,000) and general merit increasesover the past year.  Occupancy expensesdecreased $51,000 or 3.0%.  Thisdecrease was primarily related to lower levels of maintenance and repairs tofacilities, as well as lower costs associated with snow removal and utilitiesin the first six months of 2002 as compared to 2001.  The decrease was offset in part due to higher costs associatedwith the  Hanover (approximately$73,000).  Other non-interest expenses,including trust preferred expenses, also decreased $1,000 or .02% for the sixmonth ended June 30, 2002 in comparison to the same period in 2001.  These results include the effect of theCompany’s adoption of SFAS No. 142, “Goodwill and Other Intangible Assets” asof January 1, 2002 which resulted in approximately $168,000 less in goodwillamortization expense being recorded in the first six months of 2002 as comparedto 2001.  Excluding the effect of thischange, non-interest expenses, including trust preferred securities expenseincreased $167,000 or 4.1%.  These increasesprimarily relate to increased costs associated with higher volumes of accountsand transactions over the past year.

 

PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loanlosses for the six months ended June 30, 2002 and 2001 were $(25,000) and$330,000, respectively.  The provisionin the first six months of 2001 generally related to deterioration in thecondition of a single commercial credit as the economy began to soften in thelocal area.  In 2002, the creditprovision was related to achieving a better than anticipated resolution on animpaired loan and overall stability in the performance in the remainder of theloan portfolios.  At June 30, 2002, theCompany’s non-performing asset and delinquency statistics were higher than ayear ago primarily due to an impaired loan relationship (telecom), which was onnon accrual at June 30, 2002 and December 31, 2001, which totaled approximately$3.3 million.  See “Liquidity andCapital Resources” for additional discussion of credit quality statistics andtrends.  The resulting level of loanloss reserves were approximately 1.50% of period end loans at June 30,2002  compared to 1.34% and 1.04% atDecember 31, and June 30, 2001, respectively.

 

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PROVISION FOR INCOME TAXES. The Company’s effective income tax rate forsix months, June 30, 2002 was 36.4% compared to 35.0% for the six months endedJune 30, 2001. The lower effective tax rate in comparison to statutory ratesfor both periods is reflective of income earned by certain non-banksubsidiaries which are taxed, for state tax purposes, at lower rates.  The 2001 effective rate was lower due to ahigher portion of the consolidated earnings being contributed by subsidiarieswhich are taxed at lower rates for state purposes.

 

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING.  In December 2001, the Company elected to early adopt EITF 00-14-“ Accounting for Certain Sales Incentives.” This pronouncement provided additional guidance for the accounting forthe cost of incentives given to customers to open new deposit accounts with theBank.  Under this guidance the cost ofthe incentive are charged to earnings on the date the account is opened.  This varies from the previous methodologyused by the Company which was to defer this cost and amortize it to expenseover the expected life of the deposit account relationship.  The impact of the change in accounting isreflected on a net of tax basis as if it were applied at the beginning of theyear of adoption.  The cumulative effectof this change in accounting principle was to writ e-off the unamortized  portion of previously capitalized incentivesas of January 1, 2001 totaling $298,000, net of tax.  This quarterly restatement did not have a material impact on thequarterly results.  There was nocumulative effect of accounting changes in 2002.

 

ASSET/LIABILITY MANAGEMENT

The objective of asset/liability management is to ensure thatliquidity, capital and market risk are prudently managed. Asset/liabilitymanagement is governed by policies reviewed and approved annually by theCompany’s Board of Directors (Board). The Board delegates responsibility forasset/liability management to the corporate Asset/Liability ManagementCommittee (ALCO). ALCO sets strategic directives that guide the day-to-dayasset/liability management activities of the Company. ALCO also reviews andapproves all major funding, capital and market risk-management programs. ALCOis comprised of members of management and executive management of the Companyand the Bank.

 

Interest rate risk is the sensitivity of income to variations ininterest rates over both short-term and long-term time horizons. The primaryobjective of interest rate risk management is to control this risk withinlimits approved by the Board and by ALCO. These limits and guidelines reflectthe Company’s tolerance for interest rate risk. The Company attempts to controlinterest rate risk by identifying potential exposures and developing tacticalplans to address such potential exposures. The Company quantifies its interestrate risk exposures using sophisticated simulation and valuation models, aswell as a more simple gap analysis. The Company manages its interest rateexposures by generally using on-balance sheet strategies, which is most easilyaccomplished through the management of the durations and rate sensitivities ofthe Company’s investments, including mortgage-backed securities portfolios, andby extending or shortening maturities of borrowed funds. Additionally, pricingstrategies, asset sales and, in some cases, hedge strategies are also consideredin the evaluation and management of interest rate risk exposures.

