-----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, VvwztpJFB3lvebbg+QFdZqod0il4DO0E1b8vd06t9CfrY7L+i9BmaZtcr4BQt0DV 543TUDfOTwZoxrSMOHRYFQ== 0000799166-98-000004.txt : 19980512 0000799166-98-000004.hdr.sgml : 19980512 ACCESSION NUMBER: 0000799166-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980511 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: SEC FILE NUMBER: 000-15137 FILM NUMBER: 98615107 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 March 31, 1998 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: (781) 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 April 23, 1998: 3,586,878 shares. MASSBANK CORP. AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION Page ITEM 1. Financial Statements Consolidated Balance Sheets as of March 31, 1998 (unaudited) and December 31, 1997 3 Consolidated Statements of Income (unaudited) for the three months ended March 31, 1998 and 1997 4 Consolidated Statements of Changes in Stockholders' Equity for the three months ended March 31, 1998 (unaudited) and the year ended December 31, 1997 5 - 6 Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 1998 and 1997 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)
March 31, December 31, 1998 1997 ____ ____ (unaudited) Assets: Cash and due from banks $ 6,347 $ 6,808 Short-term investments (Note 3) 120,360 109,755 ______________________________________________________________________________ Total cash and cash equivalents 126,707 116,563 Term federal funds sold 20,000 20,000 Interest-bearing deposits in banks 2,552 2,083 Securities held to maturity, at amortized cost (market value of $367 in 1998 and $372 in 1997) 367 372 Securities available for sale, at market value (amortized cost of $451,748 in 1998 and $466,749 in 1997) 468,611 482,224 Trading securities, at market value 23,728 21,260 Loans: (Note 4) Mortgage loans 254,237 248,798 Other loans 22,719 23,505 Less: allowance for loan losses (2,377) (2,334) ______________________________________________________________________________ Net loans 274,579 269,969 Premises and equipment 4,328 4,369 Accrued interest receivable 5,364 5,395 Goodwill 1,462 1,487 Other assets 1,752 1,681 ______________________________________________________________________________ Total assets $929,450 $925,403 Liabilities and Stockholders' Equity: Deposits $809,757 $809,850 Escrow deposits of borrowers 1,548 1,502 Employee stock ownership plan liability 781 781 Accrued and deferred income taxes payable 6,514 6,167 Other liabilities 3,789 3,324 ______________________________________________________________________________ Total liabilities 822,389 821,624 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, 7,352,900 and 7,336,800 shares issued, respectively 7,353 7,337 Additional paid-in capital 59,127 58,737 Retained earnings 72,937 70,984 ______________________________________________________________________________ 139,417 137,058 Accumulated other comprehensive income: Net unrealized gains on securities available for sale, net of tax effect 9,994 9,071 Treasury stock at cost, 3,766,022 shares (41,569) (41,569) Common stock acquired by ESOP ( 781) ( 781) ______________________________________________________________________________ Total stockholders' equity 107,061 103,779 ______________________________________________________________________________ Total liabilities and stockholders' equity $929,450 $925,403 See accompanying condensed notes to consolidated financial statements.
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three months ended March 31, (In thousands except share data) 1998 1997 ________________________________________________________________________________ Interest and dividend income: Mortgage Loans $ 4,650 $ 4,237 Other loans 525 560 Securities available for sale: Mortgage-backed securities 5,561 5,365 Other securities 2,188 2,682 Trading securities 296 95 Federal funds sold 1,503 1,482 Other investments 370 339 ________________________________________________________________________________ Total interest and dividend income 15,093 14,760 ________________________________________________________________________________ Interest expense: Deposits 8,521 8,349 ________________________________________________________________________________ Total interest expense 8,521 8,349 ________________________________________________________________________________ Net interest income 6,572 6,411 Provision for loan losses 45 68 ________________________________________________________________________________ Net interest income after provision for loan losses 6,527 6,343 ________________________________________________________________________________ Non-interest income: Deposit account service fees 211 222 Gains on securities, net 812 468 Other 223 204 ________________________________________________________________________________ Total non-interest income 1,246 894 ________________________________________________________________________________ Non-interest expense: Salaries and employee benefits 1,973 1,869 Occupancy and equipment 555 503 Data processing 130 145 Professional services 121 177 Advertising and marketing 43 56 Amortization of intangibles 69 58 Other 365 387 ________________________________________________________________________________ Total non-interest expense 3,256 3,195 ________________________________________________________________________________ Income before income taxes 4,517 4,042 Income tax expense 1,683 1,569 ________________________________________________________________________________ Net income $ 2,834 $ 2,473 ________________________________________________________________________________ Weighted average common shares outstanding: Basic 3,534,654 3,529,781 Diluted 3,696,584 3,646,863 ________________________________________________________________________________ Earnings per share (in dollars): Basic $ 0.80 $ 0.70 Diluted 0.77 0.68 See accompanying condensed notes to consolidated financial statements.
