-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E/TrMB/tJBXpKq/cYaX899H0yHArAEySv76NuZ1VH7XTBt1hxlpNgwXnSqoxzIf8 HrS/KzgEnQKuLd1/5+4KWg== 0000799166-96-000004.txt : 19961111 0000799166-96-000004.hdr.sgml : 19961111 ACCESSION NUMBER: 0000799166-96-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961108 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MASSBANK CORP CENTRAL INDEX KEY: 0000799166 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 042930382 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15137 FILM NUMBER: 96657021 BUSINESS ADDRESS: STREET 1: 123 HAVEN STREET CITY: READING STATE: MA ZIP: 01867 BUSINESS PHONE: 6179428192 MAIL ADDRESS: STREET 1: 123 HAVEN STREET CITY: READING STATE: PA ZIP: 01867 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q /x/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from______________to____________ Commission File Number 0-15137 MASSBANK Corp. (Exact name of registrant as specified in its charter) Delaware 04-2930382 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 123 HAVEN STREET Reading, Massachusetts 01867 (Address of principal executive offices, including Zip Code) Registrant's telephone number, including area code: (617) 662-0100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of the issuer's classes of common stock, as of the latest practicable date is: Class: Common stock $1.00 per share. Outstanding at October 31, 1996: 2,684,714 shares. MASSBANK CORP. AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION Page ITEM 1. Financial Statements Consolidated Balance Sheets as of September 30, 1996 (unaudited) and December 31, 1995 3 Consolidated Statements of Income (unaudited) for the three months ended September 30, 1996 and 1995 4 and for the nine months ended September 30, 1996 and 1995 5 Consolidated Statements of Changes in Stockholders' Equity for the nine months ended September 30, 1996 (unaudited) and the year ended December 31, 1995 6 Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 1996 and 1995 7 - 8 Condensed Notes to the Consolidated Financial Statements 9 - 10 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 24 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings 25 ITEM 2. Changes in Securities 25 ITEM 3. Defaults Upon Senior Securities 25 ITEM 4. Submission of Matters to a Vote of Security Holders 25 ITEM 5. Other Information 25 ITEM 6. Exhibits and Reports on Form 8-K 25 Signature Page 26 MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands except share data)
September 30, December 31, 1996 1995 ____ ____ (unaudited) Assets: Cash and due from banks $ 5,377 $ 8,150 Short-term investments (Note 4) 111,068 117,505 ______________________________________________________________________________ Total cash and cash equivalents 116,445 125,655 Term federal funds sold -- 5,000 Interest-bearing deposits in banks 1,723 941 Securities held to maturity, at amortized cost (market value of $164 in 1996 and $402 in 1995) 164 402 Securities available for sale, at market value (amortized cost of $493,734 in 1996 and $443,638 in 1995) 495,971 456,101 Trading securities, at market value 4,639 6,819 Loans: (Note 5) Mortgage loans 224,525 220,603 Other loans 26,234 28,582 Less: allowance for loan losses (2,349) (2,529) ______________________________________________________________________________ Net loans 248,410 246,656 Premises and equipment 4,093 4,226 Real estate acquired through foreclosure 417 255 Accrued interest receivable 5,767 7,280 Deferred income tax asset, net 161 -- Other assets 1,342 1,207 ______________________________________________________________________________ Total assets $879,132 $854,542 Liabilities and Stockholders' Equity: Deposits $783,399 $753,657 Escrow deposits of borrowers 1,222 992 Employee stock ownership plan liability 1,093 1,093 Accrued income taxes payable 1,103 880 Deferred income taxes payable, net -- 3,880 Other liabilities 4,842 3,223 ______________________________________________________________________________ Total liabilities 791,659 763,725 Stockholders' Equity: Preferred stock, par value $1.00 per share; 2,000,000 shares authorized, none issued -- -- Common stock, par value $1.00 per share; 10,000,000 shares authorized, 5,473,375 and 5,424,671 shares issued, respectively 5,474 5,425 Additional paid-in capital 57,741 56,842 Retained earnings 63,986 58,773 ______________________________________________________________________________ 127,201 121,040 Treasury stock at cost, 2,789,411 and 2,683,065 shares, respectively (39,904) (36,370) Net unrealized gains on securities available for sale, net of tax effect 1,269 7,240 Common stock acquired by ESOP (1,093) (1,093) ______________________________________________________________________________ Total stockholders' equity 87,473 90,817 ______________________________________________________________________________ Total liabilities and stockholders' equity $879,132 $854,542 See accompanying condensed notes to consolidated financial statements.
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three months ended September 30, (In thousands except share data) 1996 1995 ______________________________________________________________________________ Interest and dividend income: Mortgage Loans $ 4,295 $ 4,126 Other loans 629 717 Mortgage-backed securities 5,341 3,379 Securities available for sale 3,053 3,850 Trading securities 95 493 Federal funds sold 1,011 1,541 Other investments 343 138 ______________________________________________________________________________ Total interest and dividend income 14,767 14,244 ______________________________________________________________________________ Interest expense: Deposits 8,441 7,933 ______________________________________________________________________________ Total interest expense 8,441 7,933 ______________________________________________________________________________ Net interest income 6,326 6,311 Provision for loan losses 85 30 ______________________________________________________________________________ Net interest income after provision for loan losses 6,241 6,281 ______________________________________________________________________________ Non-interest income: Deposit account service fees 243 231 Gains (losses) on securities, net 262 (57) Other 198 202 ______________________________________________________________________________ Total non-interest income 703 376 ______________________________________________________________________________ Non-interest expense: Salaries and employee benefits 1,779 1,845 Occupancy and equipment 472 480 Data processing 149 155 Professional services 70 97 Deposit insurance 4 (42) Other 447 505 ______________________________________________________________________________ Total non-interest expense 2,921 3,040 ______________________________________________________________________________ Income before income taxes 4,023 3,617 Income tax expense 1,579 1,400 ______________________________________________________________________________ Net income $ 2,444 $ 2,217 ______________________________________________________________________________ Weighted average common shares outstanding: Primary 2,716,114 2,774,112 Fully diluted 2,716,734 2,781,157 ______________________________________________________________________________ Earnings per share (in dollars): Primary $ 0.90 $ 0.80 Fully diluted 0.90 0.80 ______________________________________________________________________________ See accompanying condensed notes to consolidated financial statements.
