-----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, Bv+eRnfIiz/KjFO+QDTlhQk/c2VCbKlnMipFZgV5vOKYKxu2eioCpIsDL//38FVk PntM7K1CMSPe5etBrnrDGA== /in/edgar/work/20000810/0000799166-00-000002/0000799166-00-000002.txt : 20000921 0000799166-00-000002.hdr.sgml : 20000921 ACCESSION NUMBER: 0000799166-00-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MASSBANK CORP CENTRAL INDEX KEY: 0000799166 STANDARD INDUSTRIAL CLASSIFICATION: [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: 691007 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 0001.txt 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 June 30, 2000 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 July 31, 2000: 3,248,943 shares. MASSBANK CORP. AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION Page ITEM 1. Financial Statements Consolidated Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999 3 Consolidated Statements of Income (unaudited) for the three months ended June 30, 2000 and 1999 4 and for the six months ended June 30, 2000 and 1999 5 Consolidated Statements of Changes in Stockholders' Equity for the six months ended June 30, 2000 (unaudited) and the year ended December 31, 1999 6 - 7 Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2000 and 1999 8 - 9 Condensed Notes to the Consolidated Financial Statements 10 - 11 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 33 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 33 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings 34 ITEM 2. Changes in Securities 34 ITEM 3. Defaults Upon Senior Securities 34 ITEM 4. Submission of Matters to a Vote of Security Holders 34 ITEM 5. Other Information 34 ITEM 6. Exhibits and Reports on Form 8-K 34 Signature Page 35 MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands except share data)
June 30, December 31, 2000 1999 (unaudited) Assets: Cash and due from banks $ 11,163 $ 10,476 Short-term investments (Note 3) 141,615 110,928 ________________________________________________________________________________ Total cash and cash equivalents 152,778 121,404 Interest-bearing deposits in banks 1,496 3,841 Securities held to maturity, at amortized cost (market value of $230 in 2000 and 1999) 230 230 Securities available for sale, at market value (amortized cost of $442,058 in 2000 and $453,844 in 1999) 441,216 457,502 Trading securities, at market value 2 6,042 Loans: (Note 4) Mortgage loans 280,926 288,580 Other loans 36,698 36,785 Less: allowance for loan losses (2,564) (2,555) ________________________________________________________________________________ Net loans 315,060 322,810 Premises and equipment 4,033 4,127 Real estate acquired through foreclosure -- 62 Accrued interest receivable 4,813 5,045 Goodwill 1,239 1,288 Accrued income tax asset, net 117 292 Deferred income tax asset, net 1,695 -- Other assets 2,476 2,073 ________________________________________________________________________________ Total assets $925,155 $924,716 Liabilities and Stockholders' Equity: Deposits $819,812 $818,057 Escrow deposits of borrowers 1,349 1,477 Employee stock ownership plan liability 468 468 Deferred income taxes payable -- 199 Other liabilities 2,673 3,036 ________________________________________________________________________________ Total liabilities 824,302 823,237 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, 7,412,132 and 7,407,432 shares issued, respectively 7,412 7,407 Additional paid-in capital 61,044 60,591 Retained earnings 89,520 85,873 ________________________________________________________________________________ 157,976 153,871 Accumulated other comprehensive income (loss): (Note 5) Net unrealized gains (losses) on securities available for sale, net of tax effect (681) 1,966 Treasury stock at cost, 4,170,689 and 4,096,189 shares, respectively (55,974) (53,890) Common stock acquired by ESOP (468) (468) ________________________________________________________________________________ Total stockholders' equity 100,853 101,479 ________________________________________________________________________________ Total liabilities and stockholders' equity $925,155 $924,716 See accompanying condensed notes to consolidated financial statements.
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three months ended June 30, (In thousands except share data) 2000 1999 ______________________________________________________________________________ Interest and dividend income: Mortgage Loans $ 4,914 $ 5,138 Other loans 741 486 Securities available for sale: Mortgage-backed securities 4,748 4,360 Other securities 2,380 2,258 Trading securities 12 75 Federal funds sold 2,002 1,704 Other investments 118 324 ______________________________________________________________________________ Total interest and dividend income 14,915 14,345 ______________________________________________________________________________ Interest expense: Deposits 8,621 8,215 ______________________________________________________________________________ Total interest expense 8,621 8,215 ______________________________________________________________________________ Net interest income 6,294 6,130 Provision for loan losses 15 60 ______________________________________________________________________________ Net interest income after provision for loan losses 6,279 6,070 ______________________________________________________________________________ Non-interest income: Deposit account service fees 172 178 Gains on securities, net 886 1,131 Other 235 269 ______________________________________________________________________________ Total non-interest income 1,293 1,578 ______________________________________________________________________________ Non-interest expense: Salaries and employee benefits 1,649 1,893 Occupancy and equipment 501 512 Data processing 117 116 Professional services 498 106 Advertising and marketing 63 47 Amortization of intangibles 83 83 Other 414 365 ______________________________________________________________________________ Total non-interest expense 3,325 3,122 ______________________________________________________________________________ Income before income taxes 4,247 4,526 Income tax expense 1,530 1,660 ______________________________________________________________________________ Net income $ 2,717 $ 2,866 ______________________________________________________________________________ Weighted average common shares outstanding: Basic 3,229,032 3,379,796 Diluted 3,304,904 3,495,618 Earnings per share (in dollars): Basic $ 0.84 $ 0.85 Diluted 0.82 0.82 See accompanying condensed notes to consolidated financial statements.