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For The Three Months Ended March 31, 1998 (unaudited) (In thousands except share data)
ACCUMULATED COMMON ADDITIONAL OTHER STOCK COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE ACQUIRED STOCK CAPITAL EARNINGS STOCK INCOME BY ESOP TOTAL ________ __________ _________ __________ __________ _________ ________ Balance at December 31, 1997 $7,337 $58,737 $70,984 $(41,569) $9,071 $(781) $103,779 Net Income -- -- 2 ,834 -- -- -- 2,834 Other incomprehensive income, net of tax: Unrealized gains on securities, net of reclassification adjustment (Note 5) -- -- -- -- 923 -- 923 _____ Comprehensive income 3,757 Cash dividends declared and paid ($0.25 per share) -- -- (884) -- -- -- (884) Tax benefit resulting from dividends paid on unallocated shares held by the ESOP -- -- 3 -- -- -- 3 Amortization of ESOP shares committed to be released -- 66 -- -- -- -- 66 Exercise of stock options and related tax benefits 16 324 -- -- -- -- 340 ___________________________________________________________________________________________________________________________ Balance at March 31, 1998 $7,353 $59,127 $72,937 $(41,569) $9,994 $(781) $107,061 See accompanying condensed notes to consolidated financial statements.
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For The Year Ended December 31, 1997 (unaudited) (In thousands except share data)
ACCUMULATED COMMON ADDITIONAL OTHER STOCK COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE ACQUIRED STOCK CAPITAL EARNINGS STOCK INCOME BY ESOP TOTAL ________ __________ _________ __________ __________ _________ ________ Balance at December 31, 1996 $5,476 $57,858 $65,756 $(39,904) $ 4,001 $(937) $ 92,250 Net income -- -- 10,167 -- -- -- 10,167 Other comprehensive income, net of tax: Unrealized gains on securities, net of reclassification adjustment (Note 5) -- -- -- -- 5,070 -- 5,070 ______ Comprehensive income 15,237 Cash dividends declared and paid ($0.885 per share) -- -- (3,124) -- -- -- (3,124) Tax benefit resulting from dividends paid on unallocated shares held by the ESOP -- -- 15 -- -- -- 15 Net decrease in liability to ESOP -- -- -- -- -- 156 156 Amortization of ESOP shares committed to be released -- 184 -- -- -- -- 184 Purchase of treasury stock -- -- -- (1,665) -- -- (1,665) Exercise of stock options and related tax benefits 31 695 -- -- -- -- 726 Transfer resulting from four-for-three stock split 1,830 -- (1,830) -- -- -- -- __________________________________________________________________________________________________________________________ Balance at December 31, 1997 $7,337 $58,737 $70,984 $(41,569) $9,071 $(781) $103,779 See accompanying condensed notes to consolidated financial statements.
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended March 31, 1998 1997 ____ ____ (In thousands) Cash flows from operating activities: Net income $ 2,834 $ 2,473 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 230 189 Loan interest capitalized (11) -- Amortization of ESOP shares committed to be released 66 -- Decrease (increase) in accrued interest receivable 31 (170) Increase in other liabilities 497 250 Decrease in current income taxes payable (182) (434) Accretion of discounts on securities, net of amortization of premiums (282) (259) Net trading securities activity (1,325) (8,589) Gains on securities available for sale (780) (500) (Gains) losses on trading securities (32) 32 Increase in deferred mortgage loan origination fees, net of amortization 46 45 Deferred income tax expense (benefit) 63 (42) Increase in other assets (62) (146) Loans originated for sale (129) -- Loans sold 129 -- Provision for loan losses 45 68 Gains on sales of real estate acquired through foreclosure (1) (7) Increase in escrow deposits of borrowers 46 135 __________________________________________________________________________________________ Net cash provided by (used in) operating activities 1,183 (6,955) __________________________________________________________________________________________ Cash flows from investing activities: Purchases of term federal funds (10,000) (5,000) Proceeds from maturities of term federal funds 10,000 -- Increase in interest bearing bank deposits (469) (29) Proceeds from sales of investment securities available for sale 5,073 9,279 Proceeds from maturities of investment securities available for sale 14,500 13,000 Purchases of investment securities available for sale (19,005) (30,835) Purchases of mortgage-backed securities -- (19,713) Principal repayments of mortgage-backed securities 14,351 8,789 Principal repayments of securities held to maturity 5 4 Principal repayments of securities available for sale 1 -- Loans originated (19,632) (12,798)
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (unaudited)