 

The Company uses simulation analysis to measure the exposure of netinterest income to changes in interest rates over a 1 to 5 year time horizon.Simulation analysis involves projecting future interest income and expense fromthe Company’s assets, liabilities, and off-balance sheet positions undervarious interest rate scenarios.

 

The Company’s limits on interest rate risk specify that if interestrates were to ramp up or down 200 basis points over a 12 month period,estimated net interest income for the next 12 months should decline by lessthan 10%. The following table reflects the Company’s estimated exposure, as apercentage of estimated net interest income for the next 12 months, which doesnot materially differ from the impact on net income, on the above basis:

 
| **Rate Change********(Basis Points)** |   | **Estimated  Exposure as a % of Net Interest Income** |   |
|---------------------------------------|--------|-------------------------------------------------------|--------|
|                                  |   |                                                  |   |
| +200                                  |   | 3.7                                                   | %      |
| -200                                  |   | (1.4                                                  | )%     |

 

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

 

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The Company’s policy is to match, as well as possible, the interestrate sensitivities of its assets and liabilities.  Generally, residential mortgage loans currently originated by theCompany are sold in the secondary market. Residential mortgage loans that the Company currently originates, fromtime to time, or purchases for the Company’s own portfolio are primarily1-year, 3-year, 5-year and 7-year adjustable rate mortgages and shorter term(generally 15-year or seasoned 30-year) fixed rate mortgages.

 

The Company also emphasizes loans with terms to maturity or repricingof 5 years or less, such as certain commercial

mortgages, business loans, residential construction loans and homeequity loans.

 

Management desires to expand its interest earning asset base in futureperiods primarily through growth in the Company’s loan portfolio.  Loans comprised approximately 44.0% of theaverage interest earning assets for the first six months of 2002.  In the future, the Company intends tocontinue to be competitive in the residential mortgage market but plans toplace greater emphasis on home equity and commercial loans.  The Company also expects to become moreactive in pursuing wholesale opportunities to purchase loans.  During the first six months of 2002 and2001, the Company acquired approximately $11,000,000 and $41,000,000,respectively, of residential first mortgages which are serviced by others.

 

The Company has also used mortgage-backed investments (typically withweighted average lives of 5 to 7 years) as a vehicle for fixed and adjustablerate investments and as an overall asset/liability tool. These securities havebeen highly liquid given current levels of prepayments in the underlyingmortgage pools and, as a result, have provided the Company with greaterreinvestment flexibility.

 

Currently, management believes the current interest rate environment tobe at the lower end of the interest rate cycle.  As a result, management has been very selective in the types andterms of loans and investments that are put on the Company’s balance sheet.  As a result, the Company has shifted itsinvestment strategy during the fourth quarter of 2001 and the first six  months of 2002 toward investment securitieswith average lives closer to 2 to 4 years in order to put the Company in a morefavorable environment as rates eventually rise.  Most of the Company’s residential loan production has been soldin the secondary market as part of this strategy.

 

During the first six months of 2002, the Company continued toexperience high levels of prepayment activity in its mortgage related assets(residential mortgages and mortgage-backed securities) which compriseapproximately 72.4% of the Company’s balance sheet as of June 30, 2002.  At March 31, 2002, the Company had roughly$38.9 million in short-term or overnight investments which management used topayoff a $50,000,000 borrowing from the FHLB which had an interest rate of  7.12% at the end of the second quarter.

 

The level of the Company’s liquid assets and the mix of its investmentsmay vary, depending upon management’s judgement as to market trends, thequality of specific investment opportunities and the relative attractiveness oftheir maturities and yields.  Managementhas been aggressively promoting the Company’s core deposit products since thefirst quarter of 1995, particularly checking and NOW accounts.  The success of this program has favorablyimpacted  the overall deposit growth todate, despite interest rate and general market pressures, and has helped theCompany to increase its customer base. However, given the historically low long-term economic interest rates,the Company and many of its peers have begun to see lower levels of growth intime deposits as compared to prior years as customers reflect their desire toremain liquid from current market conditions.