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Six months ended June 30, (In thousands except share data) 2000 1999 ______________________________________________________________________________ Interest and dividend income: Mortgage Loans $ 9,924 $10,263 Other loans 1,457 921 Securities available for sale: Mortgage-backed securities 9,558 8,815 Other securities 4,785 4,365 Trading securities 53 345 Federal funds sold 3,502 3,367 Other investments 346 642 ______________________________________________________________________________ Total interest and dividend income 29,625 28,718 ______________________________________________________________________________ Interest expense: Deposits 17,042 16,448 ______________________________________________________________________________ Total interest expense 17,042 16,448 ______________________________________________________________________________ Net interest income 12,583 12,270 Provision for loan losses 30 110 ______________________________________________________________________________ Net interest income after provision for loan losses 12,553 12,160 ______________________________________________________________________________ Non-interest income: Deposit account service fees 346 356 Gains on securities, net 1,853 2,509 Other 406 454 ______________________________________________________________________________ Total non-interest income 2,605 3,319 ______________________________________________________________________________ Non-interest expense: Salaries and employee benefits 3,469 3,762 Occupancy and equipment 1,073 1,059 Data processing 245 241 Professional services 666 220 Advertising and marketing 118 95 Amortization of intangibles 165 163 Other 769 750 ______________________________________________________________________________ Total non-interest expense 6,505 6,290 ______________________________________________________________________________ Income before income taxes 8,653 9,189 Income tax expense 3,108 3,410 ______________________________________________________________________________ Net income $ 5,545 $ 5,779 ______________________________________________________________________________ Weighted average common shares outstanding: Basic 3,246,078 3,415,146 Diluted 3,321,132 3,531,267 Earnings per share (in dollars): Basic $ 1.71 $ 1.69 Diluted 1.67 1.64 See accompanying condensed notes to consolidated financial statements.
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For The Six Months Ended June 30, 2000 (unaudited) (In thousands except share data)
ACCUMULATED COMMON ADDITIONAL OTHER STOCK COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE ACQUIRED STOCK CAPITAL EARNINGS STOCK INCOME (LOSS) BY ESOP TOTAL ________ __________ _________ __________ __________ _________ ________ Balance at December 31, 1999 $7,407 $60,591 $85,873 $(53,890) $ 1,966 $(468) $101,479 Net Income -- -- 5 ,545 -- -- -- 5,545 Other comprehensive (loss), net of tax: Unrealized losses on securities, net of reclassification adjustment (Note 5) -- -- -- -- (2,647) -- (2,647) _____ Comprehensive income 2,898 Cash dividends declared and paid ($0.585 per share) -- -- (1,903) -- -- -- (1,903) Tax benefit resulting from dividends paid on unallocated shares held by the ESOP -- -- 5 -- -- -- 5 Amortization of ESOP shares committed to be released -- 45 -- -- -- -- 45 Purchase of Company stock for deferred compensation plan -- 346 -- (346) -- -- -- Purchase of treasury stock -- -- -- (1,738) -- -- (1,738) Exercise of stock options and related tax benefits 5 62 -- -- -- -- 67 ___________________________________________________________________________________________________________________________ Balance at June 30, 2000 $7,412 $61,044 $89,520 $(55,974) $ (681) $(468) $100,853 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, 1999 (unaudited) (In thousands except share data)
ACCUMULATED COMMON ADDITIONAL OTHER STOCK COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE ACQUIRED STOCK CAPITAL EARNINGS STOCK INCOME (LOSS) BY ESOP TOTAL ________ __________ _________ __________ __________ _________ ________ Balance at December 31, 1998 $7,384 $60,003 $78,308 $(46,272) $11,691 $(625) $110,489 Net income -- -- 11,311 -- -- -- 11,311 Other comprehensive (loss), net of tax: Unrealized (losses) on securities, net of reclassification adjustment (Note 5) -- -- -- -- (9,725) -- (9,725) ______ Comprehensive income 1,586 Cash dividends declared and paid ($1.11 per share) -- -- (3,759) -- -- -- (3,759) Tax benefit resulting from dividends paid on unallocated shares held by the ESOP -- -- 13 -- -- -- 13 Net decrease in liability to ESOP -- -- -- -- -- 157 157 Amortization of ESOP shares committed to be released -- 163 -- -- -- -- 163 Purchase of treasury stock -- -- -- (7,618) -- -- (7,618) Exercise of stock options and related tax benefits 23 425 -- -- -- -- 448 __________________________________________________________________________________________________________________________ Balance at December 31, 1999 $7,407 $60,591 $85,873 $(53,890) $ 1,966 $(468) $101,479 See accompanying condensed notes to consolidated financial statements.
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended June 30, 2000 1999 ____ ____ (In thousands) Cash flows from operating activities: Net income $ 5,545 $ 5,779 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 447 469 Loan interest capitalized (22) (21) Amortization of ESOP shares committed to be released 45 88 Decrease in accrued interest receivable 232 27 (Decrease) increase in other liabilities (363) 217 Increase (decrease) in current income taxes payable 175 (944) Accretion of discounts on securities, net of amortization of premiums (422) (547) Net trading securities activity 6,559 25,180 Gains on securities available for sale, net (1,544) (2,486) Gains on trading securities, net (309) (23) (Decrease) increase in deferred mortgage loan origination fees, net of amortization (70) 53 Deferred income tax benefit (42) (94) Decrease (increase) in other assets 113 (217) Provision for loan losses 30 110 Gains on sales of real estate acquired through foreclosure (8) -- Gains on sales of premises and equipment -- (2) Decrease in escrow deposits of borrowers (128) (88) __________________________________________________________________________________________ Net cash provided by operating activities 10,238 27,501 __________________________________________________________________________________________ Cash flows from investing activities: Proceeds from maturities of term federal funds -- 25,000 Net decrease (increase) in interest bearing bank deposits 2,345 (1,516) Proceeds from sales of investment securities available for sale 22,122 41,968 Proceeds from maturities of investment securities available for sale 25,000 42,800 Purchases of investment securities available for sale (44,000) (109,866) Purchases of mortgage-backed securities (13,748) (46,659) Principal repayments of mortgage-backed securities 23,650 41,159 Principal repayments of securities held to maturity -- 124 Principal repayments of securities available for sale 2 41 Loans originated (14,749) (61,042) Loan principal payments received 22,535 34,514 Loans purchased -- (345) Purchases of premises & equipment (162) (264) Proceeds from sales of real estate acquired through foreclosure 70 86 Proceeds from sales of premises and equipment -- 2 __________________________________________________________________________________________ Net cash provided by (used in) investing activities 23,065 (33,998) __________________________________________________________________________________________
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (unaudited)
Six Months Ended June 30, 2000 1999 ____ ____ (In thousands) Cash flows from financing activities: Net increase in deposits 1,640 5,146 Payments to acquire treasury stock (2,084) (3,905) Purchase of Company stock for deferred compensation plan 346 -- Issuance of common stock under stock option plan 67 156 Dividends paid on common stock (1,903) (1,850) Tax benefit resulting from dividends paid on unallocated shares held by the ESOP 5 6 __________________________________________________________________________________________ Net cash used in financing activities (1,929) (447) __________________________________________________________________________________________ Net increase (decrease) in cash and cash equivalents 31,374 (6,944) Cash and cash equivalents at beginning of period 121,404 154,814 __________________________________________________________________________________________ Cash and cash equivalents at end of period $152,778 $147,870 __________________________________________________________________________________________ Supplemental cash flow disclosures: Cash transactions: Cash paid during the period for interest $17,047 $16,454 Cash paid during the period for taxes, net of refunds 2,965 4,402 Purchases of securities executed but not settled at beginning of period which settled during the period 117 129 Sales of securities executed but not settled at beginning of period which settled during the period 202 583 Non-cash transactions: SFAS 115: Decrease in accumulated other comprehensive income (2,647) (6,411) Decrease in deferred tax liabilities (1,853) (4,326) Purchases of securities executed but not settled at end of period 100 6,038 Sales of securities executed but not settled at end of period 701 755 __________________________________________________________________________________________ See accompanying condensed notes to consolidated financial statements.