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Nine months ended September 30, (In thousands except share data) 1996 1995 ______________________________________________________________________________ Interest and dividend income: Mortgage Loans $12,767 $12,490 Other loans 1,894 2,137 Mortgage-backed securities 14,011 9,604 Securities available for sale 9,534 11,856 Trading securities 490 2,343 Federal funds sold 3,663 3,689 Other investments 922 193 ______________________________________________________________________________ Total interest and dividend income 43,281 42,312 ______________________________________________________________________________ Interest expense: Deposits 24,589 22,801 ______________________________________________________________________________ Total interest expense 24,589 22,801 ______________________________________________________________________________ Net interest income 18,692 19,511 Provision for loan losses 150 140 ______________________________________________________________________________ Net interest income after provision for loan losses 18,542 19,371 ______________________________________________________________________________ Non-interest income: Deposit account service fees 699 691 Gains (losses) on securities, net 680 (18) Other 665 740 ______________________________________________________________________________ Total non-interest income 2,044 1,413 ______________________________________________________________________________ Non-interest expense: Salaries and employee benefits 5,343 5,493 Occupancy and equipment 1,473 1,488 Data processing 454 460 Professional services 276 328 Deposit insurance 10 837 Other 1,451 1,512 ______________________________________________________________________________ Total non-interest expense 9,007 10,118 ______________________________________________________________________________ Income before income taxes 11,579 10,666 Income tax expense 4,542 4,154 ______________________________________________________________________________ Net income $ 7,037 $ 6,512 ______________________________________________________________________________ Weighted average common shares outstanding: Primary 2,751,205 2,786,770 Fully diluted 2,751,755 2,807,217 ______________________________________________________________________________ Earnings per share (in dollars): Primary $ 2.56 $ 2.34 Fully diluted 2.56 2.32 ______________________________________________________________________________ See accompanying condensed notes to consolidated financial statements.
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For The Nine Months Ended September 30, 1996 (unaudited) and the Year Ended December 31, 1995 (In thousands except share data)
NET UNREALIZED GAINS (LOSSES) ON SECURITIES COMMON ADDITIONAL AVAILABLE FOR STOCK COMMON PAID-IN RETAINED TREASURY SALE, NET OF ACQUIRED STOCK CAPITAL EARNINGS STOCK TAX EFFECT BY ESOP TOTAL ________ __________ _________ __________ __________ ________ ________ Balance at December 31, 1994 $ 5,352 $55,609 $51,995 $(33,288) $(3,915) $(1,249) $74,504 Net income -- -- 8,759 -- -- -- 8,759 Cash dividends paid ($0.73 per share) -- -- (1,981) -- -- -- ( 1,981) Net decrease in liability to ESOP -- -- -- -- -- 156 156 Amortization of ESOP shares committed to be released -- 51 -- -- -- -- 51 Purchase of treasury stock -- -- -- (3,082) -- -- (3,082) Exercise of stock options and related tax benefits 73 1,182 -- -- -- -- 1,255 Change in net unrealized gains (losses) on securities available for sale, net of tax effect -- -- -- -- 11,155 -- 11,155 ____________________________________________________________________________________________________________________ Balance at December 31, 1995 5,425 56,842 58,773 (36,370) 7,240 (1,093) 90,817 Net Income -- -- 7,037 -- -- -- 7,037 Cash dividends paid ($0.68 per share) -- -- (1,824) -- -- -- (1,824) Purchase of treasury stock -- -- -- (3,534) -- -- (3,534) Exercise of stock options and related tax benefits 49 899 -- -- -- -- 948 Change in net unrealized gains (losses) on securities available for sale, net of tax effect -- -- -- -- (5,971) -- (5,971) _____________________________________________________________________________________________________________________ Balance at September 30, 1996 $ 5,474 $57,741 $63,986 $(39,904) $ 1,269 $(1,093) $87,473 _____________________________________________________________________________________________________________________ See accompanying condensed notes to consolidated financial statements.