Three Months Ended March 31, 1998 1997 ____ ____ (In thousands) Cash flows from investing activities: (Continued) Loan principal payments received 14,834 10,478 Purchases of premises & equipment (109) (84) Proceeds from sales of real estate acquired through foreclosure 89 284 __________________________________________________________________________________________ Net cash provided by (used in) investing activities 9,638 (26,625) __________________________________________________________________________________________ Cash flows from financing activities: Net (decrease) increase in deposits (137) 6,565 Payments to acquire treasury stock -- (202) Issuance of common stock under stock option plan 269 70 Tax benefit resulting from stock options exercised 71 17 Dividends paid on common stock (884) (716) Tax benefit resulting from dividends paid on unallocated shares held by the ESOP 4 3 __________________________________________________________________________________________ Net cash (used in) provided by financing activities (677) 5,737 __________________________________________________________________________________________ Net increase (decrease) in cash and cash equivalents 10,144 (27,843) Cash and cash equivalents at beginning of period 116,563 140,922 _________________________________________________________________________________________ Cash and cash equivalents at end of period $126,707 $113,079 _________________________________________________________________________________________ Supplemental cash flow disclosures: Cash transactions: Cash paid during the period for interest $8,522 $8,338 Cash paid during the period for taxes, net of refunds 1,403 2,023 Sales of securities incomplete (not settled) at beginning of period which settled during the period 32 30 Non-cash transactions: SFAS 115: Increase (decrease) in stockholders' equity 923 (3,950) Increase (decrease) in deferred tax liabilities 466 (2,770) Transfers from loans to real estate acquired through foreclosure 88 217 Purchases of securities incomplete (not settled) at end of period -- 10,551 Sales of securities incomplete (not settled) at end of period -- 151 Transfers from securities available for sale to trading securities 1,111 -- Transfers from premises and equipment to other assets 9 -- _________________________________________________________________________________________ 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 March 31, 1998 and December 31, 1997, and its operating results for the three months ended March 31, 1998 and 1997. 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 Company's per share information reported for the prior year has been restated to reflect the four-for-three stock split of the Company's common stock which was effected in the form of a stock dividend on September 15, 1997. 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, 1997. (2) Cash and Cash Equivalents: For purposes of reporting cash flows, cash and cash equivalents consist of cash and due from banks, and short-term investments with original maturities of less than 90 days. (3) Short-Term Investments Short-term investments consist of the following:
________________________________________________________________________________ At At (In thousands) March 31, 1998 December 31, 1997 ________________________________________________________________________________ Federal funds sold (overnight) $ 95,518 $ 85,241 Money market funds 24,842 24,514 ________________________________________________________________________________ Total short-term investments $120,360 $109,755 ________________________________________________________________________________ The investments above are stated at cost which approximates market value and have original maturities of 90 days or less.
(4) Commitments At March 31, 1998, the Company had outstanding commitments to originate mortgage loans and to advance funds for construction loans amounting to $5,986,000 and commitments under existing home equity lines of credit and other loans of approximately $20,752,000 which are not reflected on the consolidated balance sheet. In addition, as of March 31, 1998, the Company had a performance standby letter of credit conveyed to others in the amount of $781,000 which is also not reflected on the consolidated balance sheet. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) (5) Reporting Comprehensive Income Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS 130 establishes standards for reporting and displaying comprehensive income, which is defined as all changes to equity except investments by, and distributions to, shareholders. Net income is a component of comprehensive income, with all other components referred to in the aggregate as other comprehensive income. The Company's other comprehensive income and related tax effect for the three months ended March 31, 1998 and the year ended December 31, 1997 is as follows:
For the Three Months Ended March 31, 1998 ____________________________________________________________________________________ Tax Before-Tax (Expense) Net-of-Tax (In thousands) Amount or Benefit Amount ______ __________ ______ Unrealized gains on securities: Unrealized holding gains arising during period $2,168 $ (795) $1,373 Less: reclassification adjustment for gains realized in net income (780) 330 (450) ______ ________ ______ Net unrealized gains 1,388 (465) 923 ______ ________ ______ Other comprehensive income $1,388 $ (465) $ 923 ______ ________ _____
For the Year Ended December 31, 1997 ____________________________________________________________________________________ Tax Before-Tax (Expense) Net-of-Tax (In thousands) Amount or Benefit Amount ______ __________ ______ Unrealized gains on securities: Unrealized holding gains arising during period $10,411 $(4,290) $6,121 Less: reclassification adjustment for gains realized in net income (1,831) 780 (1,051) ______ ________ ______ Net unrealized gains 8,580 (3,510) 5,070 ______ ________ ______ Other comprehensive income $8,580 $(3,510) $5,070 ______ ________ _____