MASSBANK CORP. CONDENSED 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 June 30, 2000 and December 31, 1999, and its operating results for the three and six months ended June 30, 2000 and 1999. 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, 1999. (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) June 30, 2000 December 31, 1999 ________________________________________________________________________________ Federal funds sold (overnight) $140,142 $ 86,211 Money market funds 1,473 24,717 ________________________________________________________________________________ Total short-term investments $141,615 $110,928 ________________________________________________________________________________ The investments above are stated at cost which approximates market value and have original maturities of 90 days or less. (4) Commitments At June 30, 2000, the Company had outstanding commitments to originate mortgage loans and to advance funds for construction loans amounting to $2,591,000 and commitments under existing home equity lines of credit and other loans of approximately $31,279,000 which are not reflected on the consolidated balance sheet. In addition, as of June 30, 2000, the Company had a performance standby letter of credit conveyed to others in the amount of $468,000 which is also not reflected on the consolidated balance sheet. CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) (5) Comprehensive Income Comprehensive income is defined as "the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources." It includes all changes in equity during a period except those resulting from investments by and distributions to shareholders. The term "comprehensive income" describes the total of all components of comprehensive income including net income. The Company's other comprehensive loss and related tax effect for the six months ended June 30, 2000 and the year ended December 31, 1999 is as follows:
For the Six Months Ended June 30, 2000 ____________________________________________________________________________________ Tax Before-Tax (Expense) Net-of-Tax (In thousands) Amount or Benefit Amount ______ __________ ______ Unrealized losses on securities: Unrealized holding losses arising during period $ (2,956) $1,192 $(1,764) Less: reclassification adjustment for gains realized in net income (1,544) 661 (883) ______ ________ ______ Net unrealized losses (4,500) 1,853 (2,647) ______ ________ ______ Other comprehensive loss $ (4,500) $1,853 $(2,647) ______ ________ _____
For the Year Ended December 31, 1999 ____________________________________________________________________________________ Tax Before-Tax (Expense) Net-of-Tax (In thousands) Amount or Benefit Amount ______ __________ ______ Unrealized losses on securities: Unrealized holding losses arising during period $(12,171) $ 4,716 $(7,455) Less: reclassification adjustment for gains realized in net income (3,954) 1,684 (2,270) ______ ________ ______ Net unrealized losses (16,125) 6,400 (9,725) ______ ________ ______ Other comprehensive loss $(16,125) $ 6,400 $(9,725) ______ ________ ______
MASSBANK CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS June 30, 2000 Cautionary Statement. Certain statements contained in this report or incorporated herein by reference are "forward-looking statements." We may also make written or oral forward-looking statements in other documents we file with the Securities and Exchange Commission, in our annual reports to stockholders, in press releases and other written materials, and in oral statements made by our officers, directors or employees. You can identify forward-looking statements by the use of the words "believe," "expect," "anticipate," "intend," "estimate," "assume" and other similar expressions which predict or indicate future events and trends and which do not relate to historical matters. You should not rely on forward- looking statements, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of the Company. These risks, uncertainties and other factors may cause the actual results, performance or achievements of the Company to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward- looking statements. Some of the factors that might cause these differences include the following: fluctuations in interest rates, price volatility in the stock and bond markets, inflation, government regulations and economic conditions and competition in the geographic and business areas in which the Company conducts its operations; and increases in loan defaults. You should carefully review all of these factors, and you should be aware that there may be other factors that could cause these differences. These forward-looking statements were based on information, plans and estimates at the date of this report, and we do not promise to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes. Results of Operations for the three months ended June 30, 2000 GENERAL For the quarter ended June 30, 2000, MASSBANK Corp. reported consolidated net income of $2,717,000 or $0.84 in basic earnings per share ($0.82 diluted), compared to net income of $2,866,000, or $0.85 in basic earnings per share ($0.82 diluted) in the second quarter of 1999. The Company's second quarter 2000 earnings results include (net) non recurring charges of $363,000 representing professional service fees and other expenses incurred in protecting the Company's registered trademarks against infringement by another financial institution. The other financial institution attempted to use a trade name similar to MASSBANK and the Company took legal action. The dispute has been resolved and the parties involved have entered into a settlement agreement. The other financial institution has been permanently enjoined by the Federal District Court from using certain names or trade names that are similar to MASSBANK. Additionally, as part of the settlement agreement, MASSBANK received a payment in the amount of $100,000 that was applied against the expenses of $463,000 incurred in this case, resulting in net pre-tax charges of $363,000. These charges, on an after tax basis, reduced the Company's net income in the recent quarter by approximately $211,000 or $0.06 in diluted and basic earnings per share. Excluding the impact of non recurring charges, the Company's net income for the quarter ended June 30, 2000 was $2,928,000 or $0.90 in basic earnings per share ($0.88 diluted), compared to net income of $2,866,000 or $0.85 in basic earnings per share ($0.82 diluted) in the second quarter of 1999, representing an increase of 7.3% over the diluted earnings per share results of the prior year. The Company's earnings results for the recent quarter compared to the same quarter of 1999 reflect an increase in net interest income of $164,000 due to an improvement in net interest margin partially offset by a decrease in average earning assets, a decrease in the provision for loan losses of $45,000, and a decrease in the Company's effective income tax rate. These improvements were offset by a decrease in non-interest income of $285,000 due essentially to lower securities gains and an increase of $203,000 in non-interest expense due to (net) non-recurring charges of $363,000 incurred by the Company in the aforementioned trademarks dispute. Additionally, the earnings per share results for the recent quarter were positively affected by the reduced number of average common shares outstanding as a result of the Company's purchase of 169,482 shares of its common stock, in the last twelve months, pursuant to its stock repurchase program.