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended September 30, 1996 1995 ____ ____ (In thousands) Cash flows from operating activities: Net income $ 7,037 $ 6,512 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 325 351 Amortization of deposit acquisition premium 173 173 Amortization of loan valuation premium 47 48 Decrease in accrued interest receivable 1,513 92 Increase (decrease) in other liabilities 897 (2,515) Increase (decrease) in accrued income taxes payable 223 (275) Accretion of discounts on securities, net of amortization of premiums (777) (858) Net trading securities activity 2,059 95,386 (Gains) losses on securities available for sale (802) (444) (Gains) losses on trading securities 122 414 Increase (decrease) in deferred mortgage loan origination fees, net of amortization 102 (15) Decrease in deferred income tax asset, net 214 274 Increase in other assets (135) (21) Loans originated for sale (215) (455) Loans sold 308 455 Provision for loan losses 150 140 Provision for losses and writedowns on real estate acquired through foreclosure 42 23 (Gains) on sales of real estate acquired through foreclosure (25) -- Increase in escrow deposits of borrowers 230 240 ______________________________________________________________________________ Net cash provided by operating activities 11,488 99,525 ______________________________________________________________________________ Cash flows from investing activities: Purchases of term federal funds -- (40,000) Proceeds from maturities of term federal funds 5,000 35,000 Purchases of bank certificates of deposit (782) -- Proceeds from sales of investment securities available for sale 31,877 36,521 Proceeds from maturities of investment securities held to maturity and available for sale 73,225 34,147 Purchases of securities available for sale (53,209) (44,207) Purchases of mortgage-backed securities (126,868) (47,336) Principal repayments of mortgage-backed securities 27,404 15,421 Principal repayments of tax-exempt bonds 13 13 Loans originated (40,923) (21,850) Loan principal payments received 38,123 28,178 Purchases of premises & equipment (192) (323) Proceeds from sales of real estate acquired through foreclosure 476 81 Net advances on real estate acquired through foreclosure -- (7) ______________________________________________________________________________ Net cash (used in) investing activities (45,856) (4,362) ______________________________________________________________________________
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (unaudited)
Nine Months Ended September 30, 1996 1995 ____ ____ (In thousands) Cash flows from financing activities: Net increase (decrease) in deposits 29,569 (5,996) Payments to acquire treasury stock (3,534) (2,083) Issuance of common stock under stock option plan 695 495 Tax benefit resulting from stock options exercised 252 172 Dividends paid on common stock (1,824) (1,469) ______________________________________________________________________________ Net cash provided by (used in) financing activities 25,158 (8,881) ______________________________________________________________________________ Net increase (decrease) in cash and cash equivalents (9,210) 86,282 Cash and cash equivalents at beginning of period 125,655 32,161 ______________________________________________________________________________ Cash and cash equivalents at end of period $116,445 $118,443 ______________________________________________________________________________ Supplemental cash flow disclosures: Cash transactions: Cash paid during the period for interest $24,566 $22,863 Cash paid during the period for taxes, net of refunds 3,852 3,937 Non-cash transactions: SFAS 115: Increase (decrease) in stockholders' equity (5,971) 6,635 Decrease in deferred tax assets -- 5,036 Decrease in deferred tax liabilities (4,255) -- Transfers from loans to real estate acquired through foreclosure 654 427 Transfers from other assets to securities available for sale -- 66 Purchases of securities with an October 1996 settlement date 993 310 Sales of securities with an October 1996 settlement date 271 57 ______________________________________________________________________________ See accompanying condensed notes to consolidated financial statements.
MASSBANK CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (1) Basis of Presentation The financial condition and results of operations of MASSBANK Corp. (the "Company") essentially reflect the operations of its subsidiary, MASSBANK (the "Bank"). All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles, and in the opinion of management, include all adjustments of a normal recurring nature necessary for the fair presentation of the financial condition of the Company as of September 30, 1996 and December 31, 1995, and its operating results for the three and nine months ended September 30, 1996 and 1995. The results of operations for any interim period are not necessarily indicative of the results to be expected for the entire year. Certain amounts in the prior year's consolidated financial statements have been reclassified to permit comparison with the current fiscal year. The information in this report should be read in conjunction with the financial statements and related notes included in the Annual Report on Form 10-K for the year ended December 31, 1995. (2) Earnings Per Common Share The computation of earnings per common share for the three and nine months ended September 30, 1996 and 1995 is based on the weighted average number of shares of common stock and common stock equivalents outstanding during the period. Stock options, when dilutive are included as common stock equivalents using the Treasury stock method. (3) Cash and Cash Equivalents: For purposes of reporting cash flows, cash and cash equivalents consist of cash and due from banks, federal funds sold and term federal funds sold with original maturities of less than 90 days. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) (4) Short-Term Investments Short-term investments consist of the following: ________________________________________________________________________________ At At (In thousands) September 30, 1996 December 31, 1995 ________________________________________________________________________________ Federal funds sold (overnight) $ 86,976 $100,245 Term federal funds sold (with original maturities of 90 days or less) -- 10,000 Money market funds 24,092 7,260 ________________________________________________________________________________ Total short-term investments $111,068 $117,505 ________________________________________________________________________________ The investments above are stated at cost which approximates market value and have original maturities of 90 days or less. (5) Commitments At September 30, 1996, the Company had outstanding commitments to originate mortgage loans and to advance funds for construction loans amounting to $3,389,000 and commitments under existing home equity lines of credit and other loans of approximately $19,810,000 which are not reflected on the consolidated balance sheet. In addition, as of September 30, 1996, the Company had a performance standby letter of credit conveyed to others in the amount of $1,093,000 which is also not reflected on the consolidated balance sheet. MASSBANK CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS September 30, 1996 GENERAL The following discussion should be read in conjunction with the consolidated financial statements and related notes included in this report. The discussion may contain certain forward-looking statements. The Company's management may from time