MASSBANK CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS March 31, 1998 The discussions set forth below and elsewhere herein contain certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. A number of important factors could cause actual results to differ materially from those in the forward- looking statements. Those factors include fluctuations in interest rates, inflation, government regulations and economic conditions and competition in the geographic and business areas in which the Company conducts its operations. Results of Operations for the three months ended March 31, 1998 GENERAL For the quarter ended March 31, 1998, MASSBANK Corp. reported consolidated net income of $2,834,000 or $0.80 in basic earnings per share compared to net income of $2,473,000, or $0.70 in basic earnings per share in the first quarter of 1997. This represents an increase of 14.6% in net income and a 14.3% increase in basic earnings per share. Diluted earnings per share increased to $0.77 per share from $0.68 per share in last year's comparable period, representing an increase of 13.2%. The current and prior year per share amounts reflect the four-for-three stock split of the Company's common stock which was effected in the form of a stock dividend on September 15, 1997. The Company's positive earnings performance in the recent quarter reflects an improvement in net interest income due to continued growth in the Company's average earning assets. Average earning assets for the first quarter of 1998, as shown in the tables appearing on pages 12 and 13 of this Form 10-Q, increased to $907.1 million, up $32.0 million from the corresponding quarter in 1997. Net interest income for the recent quarter was $6,572,000, up $161,000 over the same quarter last year. Results for the quarter ended March 31, 1998 were also influenced by the following: (a) The provision for loan losses was $45,000 in the recent quarter compared to $68,000 in the first quarter of the prior year. (b) Non-interest income for the quarter totalled $1,246,000, an increase of $352,000 or 39% from the same period in 1997. (c) Non-interest expense in the first quarter of 1998 increased 1.9% to $3,256,000 from $3,195,000 in the first quarter of 1997. (d) Income taxes were favorably impacted by the receipt of a non- recurring state income tax refund, net of federal tax, of approximately $44,000.
AVERAGE BALANCE SHEETS Three Months Ended March 31, 1998 1997 ______________ ______________ Interest Average Interest Average Average Income Yield/ Average Income Yield/ (In thousands) Balance Expense Rate Balance Expense Rate (4) (4) (4) (4) __________________________________________________________________________________________ Assets: Earning assets: Federal funds sold $110,451 $ 1,503 5.52% $112,977 $ 1,482 5.32% Short-term investments (2) 27,007 365 5.49 25,666 336 5.31 Investment securities 149,901 2,224 5.93 170,616 2,724 6.39 Mortgage-backed securities 324,699 5,561 6.85 308,492 5,365 6.96 Trading securities 21,955 296 5.40 6,476 95 5.97 Mortgage loans (1) 249,825 4,650 7.45 225,649 4,237 7.51 Other loans (1) 23,256 525 9.14 25,233 560 8.96 __________________________________________________ ________________ Total earning assets 907,094 $15,124 6.68% 875,109 $14,799 6.77% Allowance for loan losses (2,339) (2,200) __________________________________________________________________________________________ Total earning assets less allowance for loan losses 904,755 872,909 Other assets 19,044 17,805 __________________________________________________________________________________________ Total assets $923,799 $890,714 __________________________________________________________________________________________
AVERAGE BALANCE SHEETS - Continued Three Months Ended March 31, 1998 1997 ______________ ______________ Interest Average Interest Average Average Income Yield/ Average Income Yield/ (In thousands) Balance Expense Rate Balance Expense Rate (4) (4) (4) (4) __________________________________________________________________________________________ Liabilities: Deposits: Demand and NOW $ 67,050 $ 133 0.80% $ 63,359 $ 128 0.82% Savings 353,515 2,982 3.42 357,098 3,053 3.47 Time certificates of deposit 386,843 5,406 5.67 371,170 5,168 5.65 __________________________________________________ ________________ Total deposits 807,408 8,521 4.28 791,627 8,349 4.28 Other liabilities 10,467 5,778 __________________________________________________________________________________________ Total liabilities 817,875 797,405 Stockholders' Equity 105,924 93,309 __________________________________________________________________________________________ Total liabilities and stockholders' equity $923,799 $890,714 __________________________________________________________________________________________ Net interest income (tax-equivalent basis) 6,603 6,450 Less adjustment of tax-exempt interest income 31 39 __________________________________________________________________________________________ Net interest income $ 6,572 $ 6,411 __________________________________________________________________________________________ Interest rate spread 2.40% 2.49% __________________________________________________________________________________________ Net interest margin (3) 2.91% 2.95% __________________________________________________________________________________________ (1) Loans on non-accrual status are included in the average balance. (2) Short-term investments consist of interest-bearing deposits in banks and investments in money market funds. (3) Net interest income (tax equivalent basis) before provision for loan losses divided by average interest-earning assets. (4) Includes the effects of SFAS No. 115.
