SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2003
Commission File Number 0-16018
ABINGTON BANCORP, INC.
(Exact name of Registrant as specified in its charter)
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Massachusetts |
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04-3334127 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer |
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97 Libbey Parkway, Weymouth, Massachusetts |
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02189 |
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(Address of principal executive offices) |
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(Zip Code) |
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(781) 682-6400 |
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(Registrant’s telephone number, including area code) |
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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No o
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: 3,869,051 shares as of August 8, 2003.
Certain statements in this Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Further, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “expect,” “anticipate,” “plan,” “believe,” “seek,” “estimate,” “internal” and similar words are intended to identify expressions that may be forward-looking statements. Forward-looking statements involve certain risks and uncertainties, and actual results may differ materially from those contemplated by such statements. For example, actual results may be adversely affected by the following possibilities: (1) competitive pressure among depository institutions may increase; (2) changes in interest rates may reduce banking interest margins; (3) general economic conditions and real estate values may be less favorable than contemplated; and (4) adverse legislation or regulatory requirements may be adopted. Many of such factors are beyond the Company’s ability to control or predict. Readers of this Form 10-Q are accordingly cautioned not to place undue reliance on forward-looking statements. The Company disclaims any intent or obligation to update publicly any of the forward-looking statements herein, whether in response to new information, future events or otherwise.
1
ABINGTON BANCORP, INC.
FORM 10-Q
INDEX
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ABINGTON BANCORP, INC.
FORM 10-Q
For the Quarter Ended June 30, 2003
Based on the findings of an internal accounting review initiated by the Company during the first quarter of 2003, the Company reported that it would revise its previously announced 2002 financial results and would restate its previously issued 2001 financial statements. The revisions and restatement were necessary to correct accounting errors related to the acceleration of prepayments on mortgage-backed investment securities, errors in recording payments received on various investment securities and certain adjustments related to accruals for income and expense.
During its internal accounting review, the Company identified a number of accounting errors recorded by the Company’s former controller, including underlying prepayment assumptions used in the calculation of interest income in 2002 that did not adequately reflect the actual prepayment rates received on a portion of its mortgage-backed securities (MBS) portfolio and that certain payments received on a portion of its MBS portfolio were not properly applied. It was further determined, based upon the results of the preliminary review, that it would be necessary to revise the Company’s previously announced financial results for 2002 and restate the Company’s financial statements for 2001. The Company engaged its independent auditor, PricewaterhouseCoopers LLP, which replaced Arthur Andersen LLP in mid-2002, to undertake a re-audit of the year 2001. Restated financial statements for the year 2001 are included in the Company's Form 10-K for the year ended December 31, 2002 and the 2002 financial information contained in this Form 10-Q for the quarter and six months ended June 30, 2002 has been revised.
Following the discovery of these accounting errors, the Company initiated a number of improvements in its disclosure controls and procedures as well as its internal controls. Most of these improvements were designed to reduce the opportunity for human error, which was the primary cause of each of the identified errors. Management implemented several changes in the process of recording transactions and related recordkeeping in those areas where errors occurred, including (a) automation of investment portfolio accounting (previously processed on a manual basis), (b) improved reconcilement procedures and yield analyses, (c) the utilization of third party resources and advisory services and, (d) additional training and oversight of personnel within the accounting division along with the addition of three senior accounting officers with significant experience in bank accounting matters and internal controls.