 

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Management believes that the markets for future time deposit growth,particularly with terms of 1 to 2 years, will remain highly competitive.Management will continue to evaluate future funding strategies and alternativesaccordingly as well as to continue to focus its efforts on attracting core,retail deposit relationships.

 

The Company is also a voluntary member of the Federal Home Loan Bank(“FHLB”) of Boston. This borrowing capacity assists the Company in managing itsasset/liability growth because, at times, the Company considers it moreadvantageous to borrow money from the FHLB of Boston than to raise moneythrough non-core deposits (i.e., certificates of deposit).  Borrowed funds totaled $183,763,000 at June30, 2002 compared to $201,549,000 at December 31, 2001.  These borrowings are primarily comprised ofFHLB of Boston advances and have primarily funded residential loan originationsand purchases as well as mortgage-backed investments and investment securities.

 

Also, the Company obtained funding in June 1998 through the issuance ofTrust Preferred Securities which carry a higher interest rate than similar FHLBborrowings but at the same time are included as capital, without dilutingearnings per share and are tax deductible. See “Liquidity and CapitalResources” for further discussion.

 

The following table sets forth maturity and repricing informationrelating to interest sensitive assets and liabilities at June  30, 2002. The balance of such accounts hasbeen allocated 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 and securities are allocated to the period inwhich the rates would be next adjusted. The following table does not reflectpartial or full prepayment of certain types of loans and investment securitiesprior to scheduled contractual maturity. Additionally, all securities or borrowingswhich are callable at the option of the issuer or lender are reflected in thefollowing table based upon the likelihood of call options being exercised bythe issuer on certain investments or borrowings in a most likely interest rateenvironment. Since regular passbook savings and NOW accounts are subject toimmediate withdrawal, such accounts have been included in the “Other SavingsAccounts” category and are assumed to mature within 6 months. This table doesnot include non-interest bearing deposits.

 

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

 

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|                                                                                         |   | **At June 30, 2002**            |     |
|----------------------------------------------------------------------------------------------|--------|---------------------------------|----------|
|                                                                                         |   | **Repricing/Maturity Interval** |     |
|                                                                                         |   | **0-6 MOS.**                    |     | **6-12 MOS.** |   | **1-2 YRS.** |   | **2-3 YRS.** |   | **3-5 YRS** |   | **Over  5 YRS.** |   | **TOTAL** |   |
|                                                                                         |   | **(Dollars in thousands)**      |     |
| Assets subject to interest rate adjustment:                                                  |   |                            |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Short-term investments                                                                       |   | $                               | 435      |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 435 |   |
| Bonds and obligations                                                                        |   | 3,498                           |     | 2,540 |   | 38,818 |   | — |   | — |   | 35 |   | 44,891 |   |
| Mortgage-backed investments                                                                  |   | 53,280                          |     | 29,451 |   | 39,643 |   | 31,828 |   | 58,819 |   | 112,932 |   | 325,953 |   |
| Mortgage loans subject to rate review                                                        |   | 52,746                          |     | 14,730 |   | 17,823 |   | 8,429 |   | 20,222 |   | 4,666 |   | 118,616 |   |
| Fixed rate mortgage loans                                                                    |   | 55,082                          |     | 17,158 |   | 24,528 |   | 18,979 |   | 62,910 |   | 38,313 |   | 216,970 |   |
| Commercial and other loans                                                                   |   | 13,382                          |     | 2,225 |   | 1,683 |   | 1,307 |   | 2,394 |   | 485 |   | 21,476 |   |
| Total                                                                                        |   | 178,423                         |     | 66,104 |   | 122,495 |   | 60,543 |   | 144,345 |   | 156,431 |   | 778,341 |   |
|                                                                                         |   |                            |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities subject to interest rate adjustment:                                             |   |                            |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Money market deposit accounts                                                                |   | 94,775                          |     | — |   | — |   | — |   | — |   | — |   | 94,775 |   |
| Savings deposits-term certificates                                                           |   | 65,669                          |     | 41,484 |   | 15,539 |   | 14,319 |   | 9,847 |   | — |   | 146,858 |   |
| Other savings accounts                                                                       |   | 234,166                         |     | — |   | — |   | — |   | — |   | — |   | 234,166 |   |
| Borrowed funds                                                                               |   | 29,263                          |     | 25,000 |   | 45,000 |   | 5,000 |   | 5,000 |   | 74,500 |   | 183,763 |   |
| Total                                                                                        |   | 423,873                         |     | 66,484 |   | 60,539 |   | 19,319 |   | 14,847 |   | 74,500 |   | 659,562 |   |
|                                                                                         |   |                            |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Guaranteed preferred beneficial interest in junior  subordinated debentures                  |   | —                          |     | — |   | — |   | — |   | — |   | 12,200 |   | 12,200 |   |
|                                                                                         |   |                            |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Excess (deficiency) of rate sensitive assets over rate  sensitive liabilities                |   | (245,450                        | )        | (380 | ) | 61,956 |   | 41,224 |   | 129,498 |   | 69,731 |   | 56,573 |   |
|                                                                                         |   |                            |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative excess (deficiency) of rate sensitive assets  over rate sensitive liabilities (1) |   | $                               | (245,450 | ) | $ | (245,830 | ) | $ | (183,874 | ) | $ | (142,650 | ) | $ | (13,152 | ) | $ | 56,579 |   |   |   |
|                                                                                         |   |                            |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Rate sensitive assets as a percent of rate sensitive  liabilities (cumulative)               |   | 42.1                            | %        | 49.9 | % | 66.6 | % | 75.0 | % | 97.8 | % | 108.4 | % |   |   |
|                                                                                              |        |                                 |          |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