Net Interest Income Net interest income was $6.572 million for the first quarter of 1998 as compared to $6.411 million for the same period in 1997. This increase resulted from the growth in the Company's interest-earning assets partially offset by a decrease in net interest margin. The net interest margin for the three months ended March 31, 1998 and 1997 was 2.91% and 2.95%, respectively. The Company's interest rate spread decreased to 2.40% for the first quarter of 1998, from 2.49% in the first quarter of 1997. The yield on the Company's average earning assets in the first quarter of 1998 decreased by 9 basis points to 6.68% from 6.77% in the corresponding quarter of 1997. The Company's average cost of funds in the recent quarter was 4.28% the same as in the first quarter of the prior year. Provision for Loan Losses The allowance for loan losses 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 affect the borrower's 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 loan 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. The provision for loan losses for the first quarter of 1998 was $45,000 versus $68,000 for the comparable period in 1997. This decrease was essentially due to lower net loan charge-offs. Loan charge-offs net of recoveries equalled $2,000 in the recent quarter, down from $95,000 for the same quarter last year. The reserve coverage as a percentage of the Bank's non-performing assets showed improvement in the recent quarter. At March 31, 1998, MASSBANK's allowance for loan losses totalled $2.377 million representing 152.3% of non-performing assets compared to $2.210 million representing 128.6% of non-performing assets at the end of the first quarter in 1997. Non-Interest Income Non-interest income consists of deposit account service fees, net gains on securities and other non-interest income. Non-interest income for the first quarter of 1998 totalled $1,246,000, up $352,000 or approximately 39% from the $894,000 reported in the corresponding quarter last year. This growth is primarily attributable to an increase in net securities gains. The Company has benefited from the stock market's favorable performance. The Company's equity portfolio has yielded substantial realized and unrealized gains. Net unrealized gains in the equity securities portfolio totalled $9.5 million at March 31, 1998. The Company reported net securities gains of $812,000 for the recent quarter compared to $468,000 for the same quarter last year. Non-Interest Expense Non-interest expenses increased by $61,000, or 1.9% to $3,256,000 in the first quarter of 1998 from $3,195,000 in the first quarter of 1997. Salaries and employee benefits, the largest component of non-interest expense, increased $104,000 or 5.6% from $1,869,000 in the first quarter of 1997 to $1,973,000 in the recent quarter. This increase is due principally to salary increases and an increase in the Company's employee stock ownership plan (ESOP) expense. The expense related to this plan is tied closely to the market value of the Company's common stock. The market value of the Company's common stock has increased from $30.75 per share at March 31, 1997 to $50.125 per share at March 31, 1998. The Company's favorable stock performance has resulted in a higher ESOP expense for the Company. Occupancy and equipment expenses increased from $503,000 in the first quarter of 1997 to $555,000 in the first quarter of 1998. This increase reflects higher real estate taxes and depreciation expense, due in part, to the Glendale Co-operative Bank acquisition in July 1997 and the Bank's investment in new computer systems during the past year. Professional services expenses decreased from $177,000 in the first quarter of 1997 to $121,000 in the recent quarter. This was due, in large part, to a decrease in legal fees. All other non-interest expenses combined decreased by $39,000 or 6.0%, from $646,000 for the three months ended March 31, 1997 to $607,000 for the three months ended March 31, 1998. Income Tax Expense The Company, the Bank and its subsidiaries file a consolidated federal income tax return. The Company, in the recent quarter, changed its tax year from a tax year ending October 31 to a tax year ending December 31. The Company will be filing the short period tax returns required by this change. 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 $1,683,000 for the three months ended March 31, 1998 from $1,569,000 for the same period in 1997. The Company's combined effective income tax rate for the first quarter of 1998 is 37.3% as compared to 38.8% for the same quarter a year ago. The reduction in effective income tax rate is partly due to a state income tax refund of approximately $44,000, net of federal tax, that the Company received in the recent quarter, representing the final settlement of a state income tax issue for prior years. Financial Condition Total assets at March 31, 1998 were $929.5 million, an increase of $4.1 million from $925.4 million at December 31, 1997. The Company's securities available for sale portfolio in the recent quarter decreased $13.6 million. This was partially offset by an increase of $10.6 million in short-term investments. MASSBANK's loan portfolio increased to $277.0 million at March 31, 1998 reflecting a net increase in loans of $4.7 million in the first quarter of 1998. This improvement was due to an increase in loan originations. Loan originations totaled $19.8 million in the three months ended March 31, 1998, up 55%, or $7.0 million compared to $12.8 million in the three months ended March 31, 1997. Total deposits were $809.8 million at March 31, 1998 essentially unchanged from $809.9 million at year end 1997. Total stockholders' equity rose to $107.1 million at March 31, 1998 from $103.8 million at December 