AVERAGE BALANCE SHEETS Three Months Ended June 30, 2000 1999 ______________ ______________ 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 $128,287 $ 2,002 6.26% $146,374 $ 1,704 4.67% Short-term investments (2) 7,703 115 6.01 27,183 318 4.70 Investment securities 173,306 2,409 5.56 170,281 2,291 5.38 Mortgage-backed securities 270,231 4,748 7.03 258,589 4,360 6.74 Trading securities 860 12 5.32 5,967 75 5.05 Mortgage loans (1) 282,942 4,914 6.95 294,180 5,138 6.99 Other loans (1) 36,545 741 8.10 23,984 486 8.12 __________________________________________________ ________________ Total earning assets 899,874 $14,941 6.64% 926,558 $14,372 6.20% Allowance for loan losses (2,573) (2,502) __________________________________________________________________________________________ Total earning assets less allowance for loan losses 897,301 924,056 Other assets 21,949 19,963 __________________________________________________________________________________________ Total assets $919,250 $944,019
AVERAGE BALANCE SHEETS - (contined) Three Months Ended June 30, 2000 1999 ______________ ______________ 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 $ 76,842 $ 124 0.65% $ 76,086 $ 123 0.65% Savings 345,497 2,929 3.40 352,506 2,991 3.40 Time certificates of deposit 394,686 5,568 5.66 400,042 5,101 5.11 __________________________________________________ ________________ Total deposits 817,025 8,621 4.23 828,634 8,215 3.98 Other liabilities 3,108 8,117 __________________________________________________________________________________________ Total liabilities 820,133 836,751 Stockholders' equity 99,117 107,268 __________________________________________________________________________________________ Total liabilities and stockholders' equity $919,250 $944,019 __________________________________________________________________________________________ Net interest income (tax-equivalent basis) 6,320 6,157 Less adjustment of tax-exempt interest income 26 27 __________________________________________________________________________________________ Net interest income $ 6,294 $ 6,130 __________________________________________________________________________________________ Interest rate spread 2.41% 2.22% __________________________________________________________________________________________ Net interest margin (3) 2.81% 2.66% __________________________________________________________________________________________ (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 The Company's net interest income was $6,294,000 for the second quarter of 2000, an increase of $164,000 over the same quarter a year ago. The recent quarter's increase in net interest income reflects an improvement in the Company's net interest margin. The Company's net interest margin increased to 2.81% in the second quarter of 2000 from 2.66% in the second quarter of the prior year. This improvement was partially offset by a decrease in the Company's average earning assets. Average earning assets in the recent quarter were $899.9 million, down from $926.6 million in the second quarter of 1999. Interest and Dividend Income Interest and dividend income on a fully taxable equivalent basis for the three months ended June 30, 2000, increased to $14,941,000 from $14,372,000 for the three months ended June 30, 1999. The increase in interest income resulted from an improvement in yield on the Company's average earning assets partially offset by a decrease in average earning assets, as noted above. As reflected in the table on page 14 of this report, the yield on average earning assets in the second quarter of 2000 improved 44 basis points to 6.64% from 6.20% in the same quarter of 1999. The Federal Reserve Bank has raised the Federal Funds rate six times in the last twelve months, raising the rate from 4.75% to 6.50%. This increase, because of the Bank's high volume of Federal Funds sold, has helped to improve the overall yield on MASSBANK's earning assets. Also contributing to the increase in yield on earning assets were improvements in yield on the Bank's investment securities and other short-term investments. This is due essentially to the proceeds from sales and maturing securities being reinvested and earning higher returns, due to an increase in market interest rates in the last twelve months. Interest Expense Total interest expense for the three months ended June 30, 2000 was $8,621,000, up from $8,215,000 for the same quarter last year. The Company's average deposits, as shown in the table on page 15, decreased $11.6 million to $817.0 million in the second quarter of 2000, from $828.6 million in the second quarter of 1999. The increase in interest expense resulted from an increase in average cost of funds partially offset by the decrease in interest expense resulting from the lower deposit volume. The Company's average cost of funds for the three months ended June 30, 2000 was 4.23%, up from 3.98% for the comparable period in 1999. 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 for loan losses in the second quarter of 2000 was $15,000 compared to $60,000 in the second quarter of 1999. In determining the amount to provide for loan losses, the key factor is the adequacy of the allowance for loan losses. In making its decision, management considers a number of factors, including the risk characteristics of the loan portfolio, underlying collateral, current and anticipated economic conditions, and trends in loan delinquencies and charge- offs. At June 30, 2000, the allowance for loan losses was $2,564,000 representing 269.0% of nonaccrual loans. The Bank's nonaccrual loans totaled $953,000 at June 30, 2000 compared to $959,000 a year earlier. Net charge-offs for the recent quarter were $20,000 compared to $2,000 in net-charge-offs for the same quarter last year. Management believes that the allowance for loan losses as of June 30, 2000 is adequate to cover the risks inherent in the loan portfolio under current conditions. Non-Interest Income Non-interest income consists of deposit account service fees, net gains on securities and other non-interest income. Non-interest income decreased by $285,000 to $1,293,000 for the recent quarter, from $1,578,000 for the comparable quarter of the prior