  (1)Cumulative as to the amounts previously repriced or matured.  Assets held for sale are reflected in theperiod in which sales are expected to take place.  Securities classified as available for sale are shown atrepricing/maturity intervals as if they are to be held to maturity as there isno definitive plan of disposition. They are also shown at amortized cost.

 

24

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LIQUIDITY AND CAPITAL RESOURCES

 

Payments and prepayments on the Company’s loan and mortgage-backedinvestment portfolios, sales of fixed rate residential loans, increases indeposits, borrowed funds and maturities of various investments comprise theCompany’s primary sources of liquidity. The Company is also a voluntary memberof the FHLB of Boston and, as such, is entitled to borrow an amount up to thevalue of its qualified collateral that has not been pledged to outside sources.Qualified collateral generally consists of residential first mortgage loans,securities issued, insured or guaranteed by the U.S. Government or itsagencies, 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 June 30, 2002,the Company had approximately $317,761,000 in unused borrowing capacity that iscontingent upon the purchase of additional FHLB of Boston stock. Use of thisborrowing capacity is also impacted by capital adequacy considerations.

 

The Company regularly monitors its asset quality to determine the levelof its loan loss reserves through periodic credit reviews by members of theCompany’s Management Credit Committee. The Management Credit Committee, whichreports to the Executive Committee of the Company’s Board of Directors, alsoworks on the collection of non-accrual loans and disposition of real estateacquired by foreclosure. The allowance for possible loan losses is determinedby the Management Credit Committee after consideration of several key factorsincluding, without limitation, potential risk in the current portfolio, levelsand types of non-performing assets and delinquency, levels of potential problemloans, which generally have varying degrees of loan collateral and repaymentissues, on the watched asset reports. Workout approach and financial condition of borrowers are also keyconsiderations to the evaluation of non-performing

loans.

 

Non-performing assets were $3,346,000 at June 30, 2002, compared to$3,959,000 at December 31, 2001, a decrease of $613,000 or 15.5%. The Company’spercentage of delinquent loans to total loans was 1.01% at June 30, 2002, asperforming assets and delinquent loans were adversely affected by primarily oneimpaired loan relationship (telecom) which was also on-accrual as of thosedates.  This relationship totaledapproximately $3.3 million at both June 30, 2002 and December 31, 2001.  This loan also had a portion of theallowance for loan losses specifically allocated to address potentialidentifiable loss exposures totaling $2.1 million and $1.9 million at both June30, 2002 and December 31, 2001, respectively. A table of key credit quality statistics as reported and as adjusted forthis relationship is as follows:

 
|                                                 |   | **June 30  2002** |   | **December  31  2001** |   | **June 30  2001** |   |
|------------------------------------------------------|--------|-------------------|--------|------------------------|--------|-------------------|--------|
| Non-Performing  Assets                          |   | $                 | 3,346  |                   | $      | 3,959             |   | $ | 986 |   |
| All Delinquent  Loans as a Percentage of Total Loans |   | 1.01              | %      | 1.16                   | %      | .30               | %      |
| Loan Loss  Reserve to  Non-performing loans     |   | 161.5             | %      | 138.5                  | %      | 661.8             |   |
|                                                      |        |                   |        |                        |        |                   |        |  |  |  |