31, 1997. Book value increased to $29.85 per share, from $29.06 per share at year end 1997. The Company's book value per share has increased $4.73 or 18.8% since March 31, 1997. Investments Total investments consisting of investment securities, short-term investments, term federal funds sold and interest-bearing bank deposits equalled $635.6 million at March 31, 1998, essentially unchanged from $635.7 million at year end 1997. These investments are principally in federal funds sold, short-term U.S. Treasury notes and government agency fifteen year mortgage-backed securities. The Bank also maintains an equity securities portfolio, valued at $17.6 million as of March 31, 1998, that has yielded substantial realized and unrealized gains. Nearly all of the Bank's investment securities are classified as available for sale or trading securities. Management evaluates its investment alternatives in order to properly manage the mix of assets on its balance sheet. Investment securities available for sale and trading securities provide liquidity, facilitate interest rate sensitivity management and enhance the Bank's ability to respond to customers' needs should loan demand increase and/or deposits decline. The Bank continues to maintain a large proportion of its securities portfolio in government agency mortgage-backed securities. These represent an attractive investment with minimal credit risk, no servicing responsibilities, and no delinquencies. The Bank's investment in mortgage-backed securities totalled $316.8 million at March 31, 1998 versus $330.7 million at year end 1997. The Bank also maintains a portfolio of trading securities which consisted of the following as of the dates shown: March 31, December 31, (In thousands) 1998 1997 _____________ ____________ U.S. Treasury bills $21,695 $18,542 Investment in mutual funds 2,033 2,718 _______ _______ Total $23,728 $21,260
FINANCIAL CONDITION INVESTMENT SECURITIES The amortized cost and estimated market value of investment securities at March 31, 1998 with gross unrealized gains and losses, follows: __________________________________________________________________________________________ Gross Gross Amortized Unrealized Unrealized Market (In thousands) At March 31, 1998 Cost Gains Losses Value __________________________________________________________________________________________ Securities held to maturity: Other bonds and obligations $ 367 $ -- $ -- $ 367 __________________________________________________________________________________________ Total securities held to maturity $ 367 $ -- $ -- $ 367 __________________________________________________________________________________________ Securities available for sale: Debt securities: U.S. Treasury obligations $125,374 $ 1,519 $ (16) $126,877 U.S. Government agency obligations 7,304 15 (2) 7,317 __________________________________________________________________________________________ Total 132,678 1,534 (18) 134,194 __________________________________________________________________________________________ Mortgage-backed securities: Government National Mortgage Association 58,176 1,344 (23) 59,497 Federal Home Loan Mortgage Corporation 237,855 4,363 (142) 242,076 Federal National Mortgage Association 7,102 221 -- 7,323 Collateralized mortgage obligations 7,520 71 -- 7,591 Other 271 11 -- 282 __________________________________________________________________________________________ Total mortgage-backed securities 310,924 6,010 (165) 316,769 __________________________________________________________________________________________ Total debt securities 443,602 7,544 (183) 450,963 __________________________________________________________________________________________ Equity securities 8,146 9,502 -- 17,648 __________________________________________________________________________________________ Total securities available for sale 451,748 $ 17,046 $ (183) $468,611 __________________________________________________________________________________________ Net unrealized gains on securities available for sale 16,863 __________________________________________________________________________________________ Total securities available for sale, net $468,611 __________________________________________________________________________________________ Trading securities $ 23,727 $ 23,728 __________________________________________________________________________________________
FINANCIAL CONDITION INVESTMENT SECURITIES (continued) The amortized cost and estimated market value of investment securities at December 31, 1997 with gross unrealized gains and losses, follows: __________________________________________________________________________________________ Gross Gross Amortized Unrealized Unrealized Market (In thousands) At December 31, 1997 Cost Gains Losses Value __________________________________________________________________________________________ Securities held to maturity: Other bonds and obligations $ 372 $ -- $ -- $ 372 __________________________________________________________________________________________ Total securities held to maturity $ 372 $ -- $ -- $ 372 __________________________________________________________________________________________ Securities available for sale: Debt securities: U.S. Treasury obligations $121,399 $ 1,622 $ -- $123,021 U.S. Government agency obligations 9,800 24 (11) 9,813 __________________________________________________________________________________________ Total 131,199 1,646 (11) 132,834 __________________________________________________________________________________________ Mortgage-backed securities: Government National Mortgage Association 60,493 1,247 (31) 61,709 Federal Home Loan Mortgage Corporation 248,744 4,257 (180) 252,821 Federal National