to time express its expectations regarding future performance of the Company. These forward-looking statements are inherently uncertain, and actual results may differ from Company expectations. For the quarter ended September 30, 1996, MASSBANK Corp. reported record consolidated net income of $2,444,000 or $0.90 per share. These results represent increases of 10.2% and 12.5%, respectively, from the $2,217,000 in consolidated net income and $0.80 per share earned in 1995's third quarter. The annualized return on average assets for the recent quarter increased to 1.12% from 1.06% for the comparable quarter of 1995. In addition, the Company improved its return on average realized equity for the third quarter of 1996 to 11.42% from 10.79% in the same quarter of 1995. The Company's earnings results this quarter were also favorably impacted by securities gains of $262,000 compared to securities losses of $57,000 in the third quarter of 1995 and a reduction in non-interest expenses of $119,000. The Company's non-interest expense to average assets ratio continues to improve reaching an all time low of 1.34% in the recent quarter. For the nine months ended September 30, 1996, the Company reported consolidated net income of $7,037,000 or $2.56 per share, up from $6,512,000 or $2.34 per share ($2.32 per share on a fully-diluted basis) earned in the first nine months of 1995. MASSBANK Corp.'s increased earnings for the year-to-date period can be attributed to a decrease in non-interest expense, due primarily to a sharp decline in Federal Deposit Insurance Corporation ("FDIC") deposit insurance premiums, and an increase in net gains on securities. These improvements were partially offset by a decrease in net interest income. The growth in the Company's earning assets coupled with a more favorable mix of earning assets produced an increase in the Company's net interest income for the second consecutive quarter. Net interest income for the third quarter of 1996 increased by $75,000 when compared to the second quarter of 1996. Net interest income totaled $6,326,000 for the three months ended September 30, 1996, up from $6,311,000 for the same quarter of last year. For the first nine months of 1996 net interest income totaled $18,692,000 compared to $19,511,000 for the first nine months of 1995. The Company's net interest margin of 2.97% for the quarter and 2.96% for the year-to-date period decreased from 3.09% and 3.19%, respectively, for the same periods in the prior year. Average earning assets for the third quarter of 1996 increased to $856.0 million from $820.9 million in the corresponding quarter of 1995. For the first nine months of 1996 the Company's average earning assets were $846.5 million, up from $819.1 million in the first nine months of 1995. MASSBANK Corp.'s provision for loan losses was $85,000 for the recent quarter and $150,000 year-to-date. This compares with $30,000 and $140,000, respectively, for the corresponding periods in 1995. Non-performing assets were $2,342,000 or 0.27% of total assets at September 30, 1996. The Bank's allowance for loan losses totaled $2,349,000 at September 30, 1996, representing 122% of non-performing loans compared to $2,529,000 representing 104% of non-performing loans at the end of 1995. The Company had total assets of $879.1 million at September 30, 1996, an increase of $24.6 million over total assets reported at December 31, 1995. Total deposits at September 30, 1996 were $783.4 million, up $29.7 million from year end 1995. Stockholders' equity at September 30, 1996 equalled $87.5 million representing a book value of $32.59 per share, a decrease from $90.8 million representing a book value of $33.13 per share at December 31, 1995. This decrease in stockholders' equity resulted primarily from unrealized depreciation in the market value of the Bank's securities available for sale portfolio due to the upward movement in market bond prices experienced during this period. The unrealized gain of $7.2 million net of tax effect reported as part of stockholders' equity at December 31, 1995 changed to an unrealized gain of $1.3 million net of tax effect at September 30, 1996. A more detailed discussion and analysis of the Company's financial condition and results of operations follows. FINANCIAL CONDITION INVESTMENT SECURITIES The amortized cost and estimated market value of investment securities at September 30, 1996 and December 31, 1995 with gross unrealized gains and losses, follows:
__________________________________________________________________________________________ Gross Gross (In thousands) At September 30, 1996 Amortized Unrealized Unrealized Market Cost Gains Losses Value __________________________________________________________________________________________ Securities held to maturity: Other bonds and obligations $ 164 $ -- $ -- $ 164 __________________________________________________________________________________________ Total securities held to maturity $ 164 $ -- $ -- $ 164 __________________________________________________________________________________________ Securities available for sale: Debt securities: U.S. Treasury obligations $161,948 $ 1,431 $ (8) $163,371 U.S. Government agency obligations 8,898 26 (116) 8,808 Other bonds and obligations 999 2 -- 1,001 __________________________________________________________________________________________ Total $171,845 1,459 (124) 173,180 __________________________________________________________________________________________ Mortgage-backed securities: Government National Mortgage Association 72,660 556 (827) 72,389 Federal Home Loan Mortgage Corporation 228,201 986 (3,641) 225,546 Federal National Mortgage Association 9,948 344 -- 10,292 Other 481 21 -- 502 __________________________________________________________________________________________ Total mortgage-backed securities 311,290 1,907 (4,468) 308,729 __________________________________________________________________________________________ Total debt securities 483,135 3,366 (4,592) 481,909 __________________________________________________________________________________________ Equity securities 10,599 3,497 (34) 14,062 __________________________________________________________________________________________ Total securities available for sale 493,734 $ 6,863 $ (4,626) $495,971 __________________________________________________________________________________________ Net unrealized gains on securities available for sale 2,237 __________________________________________________________________________________________ Total securities available for sale, net $495,971 __________________________________________________________________________________________ Trading securities $ 4,790 $ 4,639 __________________________________________________________________________________________
INVESTMENT SECURITIES (continued)