 

Management believes that while delinquency rates and non-performingassets remain at relatively low levels, particularly excluding the one largeimpaired relationship noted above, these factors are at historic lows, and atsome point in the future some degree of further economic slow down is possiblewhich in turn may result in future increases in problem assets and loan lossprovisions.  Management continues tomonitor the overall economic environment and its potential effects on futurecredit quality on an ongoing basis.

 

25

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At June 30, 2002, theCompany had outstanding commitments to originate and sell residential mortgageloans in the

secondary market amounting to $27,199,000 and $9,733,000,respectively.  The Company also hasoutstanding commitments to grant advances under existing home equity lines ofcredit amounting to $21,151,000. Unadvanced commitments under outstanding commercial and construction loanstotaled $17,742,000 as of June 30, 2002. The Company believes it has adequatesources of liquidity to fund these commitments.

 

The Company's total stockholders' equity was $45,122,000 or 5.65% oftotal assets at June 30, 2002, compared with $39,151,000 or 5.1% of totalassets at December 31, 2001.  Theincrease in total stockholders' equity of approximately $5,971,000 or 15.3%primarily resulted from an increase in the unrealized gain on the market valueof available for sale securities, net of taxes and earnings offset, in part, bydividends paid or payable.

 

The Company issued $12,650,000 or 8.25% Trust Preferred Securities inJune 1998.  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 June 30, 2002, all of these securities wereincluded in Tier 1 capital.

 

Bank regulatory authorities have established a capital measurement toolcalled “Tier 1” leverage capital. A 4.00% ratio of Tier 1 capital to assets nowconstitutes the minimum capital standard for most banking organizations and a5.00% Tier 1 leverage capital ratio is required for a “well-capitalized”classification. At June 30,  2002, theCompany’s Tier 1 leverage capital ratio was approximately 6.35%. In addition,regulatory authorities have also implemented risk-based capital guidelinesrequiring a minimum ratio of Tier 1 capital to risk-weighted assets of 4.00%(6.00% for “well-capitalized”) and a minimum ratio of total capital torisk-weighted assets of 8.00% (10.00% for “well-capitalized”). At June 30,2002, the Company’s Tier 1 and total risk-based capital ratios wereapproximately 13.53% and 14.78%, respectively. The Company is categorized as “well-capitalized” under the FederalDeposit Insurance Corporation Improvement Act of 1991 (F.D.I.C.I.A.). The Bankis also categorized as “well-capitalized” as of June  30, 2002.

 

InSeptember 2000, the FASB issued SFAS No. 140, *Accounting for Transfers and Servicingof Financial Assets and Extinguishments of Liabilities.* ThisStatement replaces SFAS No. 125, *Accounting for Transfers and Servicing of FinancialAssets and Extinguishments of Liabilities,* and rescinds SFASStatement No. 127, *Deferral of the Effective Date of Certain Provisionsof FASB Statement No. 125.* SFAS No. 140 providesaccounting and reporting standards for transfers and servicing of financialassets and extinguishments of liabilities. This statement provides consistentstandards for distinguishing transfers of financial assets that are sales fromtransfers that are secured borrowings. This statement is effective fortransfers and servicing of financial assets and extinguishments of liabilitiesoccurring after March 31, 2001 and is effective for recognition andreclassification of collateral and for disclosures relating to securitizationtransactions and collateral for fiscal years ending after December 15,2000. The adoption of SFAS No. 140 did not have a material impact on theCompany’s consolidated financial position or results or operations.

 

CRITICAL ACCOUNTING POLICIES

 

We considered the disclosure requirements of FR-60 regarding CriticalAccounting Policies and FR-61 regarding liquidity and capital resources,certain trading activities and related party/certain other disclosures, andconcluded that nothing materially changed during the quarter that would warrantfurther disclosure under these releases.