year. This decrease is due essentially to lower net securities gains in the second quarter of 2000. Net gains on securities totaled $886,000 in the second quarter of this year compared to $1,131,000 in the second quarter of last year. Realized gains on the sale of equity securities totaled $958,000 for the three months ended June 30, 2000. These gains, however, were partially offset by net losses realized on the sale of debt securities of $100,000. The Bank also recorded a mark-to-market gain of $28,000 on its trading account during this same period. The Bank's deposit account service fees and other non-interest income totaled $172,000 and $235,000, respectively, in the second quarter of 2000 compared to $178,000 and $269,000, respectively, in the second quarter of 1999. The decrease in other non-interest income reflects a decrease of $20,000 in income earned on the Bank's deferred compensation plan assets during the recent quarter compared to the same quarter last year. A corresponding reduction of $20,000 is also reflected in non-interest expense. Non-Interest Expense Non-interest expense increased $203,000 to $3,325,000 in the second quarter of 2000, from $3,122,000 in the same quarter of the prior year. This increase is due largely to an increase of $363,000 in professional service fees and other expenses incurred by the Company in protecting its registered trademarks against infringement by another financial institution, as explained on page 13 of this Form 10-Q. Salaries and employee benefits, the largest component of non-interest expense, decreased by $244,000 or 12.9% in the second quarter of 2000 to $1,649,000 from $1,893,000 in the second quarter of the prior year. This decrease is due essentially to two items. (1) A decrease of $163,000 in accrued expenses resulting from a reduction in the estimated year-end payments to employees and officers under the Company's profit sharing and incentive compensation bonus plans. (2) A decrease of $50,000 in the Company's net periodic pension cost for the recent quarter. The estimated profit sharing and incentive compensation bonus expense for the recent quarter has been reduced due, in large part, to the non-recurring expenses that the Company incurred during the quarter in connection with the aforementioned trademarks dispute which reduced the Company's net income for the quarter. Occupancy and equipment expense decreased $11,000 to $501,000 in the second quarter of 2000. This decrease reflects a reduction in equipment expense of $30,000, due in part to lower equipment depreciation expense, partially offset by an increase of $19,000 in occupancy expense due to higher real estate taxes. Professional services expense increased by $392,000 or 369.8% to $498,000 in the recent quarter, from $106,000 for the same quarter last year. This increase is due essentially to the legal fees the Company incurred in connection with the aforementioned trademarks infringement dispute and an increase in legal fees incurred in connection with other business matters. All other expenses combined, consisting of data processing, advertising and marketing, amortization of intangibles and other expenses, increased $66,000 from $611,000 for the three months ended June 30, 1999 to $677,000 for the three months ended June 30, 2000. This is essentially the result of an increase in advertising and marketing expense of $16,000; postage expense of $23,000; deposit insurance of $17,000, and other expenses of $10,000. Income Tax Expense The Company, the Bank and its subsidiaries file a consolidated federal income tax return. 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 Company recorded income tax expense of $1,530,000 in the second quarter of 2000, a decrease of $130,000 when compared to the same quarter last year. The decrease in income tax expense is due primarily to a decrease in income before income taxes and a reduction in the Company's effective income tax rate. The Company's income before income taxes was $4,247,000 in the recent quarter compared to $4,526,000 for the same quarter a year ago. The effective income tax rate for the three months ended June 30, 2000 was 36.0% down from 36.7% for the three months ended June 30, 1999. The decrease in effective income tax rate is due in part to the increased investment income generated by the Bank's two security corporation subsidiaries which are taxed at a lower rate than the Bank for state income tax purposes. Results of Operations for the six months ended June 30, 2000 General For the six months ended June 30, 2000, the Company reported consolidated net income of $5,545,000 or $1.71 in basic earnings per share ($1.67 per share on a diluted basis) compared to net income of $5,779,000 or $1.69 in basic earnings per share ($1.64 per share on a diluted basis) earned in the first half of 1999. Net income for the first six months of 2000 includes (net) non-recurring charges of $363,000 ($211,000 post tax) pertaining to the Company's trademarks infringement dispute with another financial institution. Excluding the impact of these charges, the Company's net income for the first half of 2000 was $5,756,000 or $1.77 in basic earnings per share ($1.73 diluted) compared to $5,779,000 or $1.69 in basic earnings per share ($1.64 diluted) for the same period in 1999. The Company's financial performance in the first six months of 2000 also reflects an improvement in net interest income of $313,000 due to an improvement in net interest margin partially offset by a decrease in average earning assets, a decrease in the provision for loan losses of $80,000, and a decrease in the Company's effective income tax rate. These improvements were offset by a decrease in non-interest income of $714,000 due essentially to lower securities gains and an increase of $215,000 in non-interest expense due to (net) non-recurring charges of $363,000 incurred by the Company in the aforementioned trademarks dispute. Additionally, the earnings per share results for the first half of 2000 were positively affected by the reduced number of average common shares outstanding as a result of the Company's purchase of 169,482 shares of its common stock, in the last twelve months, pursuant to its stock repurchase program.