__________________________________________________________________________________________ Gross Gross (In thousands) At December 31, 1995 Amortized Unrealized Unrealized Market Cost Gains Losses Value __________________________________________________________________________________________ Securities held to maturity: Other bonds and obligations $ 402 $ -- $ -- $ 402 __________________________________________________________________________________________ Total securities held to maturity $ 402 $ -- $ -- $ 402 __________________________________________________________________________________________ Securities available for sale: Debt securities: U.S. Treasury obligations $207,771 $ 4,387 $ (43) $212,115 U.S. Government agency obligations 13,994 178 -- 14,172 Other bonds and obligations 1,996 10 (2) 2,004 __________________________________________________________________________________________ Total 223,761 4,575 (45) 228,291 __________________________________________________________________________________________ Mortgage-backed securities: Government National Mortgage Association 81,411 2,160 (19) 83,552 Federal Home Loan Mortgage Corporation 116,500 2,339 (100) 118,739 Federal National Mortgage Association 12,886 574 -- 13,460 Other 726 43 -- 769 __________________________________________________________________________________________ Total mortgage-backed securities 211,523 5,116 (119) 216,520 __________________________________________________________________________________________ Total debt securities 435,284 9,691 (164) 444,811 __________________________________________________________________________________________ Equity securities 8,354 2,961 (25) 11,290 __________________________________________________________________________________________ Total securities available for sale 443,638 $ 12,652 $ (189) $456,101 __________________________________________________________________________________________ Net unrealized gains on securities available for sale 12,463 __________________________________________________________________________________________ Total securities available for sale, net $456,101 __________________________________________________________________________________________ Trading securities $ 6,834 $ 6,819 __________________________________________________________________________________________
INVESTMENT SECURITIES (continued) The amortized cost and estimated market value of debt securities by contractual maturity at September 30, 1996 and December 31, 1995 are as follows:
September 30, 1996 ____________________________________________ Available for Sale Held to Maturity Amortized Market Amortized Market Maturing: Cost Value Cost Value (In thousands) Within 1 year $ 58,913 $ 59,266 $ -- $ -- After 1 year through 5 years 108,945 109,983 -- -- After 5 years through 10 years 3,987 3,931 114 114 After 10 years through 15 years -- -- 50 50 ________ _______ ________ _______ 171,845 173,180 164 164 Mortgage-backed securities 311,290 308,729 -- -- ________ _______ ________ _______ $483,135 $481,909 $ 164 $ 164
December 31, 1995 ____________________________________________ Available for Sale Held to Maturity Amortized Market Amortized Market Maturing: Cost Value Cost Value (In thousands) Within 1 year $ 83,942 $ 84,351 $ 225 $ 225 After 1 year through 5 years 136,834 140,792 -- -- After 5 years through 10 years 2,985 3,148 124 124 After 10 years through 15 years -- -- 53 53 ________ _______ ______ ______ 223,761 228,291 402 402 Mortgage-backed securities 211,523 216,520 -- -- ________ _______ ______ ______ $435,284 $444,811 $ 402 $ 402 Investment securities consisting of securities held to maturity, securities available for sale and trading securities increased $37.5 million from December 31, 1995 to $500.8 million at September 30, 1996. This increase was primarily in higher yielding 15 year mortgage-backed securities designated as available for sale. Rising interest rates drove market bond prices higher during the period ended September 30, 1996 and eroded the market value of the Company's debt securities. At September 30, 1996 the Company's portfolio of debt securities available for sale had net unrealized losses of $1.2 million compared to net unrealized gains of $9.5 million at December 31, 1995. The equity securities portfolio as of this date had net unrealized gains of $3.4 million, up from $2.9 million at year end 1995. The increase was fueled by the strong equity market during this period.
LOANS The composition of the Bank's loan portfolio is summarized as follows:
_______________________________________________________________________________________ At At (In thousands) September 30, 1996 December 31, 1995 _______________________________________________________________________________________ Mortgage loans: Residential $219,447 $212,652 Commercial 4,092 6,975 Construction 1,675 1,516 _______________________________________________________________________________________ 225,214 221,143 Add: Premium on loans 341 388 Less: deferred mortgage loan origination fees (1,030) (928) _______________________________________________________________________________________ Total mortgage loans 224,525 220,603 Other loans: Consumer: Installment 1,917 1,988 Guaranteed education 9,804 10,420 Other secured 1,850 2,012 Home equity lines of credit 11,751 13,144 Unsecured 262 265 _______________________________________________________________________________________ Total consumer loans 25,584 27,829 Commercial 650 753 _______________________________________________________________________________________ Total other loans 26,234 28,582 _______________________________________________________________________________________ Total loans $250,759 $249,185 _______________________________________________________________________________________ The Bank's loan portfolio increased slightly during the first nine months of 1996 principally in the residential 1-4 family category as loan originations during this period exceeded loan amortization and payoffs. Loan originations in the first nine months of 1996 increased to $41.1 million from $22.3 million in the corresponding period of 1995. Lower residential mortgage loan rates in the first six months of 1996 when compared to the first six months of 1995 stimulated loan demand which resulted in loan growth for the Bank. Conversely, a rise in interest rates in the third quarter of 1996 significantly reduced the demand for residential mortgage loans. Loan originations totaled $7.7 million in the recent quarter compared to $12.9 million in the third quarter of last year. Future growth in the Bank's loan portfolio is expected to be moderate over the near term.
NON-PERFORMING ASSETS
At At At September 30, December 31, September 30, (In thousands) 1996 1995 1995 ____________________________________________________________________________________ Non-Performing Assets: Non-accrual loans $ 1,925 $ 2,428 $ 2,023 Real estate acquired through foreclosure 417 255 442 ____________________________________________________________________________________ Total non-performing assets $ 2,342 $ 2,683 $ 2,465 ____________________________________________________________________________________ Allowance for possible loan losses $ 2,349 $ 2,529 $ 2,598 Allowance as percent of non-accrual loans 122.0 % 104.2 % 128.4 % Non-accrual loans as percent of total loans 0.77% 0.97% 0.83% Non-performing assets as percent of total assets 0.27% 0.31% 0.29% ____________________________________________________________________________________ The Bank does not accrue interest on loans which are 90 days or more past due. It is the Bank's policy to place such loans on nonaccrual status and to reverse from income all interest previously accrued but not collected and to discontinue all amortization of deferred loan fees. Non-performing assets decreased slightly from December 31, 1995 to September 30, 1996 as noted in the table above. The principal balance of non-accrual loans was $1.9 million, or less than 1% of total loans and real estate acquired through foreclosure was $417 thousand at September 30, 1996. Real estate formally acquired in settlement of loans is recorded at the lower of the carrying value of the loan or the fair value of the property received, less estimated costs to sell the property following foreclosure. The Bank did not have any impaired loans as of September 30, 1996.