 

PROPOSED ACCOUNTING PRONOUNCEMENTS

 

None.

 

26

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ITEM 3.  QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

See “Management’s Discussion and Analysis - Asset/LiabilityManagement.”

 

Part II. OTHERINFORMATION

 

Item 1.    Legal Proceedings.

 

The Company is a defendant in various legal matters, none of which isbelieved by management to be material to the consolidated financial statements.

 

Item 2.    Changesin Securities.

 

(a) Not applicable.

(b) Not applicable.

(c) Not applicable.

(d) Not applicable.

 

Item 3.    DefaultsUpon Senior Securities.

 

None.

 

Item 4. Submission of Matters to a Vote of Security Holders.

 

None

 

Item 5.   Other Information.

Certification underSarbanes-Oxley Act

 

Our chief executiveofficer and chief financial officer have furnished to the SEC the certification

with respect to this Report that is required bySection 906 of the Sarbanes-Oxley Act of 2002.

** **

**ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K**

 

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 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.                                                    |

 

27

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| 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.                                                                                                                                                                                                                                                                                                                 |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| *10.1(a) | Amended and Restated Special Termination Agreement  dated as of January 1997 among the Company, the Bank and James P. McDonough  incorporated by reference to the Company’s Annual  Report on Form 10-K for the year ended December 31, 1996 filed  on March 31, 1997.                                                                                                                                                                                                                                                                                                                    |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|     | *(b) Amendment to Amended and Restated Special  Termination Agreement, dated as of July 1, 1997 among the Company, the Bank  and James P. McDonough, incorporated by reference to the Company’s quarterly  report on Form 10-Q for the second quarter of 1997, filed on August 13, 1997.                                                                                                                                                                                                                                                                                                       |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| *10.2    | Special Termination Agreement dated as of November  2, 1998 among the Company, the Bank and Kevin M. Tierney, incorporated by  reference to the Company’s quarterly report on Form 10-Q for the third  quarter of 1998, filed on November 12, 1998.                                                                                                                                                                                                                                                                                                                                            |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| *10.3    | Special Termination Agreement dated as of September  13, 2000 among the Company, the Bank and Cynthia A. Mulligan, incorporated by  reference to the Company’s quarterly report on Form 10-Q for the first  quarter of 2001, filed on November 15, 2000.                                                                                                                                                                                                                                                                                                                                       |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| *10.4(a) | Amended and Restated Special Termination Agreement  dated as of January 31, 1997 among the Company, the Bank and Mario A.  Berlinghieri incorporated by reference to the Company’s Annual Report for the  year ended December 31, 1996 on Form 10-K filed on March 31, 1997.                                                                                                                                                                                                                                                                                                                   |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|     | (b) Amendment to Amended and Restated Special  Termination Agreement, dated as of July 1, 1997 among the Company, the Bank  and Mario A. Berlinghieri, incorporated by reference to the Company’s  quarterly report on Form 10-Q for the second quarter of 1997, filed on August  13, 1997.                                                                                                                                                                                                                                                                                                    |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|     | (c) Amendment No. 2 to Amended and Restated Special  Termination Agreement, dated as of April 16, 1998, by and among the Company,  the Bank and Mario A. Berlinghieri, incorporated by reference to the  Company’s quarterly report on Form 10-Q for the first quarter of 1998, filed  on May 8, 1998.                                                                                                                                                                                                                                                                                         |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| *10.5    | Abington Bancorp, Inc. Incentive and Nonqualified  Stock Option Plan, as amended and restated to reflect holding company  formation incorporated by reference to the Company’s Annual Report for the  year ended December 31, 1996 on Form 10-K filed on March 31, 1997.                                                                                                                                                                                                                                                                                                                       |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| *10.6    | Senior Management Incentive Plan, incorporated by  reference to the Company’s Annual Report for the year ended December 31, 2001  on Form 10-K filed on March 28, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                        |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| *10.7    | Revised Long Term Performance Incentive Plan dated  January 2000 incorporated by reference to the Company’s Annual Report for the  year ended December 31, 2000 on Form 10-K filed on March 28, 2000.                                                                                                                                                                                                                                                                                                                                                                                          |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 8.24     | (a) Lease for office space located at 538 Bedford  Street, Abington, Massachusetts (“lease”), used for the Bank’s principal and  administrative offices dated January 1, 1996 incorporated by reference to the  Company’s Annual Report for the year ended December 31, 1996 on Form 10-K  filed on March 31, 1997. Northeast Terminal Associates, Limited owns the  property. Dennis E. Barry and Joseph L. Barry, Jr., who beneficially own more  than 5% of the Company’s Common Stock, are the principal beneficial owners of  Northeast Terminal Associates, Limited. |