Following is an unaudited summary of the effect of restatement on the Company’s consolidated financial statements at or for the periods reflected:
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Selected Balance Sheet Data |
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(Dollars in thousands) |
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As Previously |
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As |
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Securities available for sale at market value |
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$ |
380,064 |
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$ |
379,218 |
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Other assets |
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6,991 |
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5,919 |
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Total assets |
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798,491 |
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796,573 |
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Accrued taxes and expenses |
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4,846 |
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4,225 |
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Other liabilities |
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1,176 |
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963 |
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Retained earnings |
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34,451 |
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33,266 |
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Other accumulated comprehensive income, net of tax |
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4,277 |
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4,378 |
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Total stockholders’ equity |
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45,122 |
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44,038 |
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3
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Selected Income Statement Data |
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Three Months Ended |
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Six Months Ended |
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(Dollars in thousands, except per share data) |
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Previously |
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Restated |
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Previously |
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Restated |
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Interest and fees on loans |
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$ |
6,070 |
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$ |
6,018 |
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$ |
12,688 |
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$ |
12,451 |
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Interest on mortgage-backed securities |
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5,021 |
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4,799 |
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9,245 |
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9,248 |
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Salaries and employee benefits |
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3,434 |
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3,389 |
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6,585 |
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6,619 |
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Other non-interest expense |
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1,806 |
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1,780 |
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3,545 |
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3,493 |
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Provision for income taxes |
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1,030 |
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958 |
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2,160 |
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2,083 |
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Net income |
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1,718 |
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1,587 |
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3,692 |
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3,553 |
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Net income per share: |
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Basic |
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$ |
0.54 |
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$ |
0.50 |
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$ |
1.16 |
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$ |
1.12 |
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Diluted |
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$ |
0.51 |
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$ |
0.48 |
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$ |
1.11 |
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$ |
1.08 |
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Selected
Cash Flow Data (a)(b) |
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(Dollars in thousands) |
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Previously |
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Restated |
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Net income |
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$ |
3,692 |
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$ |
3,553 |
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Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Amortization, accretion and depreciation, net |
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1,025 |
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1,043 |
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Other, net |
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(15,882 |
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(15,735 |
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Net cash provided by operating activities |
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1,655 |
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1,681 |
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Cash flows from investing activities: |
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Proceeds from principal payments on, and maturities of, available for sale securities |
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41,920 |
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41,894 |
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Net cash provided (used) by investing activities |
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(59,684 |
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(59,710 |
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Net (decrease) in cash and cash equivalents |
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$ |
(22,255 |
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$ |
(22,255 |
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(a) The previously reported amounts for net cash provided by (used in) operating activities and investing activities have been adjusted for the effect of the restatement.
(b) As indicated, there has been no change in the net increase in cash and cash equivalents as a result of the restatement.
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RISKS RELATING TO ARTHUR ANDERSEN LLP
Arthur Andersen LLP previously audited the Company’s financial statements at December 31, 2001 and for the three years then ended. As previously indicated, the Company has restated its financial statements at and for the year ended December 31, 2001 and has revised the related Notes to Financial Statements as appropriate. As discussed in Item 9 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, as filed with the United States Securities and Exchange Commission, the Company changed independent accountants on July 1, 2002. The Company’s financial statements as of and for the year ended December 31, 2001, as restated, have been audited by PricewaterhouseCoopers LLP whose report thereon is included as Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. Arthur Andersen LLP has not reissued its previous report on the Company’s financial statements, which previous report is included in Item 8 thereof, nor has it furnished an updated consent with respect to the incorporation by reference of such financial statements into the Company’s registration statements on Form S-8 and Form S-3D. Arthur Andersen LLP did not participate in the preparation or review of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. Arthur Andersen LLP was convicted in Federal court of obstruction of justice on June 15, 2002, and has ceased practice before the Securities and Exchange Commission. You may have no effective remedy against Arthur Andersen LLP in connection with any material misstatement or omission in the company’s financial statements at and for the year ended December 31, 2000 or related disclosure, particularly in the event that Arthur Andersen LLP ceases to exist or becomes insolvent as a result of the conviction or other proceedings against Arthur Andersen LLP.
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Part I Financial Information
Item 1. Financial Statements
ABINGTON BANCORP, INC
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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(Dollar amounts in thousands) |
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June 30, |
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December 31, |
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ASSETS |
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Cash and due from banks |
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$ |
32,954 |
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$ |
31,238 |
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Short-term investments |
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2,640 |
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77,878 |
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Total cash and cash equivalents |
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35,594 |
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109,116 |
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Loans held for sale |
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19,602 |
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35,629 |
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Securities available for sale - at market value |
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437,793 |
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352,339 |
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Loans |
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415,172 |
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361,434 |
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Less: Allowance for possible loan loss |
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(4,264 |
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(4,212 |
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Loans, net |
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410,908 |
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357,222 |
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