ALLOWANCE FOR LOAN LOSSES An analysis of the activity in the allowance for loan losses is as follows:
Nine Months Ended September 30, 1996 1995 _______________________________________________________________________________ (In thousands) Balance at beginning of period $ 2,529 $ 2,566 Provision for loan losses 150 140 Recoveries of loans previously charged-off 40 42 Less: Charge-offs (370) (150) _________________________________________________________________________________ Balance at end of period $ 2,349 $ 2,598 _________________________________________________________________________________ Potential losses on loans are provided for under the allowance method of accounting. The allowance is increased by provisions charged to operations based on management's assessment of many factors including the risk characteristics of the portfolio, underlying collateral, current and anticipated economic conditions that may effect the borrowers ability to pay and trends in loan delinquencies and charge-offs. Realized losses, net of recoveries, are charged directly to the allowance. While management uses the information available in establishing the allowance for losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on judgments different from those of management. At September 30, 1996 the balance of the allowance for loan losses was $2,349,000 representing 122.0% of total non-performing loans. Management believes that the allowance for loan losses is adequate to cover the risks inherent in the portfolio under current conditions.
DEPOSITS Deposit accounts of all types have traditionally been the primary source of funds for the Bank's lending and investment activities. The Bank's deposit flows are influenced by prevailing interest rates, competition and other market conditions. The Bank's management attempts to manage its deposits through selective pricing and marketing. The Bank's total deposits increased by $29.7 million or 3.9% to $783.4 million at September 30, 1996 from $753.7 million at December 31, 1995. The composition of the Bank's total deposits at the dates shown are summarized as follows:
September 30, December 31, 1996 1995 ______________________________________________________________________________ (In thousands) Demand and NOW $ 61,061 $ 66,413 Savings and money market accounts 357,617 356,598 Time certificates of deposit 365,959 332,057 Deposit acquisition premium, net of amortization (1,238) (1,411) ________________________________________________________________________________ Total deposits $783,399 $753,657 ________________________________________________________________________________
RESULTS OF OPERATIONS COMPARISON OF THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 INTEREST AND DIVIDEND INCOME Interest and dividend income from loans and investments increased by $523,000 to $14,767,000 for the three months ended September 30, 1996 from $14,244,000 for the three months ended September 30, 1995. This increase is primarily attributable to a $35.1 million increase in the Company's average earning assets partially offset by a decrease in yield on average earning assets. The Company's average total earning assets increased to $856.0 million in the third quarter of 1996 from $820.9 million in the corresponding quarter of 1995. The yield on the Company's average earning assets for the third quarter of 1996 decreased 4 basis points to 6.90% from 6.94% for the same quarter in 1995. The decrease in the yield on average earning assets when compared to the third quarter of 1995 reflects a decrease in yield on overnight federal funds sold and other similar short-term investments and the downward repricing of adjustable rate real estate loans, home equity lines of credit, and other loans. This was partially offset by a more favorable mix of the bank's earning assets. Interest and dividend income from loans and investments increased to $43,281,000 for the nine months ended September 30, 1996 from $42,312,000 for the nine months ended September 30, 1995. This increase is attributable to an increase of $27.4 million in the Company's average earning assets partially offset by a decrease in yield on average earning assets. The Company's total average earning assets for the first nine months of 1996 were $846.5 million compared to $819.1 million for the same period a year ago. The yield on the Company's average earning assets for the first nine months of 1996 decreased by 7 basis points to 6.83% from 6.90% for the same prior year period. Total investments contributed $935,000 in additional income, while interest on loans contributed $34,000 more in income when comparing the nine months ended September 30, 1996 to the nine months ended September 30, 1995. INTEREST EXPENSE Total interest expense increased 6.4% to $8,441,000 for the three months ended September 30, 1996 from $7,933,000 for the comparable 1995 period. This increase is principally due to the bank's deposit growth and an increase in its average cost of funds. The average deposit volume for the third quarter of 1996 increased by $32.6 million to $781.6 million from $749.0 million in the third quarter of 1995. The average cost of funds in the recent 1996 quarter was 4.30% compared to 4.20% for the third quarter of 1995. The increase of 10 basis points is due, in part, to a shift of deposits from lower fixed rate savings accounts to higher yielding variable rate savings accounts and time certificates of deposit. The Bank has maintained regular (fixed rate) savings account rates flat while selectively increasing longer term time certificate of deposit rates. In addition, the Bank introduced a new higher yielding variable rate savings account in June 1995. This strategy has negated the need for the Bank to raise its regular savings account rates, but has enticed some bank customers to transfer some of their deposits into the higher yielding accounts and thus contributing to the Bank's higher cost of funds. Total interest expense increased to $24,589,000 for the nine months ended September 30, 1996 from $22,801,000 for the nine months ended September 30, 1995. The increase in average deposits of $17.8 million from the prior year, and an increase of 25 basis points in the Company's average cost of funds from 4.05% in the first nine months of 1995 to 4.30% in the first nine months of 1996 increased interest expense on deposits by $1,788,000. The increase in the Bank's cost of funds is principally due to a shift of deposits from lower fixed rate savings accounts