 

28

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|   | (b) Amendment to Lease dated December 31, 1997,  incorporated by reference to the Company’s Annual Report for the year ended  December 31, 1997 on Form 10-K filed on March 25, 1998.                                                                                                            |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                  |
| *9.24  | Dividend Reinvestment and Stock Purchase Plan is  incorporated by reference herein to the Company’s Registration Statement on  Form S-3, effective January 31, 1997.                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                  |
| *10.10 | Abington Bancorp, Inc. 1997 Incentive and  Nonqualified Stock Option Plan, incorporated by reference herein to Appendix  A to the Company’s proxy statement relating to its special meeting in lieu of  annual meeting held on June 17, 1997, filed with the Commission on April 29,  1997.      |
|   |                                                                                                                                                                                                                                                                                                  |
| *10.11 | (a) Special Termination Agreement dated as of July  1, 1997 among the Company, the Bank and Robert M. Lallo, incorporated by  reference to the Company’s quarterly report on Form 10-Q for the second  quarter of 1997, filed on August 13, 1997.                                                |
|   |                                                                                                                                                                                                                                                                                                  |
|   | (b) Amendment No. 1 to Special Termination  Agreement, dated April 16, 1998, by and  among the Company, the Bank and Robert M. Lallo, incorporated by reference to  the Company’s quarterly report on Form 10-Q for the first quarter of 1998,  filed on May 8, 1998.                       |
|   |                                                                                                                                                                                                                                                                                                  |
| *10.12 | Merger Severance Benefit Program dated as of August  28, 1997, incorporated by reference to the Company’s Quarterly Report on Form  10-Q for the third quarter of 1997, filed on November 15, 1997.                                                                                              |
|   |                                                                                                                                                                                                                                                                                                  |
| *10.13 | Supplemental Executive Retirement Agreement between  the Bank and James P. McDonough dated as of August 23, 2001, incorporated by  reference to the Company’s quarterly report on Form 10-Q for the third  quarter of 2001, filed on November 13, 2001.                                          |
|   |                                                                                                                                                                                                                                                                                                  |
| *10.14 | Deferred Stock Compensation Plan for Directors,  effective July 1, 1998 incorporated by reference to Appendix A to the  Company’s proxy statement (schedule 14A) for its 1998 Annual Meeting, filed  with the Commission on April 13, 1998.                                                      |
|   |                                                                                                                                                                                                                                                                                                  |
| *10.15 | Special Termination Agreement dated as of February  7, 2000 among the Company, the Bank and Jack B. Meehl, incorporated by  reference to the Company’s Annual Report for the year ended December 31, 2001  on Form 10-K filed on March 28, 2000.                                                 |
|   |                                                                                                                                                                                                                                                                                                  |
| *10.16 | Abington Bancorp, Inc. 2000 Incentive and  Nonqualified Stock Option Plan, incorporated by reference herein to Appendix  A to the Company’s proxy statement relating to its annual meeting held on May  16, 2000, filed with the Commission on April 13, 2000.                                   |
|   |                                                                                                                                                                                                                                                                                                  |
| *10.17 | Abington Bancorp, Inc. Board of Directors Transition  and Retirement Plan, incorporated by reference to the Company’s quarterly  report on Form 10-Q for the second quarter of 2000, filed on August 11, 2000.                                                                                   |
|   |                                                                                                                                                                                                                                                                                                  |
| *10.18 | Defined Contribution Supplemental Executive  Retirement Agreement between the Bank and Kevin M. Tierney, Sr.  dated July 26, 2001, incorporated by reference to the Company’s  quarterly report on Form 10-Q for the second quarter of 2001, filed on  August 10, 2001. |
|   |                                                                                                                                                                                                                                                                                                  |
| *10.19 | Defined Contribution Supplemental Executive  Retirement Agreement between the Bank and Robert M. Lallo dated  July 26, 2001, incorporated by reference to the Company’s quarterly  report on Form 10-Q for the second quarter of 2001, filed on  August 10, 2001.            |
|   |                                                                                                                                                                                                                                                                                                  |
| *10.20 | Payments Agreement dated as of April 10, 2002 by and  among the Company, Massachusetts Fincorp, Inc. and The Massachusetts  Co-operative Bank and Paul C. Green, incorporated by reference to the  Company’s Registration Statement on Form S-4 filed on May 31, 2002.                           |