AVERAGE BALANCE SHEETS Six Months Ended June 30, 2000 1999 ______________ ______________ 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 $116,839 $ 3,502 6.03% $144,699 $ 3,367 4.69% Short-term investments (2) 11,982 341 5.71 26,720 632 4.77 Investment securities 175,164 4,848 5.54 164,552 4,436 5.39 Mortgage-backed securities 273,404 9,558 6.99 260,488 8,815 6.77 Trading securities 2,069 53 5.10 15,570 345 4.47 Mortgage loans (1) 284,926 9,924 6.97 291,214 10,263 7.05 Other loans (1) 36,601 1,457 7.95 22,662 921 8.18 __________________________________________________ ________________ Total earning assets 900,985 $29,683 6.59% 925,905 $28,779 6.22% Allowance for loan losses (2,566) (2,479) __________________________________________________________________________________________ Total earning assets less allowance for loan losses 898,419 923,426 Other assets 21,260 19,827 __________________________________________________________________________________________ Total assets $919,679 $943,253
AVERAGE BALANCE SHEETS - (continued) Six Months Ended June 30, 2000 1999 ______________ ______________ 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 $ 74,946 $ 242 0.65% $ 74,804 $ 261 0.70% Savings 347,957 5,906 3.41 350,098 5,905 3.40 Time certificates of deposit 394,348 10,894 5.56 400,189 10,282 5.18 __________________________________________________ ________________ Total deposits 817,251 17,042 4.19 825,091 16,448 4.02 Other liabilities 3,205 9,251 __________________________________________________________________________________________ Total liabilities 820,456 834,342 Stockholders' equity 99,223 108,911 __________________________________________________________________________________________ Total liabilities and stockholders' equity $919,679 $943,253 __________________________________________________________________________________________ Net interest income (tax-equivalent basis) 12,641 12,331 Less adjustment of tax-exempt interest income 58 61 __________________________________________________________________________________________ Net interest income $12,583 $12,270 __________________________________________________________________________________________ Interest rate spread 2.40% 2.20% __________________________________________________________________________________________ Net interest margin (3) 2.81% 2.66% __________________________________________________________________________________________ (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 totaled $12,583,000 for the six months ended June 30, 2000, compared to $12,270,000 for the same period in 1999. The $313,000 increase is primarily attributable to an improvement in the Company's net interest margin, partially offset by a decrease in average earning assets. The Company's net interest margin for the first six months of 2000 was 2.81% compared to 2.66% for the same period last year. Average earning assets for the six months ended June 30, 2000 decreased $24.9 million to $901.0 million from $925.9 million for the corresponding period in 1999. The Company's interest rate spread increased to 2.40% for the first six months of 2000, from 2.20% in the first six months of last year. The yield on the Company's average earning assets in the first half of 2000 increased by 37 basis points to 6.59% from 6.22% in the corresponding period of 1999. This increase was partially offset by an increase of 17 basis points in the Company's average cost of funds, from 4.02% for the six months ended June 30, 1999 to 4.19% for the same period this year. Provision for Loan Losses The provision for loan losses for the first half of 2000 was $30,000 compared to $110,000 for the same period in 1999. This decrease is essentially due to a decrease in the size of the Bank's loan portfolio and low net loan charge-offs. Loan charge-offs net of recoveries for the six months ended June 30, 2000 and 1999 were $21,000 and $2,000, respectively. 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 six months of 2000 decreased $714,000 to $2,605,000 compared to $3,319,000 for the same period of 1999. This decrease is essentially due to lower net securities gains. Net securities gains totaled $1,853,000 for the six months ended June 30, 2000 compared to $2,509,000 for the six months ended June 30, 1999. Deposit account service fees and other non-interest income combined decreased $58,000 to $752,000 for the first half of 2000 from $810,000 for the first half of 1999. This reduction is due primarily to a decrease of $20,000 in income earned on the Bank's deferred compensation plan assets during the first six months of 2000 compared to the same period last year, a decrease in loan prepayment penalties of $16,000, a decrease in deposit account service fees of $10,000 and a decrease in miscellaneous other non-interest income of $12,000. The Bank's non-interest expense also reflects a corresponding reduction of $20,000 in deferred compensation plan expense for the first half of 2000. Non-Interest Expense Non-interest expense for the first half of 2000 increased $215,000 to $6,505,000 from $6,290,000 for the same period last year. This increase is due to (net) non-recurring charges of $363,000 that the Company incurred in the recent quarter in protecting its trademarks from infringement by another financial institution. The Company's non-interest expense for the first six months of 2000 excluding the aforementioned non-recurring charges decreased 2.4% or $148,000 to $6,142,000 from $6,290,000 for the comparable period last year. The decrease was due primarily to a decrease in salaries and employee benefits expenses. Salaries and employee benefits, the largest component of non-interest expense, decreased $293,000 or 7.8% to $3,469,000 for the first half of 2000 from $3,762,000 for the first half of last year. This reduction is primarily due to a decrease of $178,000 in the Company's profit sharing and deferred compensation plan expense, a decrease of $100,000 in the Company's net periodic pension cost and a decrease of $46,000 in the Company's Employee Stock Ownership Plan Expense. These reductions were partially offset by a decrease of $74,000 in deferred loan origination related salary expenses. A decrease in deferred expenses means that more loan origination related salary expenses are being reflected in the current period rather than being amortized over the life of the loans, because there are fewer loans being originated. All other expenses combined, consisting of occupancy and equipment, data processing, professional services, advertising and marketing, amortization of intangibles and other expenses totaled $3,036,000 for the first half of 2000, reflecting an increase of $508,000 over the $2,528,000 in expenses incurred for the same period last year. Excluding the net non-recurring charges of $363,000 incurred in connection with the Company's trademarks dispute, the Company's all other expenses combined increased $145,000 or 5.7% compared to the same period of 1999. This increase is due primarily to an increase of $90,000 in legal fees incurred by the Company in connection with other business matters. Income Tax Expense The provision for federal and state income taxes decreased to $3,108,000 for the six months ended June 30, 2000 from $3,410,000 for the same period in 1999. This decrease is due primarily to a decrease in income before income taxes for the first half of 2000 and a reduction in the Company's effective income tax rate. The Company's combined effective income tax rate for the first half of 2000 is 35.9% compared to 37.1% for the same period a year ago. Financial Condition The Company's total assets increased by $0.5 million to $925.2 million at June 30, 2000 from $924.7 million at December 31, 1999. The increase in total assets reflects an increase in total investments and other assets of $6.0 million and $2.2 million, respectively, partially offset by a decrease in total loans of $7.7 million. Total investments consisting of investment securities, interest-bearing bank deposits and other short-term investments increased from $578.5 million at December 31, 1999 to $584.5 million at June 30, 2000. The mix of the Company's investments also