to higher yielding variable rate savings accounts and time certificates of deposit for the reasons previously noted. PROVISION FOR LOAN LOSSES The provision for loan losses represents a charge against current earnings and an addition to the allowance for loan losses. The provision is based on management's assessment of many factors including the risk characteristics of the loan portfolio, underlying collateral, current and anticipated economic conditions that may effect the borrowers ability to pay, and trends in loan delinquencies and charge-offs. As a result of management's assessment and analysis, the Bank provided $85,000 and $150,000 for potential loan losses during the three months and nine months ended September 30, 1996, an increase from $30,000 and $140,000 for the same periods a year ago. Loan charge-offs net of recoveries were $156,000 and $330,000 for the respective 1996 periods. NON-INTEREST INCOME Non-interest income consists of deposit account service fees, net gains or losses on securities and other non-interest income. Non-interest income increased $327,000 or 87.0% to $703,000 in the third quarter of 1996 and increased $631,000 or 44.7% to $2,044,000 for the nine months ended September 30, 1996 when compared to the comparable periods of 1995. The increase is due principally to net gains on securities of $262,000 and $680,000 recorded for the three and nine months ended September 30, 1996, respectively, as compared to net losses on securities of $57,000 and $18,000 recorded for the comparable 1995 periods. NON-INTEREST EXPENSE Non-interest expenses for the third quarter of 1996 decreased 3.9% to $2,921,000 from $3,040,000 for the third quarter of 1995. For the nine months ended September 30, 1996, non-interest expenses decreased by $1,111,000 or 11.0% to $9,007,000 when compared to $10,118,000 for the nine months ended September 30, 1995. Non-interest expenses for the 1996 year-to-date period have been favorably affected by a significantly lower deposit insurance expense. The significant decrease in deposit insurance expense results from a reduction in the Federal Deposit Insurance Corporation ("FDIC") deposit insurance rates for well capitalized banks from $0.23 per hundred dollars of deposits paid in the first nine months of 1995 to an annual minimum premium of $2 thousand paid in the first nine months of 1996. INCOME TAX EXPENSE The Company, the Bank and its subsidiaries file consolidated federal income tax returns on an October 31, year-end. The parent Company is subject to a State of Delaware Franchise Tax and a State of Massachusetts Bank Excise Tax and the Bank's subsidiaries are subject to a State of Massachusetts Corporate Excise Tax. The provision for federal and state income taxes increased to $1,579,000 for the three months ended September 30, 1996 from $1,400,000 for the same period in 1995. For the nine months ended September 30, 1996 the Company's provision for federal and state income taxes increased to $4,542,000 from $4,154,000 for the same period in 1995. The increase is due principally to higher income before taxes. The Company's combined effective income tax rate for the first nine months of 1996 is 39.2% as compared to 38.9% for the same period a year ago. FEDERAL TAXATION General. The Company, the Bank and its subsidiaries will report their income on a (October 31) fiscal year basis using the accrual method of accounting and will be subject to federal income taxation in the same manner as other corporations with some exceptions, including particularly the Bank's reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Bank and its subsidiaries or the Company. Bad Debt Reserve. In August, 1996, the provisions repealing the current thrift bad debt rules were passed by Congress as part of "The Small Business Job Protection Act of 1996." The new rules eliminate the 8% of taxable income method for deducting additions to the tax bad debt reserves for all thrifts for tax years beginning after December 31, 1995. These rules also require that all thrift institutions recapture all or a portion of their bad debt reserves added since the base year (last taxable year beginning before January 1, 1988). The Bank has previously recorded a deferred tax liability equal to the bad debt recapture and as such, the new rules will have no effect on net income or federal income tax expense. The unrecaptured base year reserves will not be subject to recapture as long as the institution continues to carry on the business of banking. In addition, the balance of the pre-1988 bad debt reserves continue to be subject to provision of present law referred to below that require recapture in the case of certain excess distributions to shareholders. The tax effect of pre-1988 bad debt reserves subject to recapture in the case of certain excess distributions is approximately $7.3 million. Distributions. To the extent that the Bank makes "non-dividend distributions" to the Company that are considered as made (i) from the reserve for losses on qualifying real property loans or (ii) from the supplemental reserve for losses on loans ("Excess Distributions"), then an amount based on the amount distributed will be included in the Bank's taxable income. Non- dividend distributions include distributions in excess of the Bank's current and accumulated earnings and profits and distributions in partial or complete liquidation. However, dividends paid out of the Bank's current or accumulated earnings and profits, as calculated for federal income tax purposes, will not be considered to result in a distribution from the Bank's bad debt reserve. Thus, any dividends to the Company that would reduce amounts appropriated to the Bank's bad debt reserve and deducted for federal income tax purposes would create a tax liability for the Bank. The amount of additional taxable income created from an Excess Distribution is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. If the Bank makes a "non-dividend distribution," then approximately one and one-half times the amount so used would be includable in gross income for federal income tax purposes, assuming a 35% corporate income tax rate (exclusive of state and local taxes). The Bank does not intend to pay dividends that would result in a recapture of any portion of its bad debt reserve. LIQUIDITY AND CAPITAL RESOURCES The Bank must maintain a sufficient amount of cash and assets which can readily be converted into cash in order to meet cash outflow from normal depositor requirements and