 

29

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| *10.21  | Payments Agreement dated as of April 10, 2002 by and  among the Company, Massachusetts Fincorp, Inc. and The Massachusetts  Co-operative Bank and Anthony A. Paciulli, incorporated by reference to the  Company’s Registration Statement on Form S-4 filed on May 31, 2002. |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                              |
| *10.22  | Consulting Agreement dated as of April 10, 2002  between the Company and Paul C. Green, incorporated by reference to the  Company’s Registration Statement on Form S-4 filed on May 31, 2002.                                                                                |
|    |                                                                                                                                                                                                                                                                              |
| *10.23  | Employment Agreement dated as of April 10, 2002 by  and between the Bank and Anthony A. Paciulli, incorporated by reference to  the Company’s Registration Statement on Form S-4 filed on May 31, 2002.                                                                      |
|    |                                                                                                                                                                                                                                                                              |
| **10.24 | Lease for office space located at Weymouth Woods  Corporate Center 97 Libbey Industrial Parkway, Weymouth, Massachusetts  (“lease”), used for the Bank’s principal and administrative offices dated  March 29, 2002 included herein.                               |
|    |                                                                                                                                                                                                                                                                              |
| 11.1    | A statement regarding the computation of earnings  per share is included in Note D to Unaudited   Consolidated Financial Statements included in this Report.                                                                                                                      |

 

(b) Reports on Form 8-K.

 

The Company filed a report on Form 8-K on April 12,2002, reporting the Company’s entering a definitive agreement to acquireMassachusetts Fincorp, Inc. as described in Note E included herein.

 

The Company filed a report on Form 8-K on July 1, 2002to report that it had dismissed Arthur Andersen LLP and engaged PricewaterhouseCoopers LLP as its independent accountants.

 

----

* Management contract or compensatory plan or arrangement.

** Certain portions of this exhibit have been omitted pursuant to arequest for confidential treatment filed with the Securities and ExchangeCommission.

 

**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the Company has duly caused this report to be signed on its behalf by theundersiged thereunto duly authorized.

 
|                               | ABINGTON BANCORP, INC. |                                  |
|------------------------------------|------------------------|---------------------------------------|
|                               | (Company)              |
|                               |                   |                                  |
|                               |                   |                                  |
| Date:   August  12, 2002 |                   | By  /s/James P. McDonough        |   |
|                               |                   | James P. McDonough                    |
|                               |                   | President and Chief Executive Officer |
|                               |                   |                                  |
| Date:  August  12, 2002       |                   | By  /s/Robert M. Lallo           |   |
|                               |                   | Robert M. Lallo                       |
|                               |                   | Treasurer                             |
|                               |                   | (Principal Financial Officer)         |
|                                    |                        |                                       |  |  |

 

30

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CERTIFICATION PURSUANT TO

18 U.S.C. § 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEYACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of AbingtonSavings Bank for the quarter ended June 30, 2002, as filed with the Securitiesand Exchange Commission on the date hereof (the “Report”), each of theundersigned James P. McDonough, President and Chief Executive Officer andRobert M. Lallo, Chief Financial Officer and Executive Vice President ofAbington Savings Bank, certifies, to the best knowledge and belief of thesignatory, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002, that:

 

(1)                                  TheReport fully complies with the requirements of Section 13(a) or 15(d) of theSecurities Exchange Act of 1934; and

 

(2)                                  Theinformation contained in the Report fairly presents, in all material respects,the financial condition and results of operations of the Company.

 
| /s/                                   | James P. McDonough                                         |   | /s/ | Robert M. Lallo |   |
|---------------------------------------|------------------------------------------------------------|--------|-----|-----------------|--------|
| James P. McDonough                    | Robert M. Lallo                                            |
| President and Chief Executive Officer | Executive Vice President  and Chief Financial Officer |

 

31

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