changed during the first half of 2000. Short-term investments increased by $30.7 million, while the Company's securities available for sale, trading account and interest bearing bank deposits declined by $16.3 million, $6.0 million and $2.4 million, respectively. The Bank's total loan portfolio at June 30, 2000, prior to the allowance for loan losses, amounted to $317.6 million compared to $325.3 million at December 31, 1999. The decrease in the loan portfolio reflects a decline in the Bank's loan originations during the first half of 2000 compared to the same period of 1999. Higher market interest rates during the first half of 2000 compared to the first half of 1999 significantly reduced the demand for mortgage refinancings resulting in lower loan originations for the Bank. Loan originations were $14.7 million in the first half of 2000 compared to $61.0 million in the first half of last year. Loan originations for the first half of 1999 include a single commercial loan in the amount of $15.0 million. Total deposits were $819.8 million at June 30, 2000 reflecting an increase of $1.7 million from $818.1 million at year-end 1999. Total stockholders' equity declined to $100.9 million at June 30, 2000 from $101.5 million at December 31, 1999. The decrease results primarily from a reduction in net unrealized gains, net of tax effect, on the Company's available for sale securities in the amount of $2.6 million, and the cost of the treasury stock that the Company repurchased during the first half of 2000 in the amount of $2.1 million. These decreases were partially offset by an increase in retained earnings and additional paid-in capital of $3.6 million and $0.5 million, respectively. As a result, the Company's book value per share at June 30, 2000 increased to $30.99, from $30.65 at year-end 1999. Investments As previously noted, total investments consisting of investment securities, short-term investments, and interest-bearing bank deposits equalled $584.5 million at June 30, 2000, up $6.0 million from $578.5 million at year-end 1999. These investments are principally in federal funds sold, short-term U.S. Treasury and government agency obligations and government agency fifteen year mortgage-backed securities. The Bank also maintains an equity securities portfolio, valued at $20.0 million as of June 30, 2000, 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 totaled $271.4 million at June 30, 2000 versus $282.3 million at year-end 1999. The Bank also maintains a portfolio of trading securities which consisted of the following as of the dates shown: June 30, December 31, (In thousands) 2000 1999 _____________ ____________ U.S. Treasury obligations $ -- $ 4,956 Investments in mutual funds 2 1,086 _______ _______ Total $ 2 $ 6,042
FINANCIAL CONDITION INVESTMENT SECURITIES The amortized cost and estimated market value of investment securities at June 30, 2000 with gross unrealized gains and losses, follows: __________________________________________________________________________________________ Gross Gross Amortized Unrealized Unrealized Market (In thousands) At June 30, 2000 Cost Gains Losses Value __________________________________________________________________________________________ Securities held to maturity: Other bonds and obligations $ 230 $ -- $ -- $ 230 __________________________________________________________________________________________ Total securities held to maturity $ 230 $ -- $ -- $ 230 __________________________________________________________________________________________ Securities available for sale: Debt securities: U.S. Treasury obligations $141,463 $ 60 $ (731) $140,792 U.S. Government agency obligations 9,149 -- (87) 9,062 __________________________________________________________________________________________ Total 150,612 60 (818) 149,854 __________________________________________________________________________________________ Mortgage-backed securities: Government National Mortgage Association 34,256 135 (468) 33,923 Federal Home Loan Mortgage Corporation 236,358 230 (5,062) 231,526 Federal National Mortgage Association 3,012 38 (35) 3,015 Collateralized mortgage obligations 2,970 3 (48) 2,925 __________________________________________________________________________________________ Total mortgage-backed securities 276,596 406 (5,613) 271,389 __________________________________________________________________________________________ Total debt securities 427,208 466 (6,431) 421,243 __________________________________________________________________________________________ Equity securities 14,850 6,443 (1,320) 19,973 __________________________________________________________________________________________ Total securities available for sale 442,058 $ 6,909 $ (7,751) $441,216 __________________________________________________________________________________________ Net unrealized gains on securities available for sale (842) __________________________________________________________________________________________ Total securities available for sale, net 441,216 __________________________________________________________________________________________ Total investment securities, net $441,446 __________________________________________________________________________________________ Trading securities $ 1 $ 2 __________________________________________________________________________________________
FINANCIAL CONDITION INVESTMENT SECURITIES (continued) The amortized cost and estimated market value of investment securities at December 31, 1999 with gross unrealized gains and losses, follows: __________________________________________________________________________________________ Gross Gross Amortized Unrealized Unrealized Market (In thousands) At December 31, 1999 Cost Gains Losses Value __________________________________________________________________________________________ Securities held to maturity: Other bonds and obligations $ 230 $ -- $ -- $ 230 __________________________________________________________________________________________ Total securities held to maturity $ 230 $ -- $ -- $ 230 __________________________________________________________________________________________ Securities available for sale: Debt securities: U.S. Treasury obligations $138,518 $ 122 $ (1,025) $137,615 U.S. Government agency obligations 16,143 -- (128) 16,015 __________________________________________________________________________________________ Total 154,661 122 (1,153) 153,630 __________________________________________________________________________________________ Mortgage-backed securities: Government National Mortgage Association 38,061 251 (490) 37,822 Federal Home Loan Mortgage Corporation 239,607 311 (4,028) 235,890 Federal National Mortgage Association 3,951 74 (45) 3,980 Collateralized mortgage obligations 4,649 16 (22) 4,643 __________________________________________________________________________________________ Total mortgage-backed securities 286,268 652 (4,585) 282,335 __________________________________________________________________________________________ Total debt securities 440,929 774 (5,738) 435,965 __________________________________________________________________________________________ Equity securities 12,915 8,985 (363) 21,537 __________________________________________________________________________________________ Total securities available for sale 453,844 $ 9,759 $ (6,101) $457,502 __________________________________________________________________________________________ Net unrealized gains on securities available for sale 3,658 __________________________________________________________________________________________ Total securities available for sale, net 457,502 __________________________________________________________________________________________ Total investment securities, net $457,732 __________________________________________________________________________________________ Trading securities $ 6,072 $ 6,042 __________________________________________________________________________________________