Mortgage Association 7,733 258 -- 7,991 Collateralized mortgage obligations 7,836 62 -- 7,898 Other 298 14 -- 312 __________________________________________________________________________________________ Total mortgage-backed securities 325,104 5,838 (211) 330,731 __________________________________________________________________________________________ Total debt securities 456,303 7,484 (222) 463,565 __________________________________________________________________________________________ Investments in mutual funds 1,110 4 -- 1,114 Equity securities 9,336 8,227 (18) 17,545 __________________________________________________________________________________________ Total securities available for sale 466,749 $ 15,715 $ (240) $482,224 __________________________________________________________________________________________ Net unrealized gains on securities available for sale 15,475 __________________________________________________________________________________________ Total securities available for sale, net $482,224 __________________________________________________________________________________________ Trading securities $ 21,305 $ 21,260 __________________________________________________________________________________________
INVESTMENT SECURITIES (continued) The amortized cost and estimated market value of debt securities held to maturity and debt securities available for sale by contractual maturity at March 31, 1998 and December 31, 1997 are as follows: March 31, 1998 ____________________________________________ Available for Sale Held to Maturity Amortized Market Amortized Market Maturing: Cost Value Cost Value (In thousands) Within 1 year $ 34,786 $ 34,929 $ -- $ -- After 1 year but within 5 years 92,752 94,107 230 230 After 5 years but within 10 years 4,941 4,960 93 93 After 10 years but within 15 years -- -- 44 44 After 15 years 199 198 -- -- ________ _______ ______ ______ 132,678 134,194 367 367 Mortgage-backed securities 310,924 316,769 -- -- ________ _______ ______ ______ $443,602 $450,963 $ 367 $ 367
December 31, 1997 ____________________________________________ Available for Sale Held to Maturity Amortized Market Amortized Market Maturing: Cost Value Cost Value (In thousands) Within 1 year $ 37,869 $ 38,007 $ -- $ -- After 1 year but within 5 years 92,130 93,634 230 230 After 5 years but within 10 years 1,000 994 97 97 After 15 years 200 199 45 45 ________ _______ ______ ______ 131,199 132,834 372 372 Mortgage-backed securities 325,104 330,731 -- -- ________ _______ ______ ______ $456,303 $463,565 $ 372 $ 372
LOANS The composition of the Bank's loan portfolio is summarized as follows: _______________________________________________________________________________________ At At (In thousands) March 31, 1998 December 31, 1997 _______________________________________________________________________________________ Mortgage loans: Residential $251,555 $245,325 Commercial 2,690 3,861 Construction 941 492 _______________________________________________________________________________________ 255,186 249,678 Add: Premium on loans 320 343 Less: deferred mortgage loan origination fees (1,269) (1,223) _______________________________________________________________________________________ Total mortgage loans 254,237 248,798 Other loans: Consumer: Installment 2,055 2,199 Guaranteed education 8,842 8,934 Other secured 1,475 1,600 Home equity lines of credit 10,070 10,470 Unsecured 254 266 _______________________________________________________________________________________ Total consumer loans 22,696 23,469 Commercial 23 36 _______________________________________________________________________________________ Total other loans 22,719 23,505 _______________________________________________________________________________________ Total loans $276,956 $272,303 _______________________________________________________________________________________ The Bank's loan portfolio increased $4.7 million during the first three months of 1998, from $272.3 million at December 31, 1997 to $277.0 million at March 31, 1998. Most of the increase was in the residential 1-4 family category. Loan originations increased to $19.8 million in the first quarter of 1998 compared to $12.8 million in the first quarter of last year, an increase of $7.0 million or 55%.
NON-PERFORMING ASSETS The following table shows the composition of the Bank's non-performing assets at March 31, 1998 and 1997, and December 31, 1997: At At At March 31, December 31, March 31, (In thousands) 1998 1997 1997 ____________________________________________________________________________________ Non-Performing Assets: Non-accrual loans $ 1,561 $ 1,771 $ 1,275 Real estate acquired through foreclosure -- -- 443 ____________________________________________________________________________________ Total non-performing assets $ 1,561 $ 1,771 $ 1,718 ____________________________________________________________________________________ Allowance for possible loan losses $ 2,377 $ 2,334 $ 2,210 Allowance as percent of non-performing assets 152.3 % 131.9 % 128.6 % Non-accrual loans as percent of total loans 0.56% 0.65% 0.51% Non-performing assets as percent of total assets 0.17% 0.19% 0.19% ____________________________________________________________________________________ The Bank generally 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 non-accrual 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 from December 31, 1997 to March 31, 1998 as noted in the table above. The principal balance of non-accrual loans was $1.6 million, or approximately 6/10 of 1% of total loans and real estate acquired through foreclosure remained at zero, a milestone reached at year-end 1997. 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 March 31, 1998.