loan demands. The Bank's primary sources of funds are deposits, loan amortization and prepayments, sales or maturities of investment securities and income on earning assets. In addition to loan payments and maturing investment securities, which are relatively predictable sources of funds, the Bank maintains a high percentage of its assets invested in overnight federal funds sold, which can be immediately converted into cash and United States Treasury and Government agency securities, which can be sold or pledged to raise funds. At September 30, 1996 the Bank had $87.0 million or 9.9% of total assets and $172.2 million or 19.6% of total assets invested respectively in overnight federal funds sold and United States Treasury and Government agency obligations. The Bank is an FDIC insured institution subject to the FDIC regulatory capital requirements. The FDIC regulations require all FDIC insured institutions to maintain minimum levels of Tier 1 capital. Highly rated banks (i.e., those with a composite rating of 1 under the CAMEL rating system) are required to maintain Tier 1 capital of at least 3% of their total assets. All other banks are required to have Tier 1 capital of 4% to 5%. The FDIC has authority to impose higher requirements for individual banks. The Bank is also required to maintain a minimum level of risk-based capital. Under the new risk-based capital standards, FDIC insured institutions generally are expected to meet a minimum total qualifying capital to risk-weighted assets ratio of 8.00%. At September 30, 1996, the Bank had ratios of Tier 1 capital to total assets of 9.63% and qualifying capital to risk-weighted assets of 33.90%. The Company had ratios of Tier 1 capital to total assets of 9.69% and total qualifying capital to risk-weighted assets of 34.08% at September 30, 1996. IMPACT OF INFLATION AND CHANGING PRICES MASSBANK Corp.'s financial statements presented herein have been prepared in accordance with generally accepted accounting principles which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time, due to the fact that substantially all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. RECENT ACCOUNTING DEVELOPMENTS In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". This Statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on consistent application of a financial-components approach that focuses on control. It distinguishes transfers of financial assets that are sales from transfers that are secured borrowings. Under the financial-components approach, after a transfer of financial assets, an entity recognizes all financial and servicing assets it controls and liabilities it has incurred and derecognizes financial assets it no longer controls and liabilities that have been extinguished. The financial-components approach focuses on the assets and liabilities that exist after the transfer. Many of these assets and liabilities are components of financial assets that existed prior to the transfer. If a transfer does not meet the criteria for a sale, the transfer is accounted for as a secured borrowing with a pledge of collateral. The Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996, and should be applied prospectively. Earlier or retroactive application of this Statement is not permitted. The Company has not yet determined the impact that this Statement will have on the Company's consolidated financial statements. PART II - OTHER INFORMATION Item 1. Legal Proceedings From time to time, MASSBANK Corp. and/or the Bank are involved as a plaintiff or defendant in various legal actions incident to their business. As of September 30, 1996, none of these actions individually or in the aggregate is believed by management to be material to the financial condition of MASSBANK Corp. or the Bank. Item 2. Changes in Securities Not Applicable. Item 3. Defaults Upon Senior Securities Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K a. Exhibits Exhibit No. 11.1: Statement regarding computation of per share earnings. b. Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MASSBANK Corp. & Subsidiaries _____________________________ (Registrant) Date November 8, 1996 /s/Gerard H. Brandi ___________________________ (Signature) Gerard H. Brandi President and CEO Date November 8, 1996 /s/Reginald E. Cormier ___________________________ (Signature) Reginald E. Cormier V.P., Treasurer and CFO EX-1 2 EXHIBIT 11.1 MASSBANK CORP. Earnings Per Share The following is a calculation of earnings per share for the three months and nine months ended September 30, 1996 and 1995.
Three Months Ended Nine Months Ended Calculation of Primary September 30, September 30, Earnings Per Share 1996 1995 1996 1995 ______________________________ ____ ____ ____ ____ Average common shares outstanding 2,690,435 2,736,869 2,721,886 2,762,929 Less: Unallocated Employee Stock Ownership Plan (ESOP) shares not committed to be released (46,200) (52,800) (46,200) (52,800) Shares assumed to be repurchased under treasury stock method for stock options 71,879 90,043 75,519 76,641 _______ _______ _______ _______ Total Shares 2,716,114 2,774,112 2,751,205 2,786,770 __________ __________ _________ _________ Net Income $2,444,000 $2,217,000 $7,037,000 $6,512,000 __________ __________ __________ __________ Per Share Amount $ 0.90 $ 0.80 $ 2.56 $ 2.34 __________ __________ __________ __________
Three Months Ended Nine Months Ended Calculation of Fully Diluted September 30, September 30, Earnings Per Share 1996 1995 1996 1995 ______________________________ ____ ____ ____ ____ Average common shares outstanding 2,690,435 2,736,869 2,721,886 2,762,929 Less: Unallocated Employee Stock Ownership Plan (ESOP) shares not committed to be released (46,200) (52,800) (46,200) (52,800) Shares assumed to be repurchased under treasury stock method of stock options 72,499 97,088 76,069 97,088 ________ _______ _______ _______ Total Shares 2,716,734 2,781,157 2,751,755 2,807,217 _________ _________ _________ _________ Net Income $2,444,000 $2,217,000 $7,037,000 $6,512,000 __________ __________ __________ __________ Per Share Amount $ 0.90 $ 0.80 $ 2.56 $ 2.32
EX-27 3
9 0000799166 MASSBANK CORP. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 5,377 1,723 86,976 4,639 495,971 164 164 250,759 (2,349) 879,132 783,399 1,222 5,945 1,093 5,474 0 0 81,999 879,132 14,661 24,035 4,585 43,281 24,589 24,589 18,692 150 680 9,007 11,579 11,579 0 0 7,037 2.56 2.56 2.96 1,925 0 0 1,925 2,529 (370) 40 2,349 2,334 0 15
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