ALLOWANCE FOR LOAN LOSSES An analysis of the activity in the allowance for loan losses is as follows: Three Months Ended March 31, 1998 1997 _______________________________________________________________________________ (In thousands) Balance at beginning of period $ 2,334 $ 2,237 Provision for loan losses 45 68 Recoveries of loans previously charged-off 6 35 Less: Charge-offs (8) (130) _________________________________________________________________________________ Balance at end of period $ 2,377 $ 2,210 _________________________________________________________________________________
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 March 31, 1998 the balance of the allowance for loan losses was $2,377,000 representing 152.3% of non-accrual 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 decreased by approximately $0.1 million to $809.8 million at March 31, 1998 from $809.9 million at December 31, 1997. The composition of the Bank's total deposits as of the dates shown are summarized as follows:
March 31, December 31, 1998 1997 ______________________________________________________________________________ (In thousands) Demand and NOW $ 67,775 $ 66,859 Savings and money market accounts 356,717 352,875 Time certificates of deposit 386,139 391,034 Deposit acquisition premium, net of amortization (874) (918) ________________________________________________________________________________ Total deposits $809,757 $809,850 ________________________________________________________________________________
Recent Accounting Developments "Disclosures about Segments of an Enterprise and Related Information" In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". This Statement establishes standards for reporting information about operating segments. An operating segment is defined as a component of an enterprise for which separate financial information is available and reviewed regularly by the enterprise's chief operating decision maker in order to make decisions about resources to be allocated to the segment and also to evaluate the segment's performance. SFAS No. 131 requires a company to disclose certain balance sheet and income statement information by operating segment, as well as provide a reconciliation of operating segment information to the company's consolidated balances. This Statement is effective for 1998 annual financial statements. Segment information need not be reported in financial statements for interim periods in the initial year of application. 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 outflows 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 March 31, 1998 the Bank had $95.5 million or 10.3% of total assets and $134.2 million or 14.4% of total assets invested, respectively, in overnight federal funds sold and United States obligations. The Bank is a Federal Deposit Insurance Corporation ("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 a minimum leverage ratio of Tier 1 capital to total assets of at least 3.00%. An additional 100 to 200 basis points are required for all but these most highly rated institutions. The Bank is also required to maintain a minimum level of risk-based capital. Under the new risk-based capital standards, FDIC insured institutions must maintain a Tier 1 capital to risk-weighted assets ratio of 4.00% and are generally expected to meet a minimum total qualifying capital to risk-weighted assets ratio of 8.00%. The new risk-based capital guidelines take into consideration risk factors, as defined by the regulators, associated with various categories of assets, both on and off the balance sheet. Under the guidelines, capital strength is measured in two tiers which are used in conjunction with risk adjusted assets to determine the risk-based capital ratios. Tier II components include supplemental capital components such as qualifying allowance for loan losses and qualifying subordinated debt. Tier I plus the Tier II capital components is referred to as total qualifying capital. The capital ratios of the Bank and the Company currently exceed the minimum regulatory requirements. At March 31, 1998, the Bank had a leverage Tier I capital to total assets ratio of 9.90%, a Tier I capital to risk- weighted assets ratio of 33.17% and a total capital to risk-weighted assets ratio of 34.04%. The Company, on a consolidated basis, had ratios of leverage Tier I capital to total assets of 10.39%, Tier I capital to risk-weighted assets of 34.80% and total capital to risk-weighted assets of 35.67% at March 31, 1998. 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. 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 March 31, 1998, 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 May 11, 1998 /s/Gerard H. Brandi ___________________________ (Signature) Gerard H. Brandi President and CEO Date May 11, 1998 /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 ended March 31, 1998 and 1997. Three Months Ended Calculation of Basic March 31, Earnings Per Share 1998 1997 ______________________________ __________ __________ Net Income $2,834,000 $2,473,000 _________ _________ Average common shares outstanding 3,578,654 3,582,581 Less: Unallocated Employee Stock Ownership Plan (ESOP) shares not committed to be released (44,000) (52,800) __________ _________ Weighted average shares outstanding 3,534,654 3,529,781 __________ _________ Earnings per share (in dollars) $ 0.80 $ 0.70 __________ __________
[CAPTION] Three Months Ended Calculation of Diluted March 31, Earnings Per Share 1998 1997 ______________________________ __________ __________ Net Income $2,834,000 $2,473,000 __________ __________ Average common shares outstanding 3,578,654 3,582,581 Less: Unallocated Employee Stock Ownership Plan (ESOP) shares not committed to be released (44,000) (52,800) Diluted stsock options 161,930 117,082 __________ __________ Weighted average shares outstanding 3,696,584 3,646,863 __________ __________ Earnings per share (in dollars) $ 0.77 $ 0.68 __________ __________
EX-27 3
9 0000799166 MASSBANK CORP. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 6,347 2,552 115,518 23,728 468,611 367 367 276,956 (2,377) 929,450 809,757 1,548 10,303 781 0 0 7,353 99,708 929,450 5,175 8,045 1,873 15,093 8,521 8,521 6,572 45 812 3,256 4,517 4,517 0 0 2,834 0.80 0.77 2.91 1,561 0 0 1,561 2,334 (8) 6 2,377 1,645 0 732
EX-27 4
9 0000799166 MASSBANK CORP. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 7,656 1,780 100,707 13,229 495,702 155 155 251,608 (2,210) 901,117 794,973 1,406 13,856 937 5,480 0 0 84,465 901,117 4,797 8,142 1,821 14,760 8,349 8,349 6,411 68 468 3,195 4,042 4,042 0 0 2,473 0.70 0.68 2.95 1,275 0 0 1,275 2,237 (130) 35 2,210 1,913 0 197
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