Investments (continued) The amortized cost and estimated market value of debt securities held to maturity and debt securities available for sale by contractual maturity at June 30, 2000 and December 31, 1999 are as follows: June 30, 2000 ____________________________________________ Available for Sale Held to Maturity Amortized Market Amortized Market Maturing: Cost Value Cost Value (In thousands) Within 1 year $ 57,905 $ 57,755 $ -- $ -- After 1 year but within 5 years 89,589 89,044 230 230 After 5 years but within 10 years 2,969 2,909 -- -- After 15 years 149 146 -- -- ________ _______ ______ ______ 150,612 149,854 230 230 Mortgage-backed securities 276,596 271,389 -- -- ________ _______ ______ ______ $427,208 $421,243 $ 230 $ 230 December 31, 1999 ____________________________________________ Available for Sale Held to Maturity Amortized Market Amortized Market Maturing: Cost Value Cost Value (In thousands) Within 1 year $ 59,837 $ 59,796 $ -- $ -- After 1 year but within 5 years 91,707 90,818 230 230 After 5 years but within 10 years 2,966 2,871 -- -- After 15 years 151 145 -- -- ________ _______ ______ ______ 154,661 153,630 230 230 Mortgage-backed securities 286,268 282,335 -- -- ________ _______ ______ ______ $440,929 $435,965 $ 230 $ 230
LOANS The composition of the Bank's loan portfolio is summarized as follows: _______________________________________________________________________________________ At At (In thousands) June 30, 2000 December 31, 1999 _______________________________________________________________________________________ Mortgage loans: Residential $278,488 $287,169 Commercial 3,252 2,471 Construction 435 232 _______________________________________________________________________________________ 282,175 289,872 Add: Premium on loans 132 159 Less: Deferred mortgage loan origination fees (1,381) (1,451) _______________________________________________________________________________________ Total mortgage loans 280,926 288,580 Other loans: Consumer: Installment 1,791 1,418 Guaranteed education 6,624 7,037 Other secured 1,119 1,318 Home equity lines of credit 11,921 11,737 Unsecured 207 225 _______________________________________________________________________________________ Total consumer loans 21,662 21,735 Commercial 15,036 15,050 _______________________________________________________________________________________ Total other loans 36,698 36,785 _______________________________________________________________________________________ Total loans $317,624 $325,365 _______________________________________________________________________________________ The Bank's loan portfolio decreased $7.8 million during the first six months of 2000, from $325.4 million at December 31, 1999 to $317.6 million at June 30, 2000. The decrease was primarily in the residential 1-4 family mortgage loan category. Loan originations decreased by $28.7 million to $7.7 million in the recent quarter compared to $36.4 million in the second quarter of 1999. This is due, in large part, to an increase in mortgage interest rates and the resulting decline in mortgage loan refinancings. For the first six months of 2000, loan originations were $14.7 million, down from $61.0 million for the same period last year. Loan originations for the first six months of 1999 include a single commercial loan in the amount of $15.0 million.
NON-PERFORMING ASSETS The following table shows the composition of the Bank's non-performing assets at June 30, 2000 and 1999, and December 31, 1999: At At At June 30, December 31, June 30, (In thousands) 2000 1999 1999 ____________________________________________________________________________________ Non-Performing Assets: Non-accrual loans $ 953 $ 795 $ 959 Real estate acquired through foreclosure -- 62 -- ____________________________________________________________________________________ Total non-performing assets $ 953 $ 857 $ 959 ____________________________________________________________________________________ Allowance for loan losses $ 2,564 $ 2,555 $ 2,558 Allowance as a percent of non-accrual loans 269.0 % 321.4 % 266.7 % Allowance as a percent of non-performing assets 269.0 % 298.1 % 266.7 % Non-accrual loans as a percent of total loans 0.30% 0.24% 0.29% Non-performing assets as a percent of total assets 0.10% 0.09% 0.10% ____________________________________________________________________________________ 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 increased slightly from December 31, 1999 to June 30, 2000 as noted in the table above. The principal balance of non-accrual loans at June 30, 2000 was $953,000 representing 3/10 of 1% of total loans at June 30, 2000. The Bank did not have any impaired loans as of June 30, 2000.
ALLOWANCE FOR LOAN LOSSES An analysis of the activity in the allowance for loan losses is as follows: Six Months Ended June 30, 2000 1999 ________________________________________________________________________________ (In thousands) Balance at beginning of period $ 2,555 $ 2,450 Provision for loan losses 30 110 Recoveries of loans previously charged-off 2 3 Less: Charge-offs (23) (5) ________________________________________________________________________________ Balance at end of period $ 2,564 $ 2,558 ________________________________________________________________________________ The allowance for loan losses is established through a provision for loan losses 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 June 30, 2000 the balance of the allowance for loan losses was $2,564,000 representing 269.0% 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 increased by $1.7 million to $819.8 million at June 30, 2000 from $818.1 million at December 31, 1999. The composition of the Bank's total deposits as of the dates shown are summarized as follows: June 30, December 31, 2000 1999 ______________________________________________________________________________ (In thousands) Demand and NOW $ 76,341 $ 72,938 Savings and money market accounts 345,095 353,090 Time certificates of deposit 398,748 392,516 Deposit acquisition premium, net of amortization (372) (487) ______________________________________________________________________________ Total deposits $819,812 $818,057 ______________________________________________________________________________ Recent Accounting Developments "Accounting for Derivative Instruments and Hedging Activities" In June 1998, the Financial Accounting Standards Board ("FASB") issued Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement establishes comprehensive accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in its balance sheet and measure those instruments at fair market value. Under this Statement, an entity that elects to apply hedge accounting is required to establish at the inception of the hedge the method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. In June 1999, FASB issued Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of Statement No. 133." SFAS No. 137 deferred the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company intends to adopt SFAS No. 133 as of January 1, 2001. The Statements are not expected to have a material effect on the Company's consolidated financial statements. 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 June 30, 2000 the Bank had $140.1 million or 15.1% of total assets and $149.9 million or 16.2% 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 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 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 capital components include supplemental capital components such as qualifying allowance for loan losses, qualifying subordinated debt and up to 45 percent of the pre-tax net unrealized holding gains on certain available for sale equity securities. Tier I plus the Tier II capital components are referred to as total qualifying capital. The capital ratios of the Bank and the Company currently exceed the minimum regulatory requirements. At June 30, 2000, the Bank had a leverage Tier I capital to total assets ratio of 10.66%, a Tier I capital to risk-weighted assets ratio of 33.11% and a total capital to risk- weighted assets ratio of 34.75%. The Company, on a consolidated basis, had ratios of leverage Tier I capital to total assets of 10.80%, Tier I capital to risk-weighted assets of 35.55% and total capital to risk-weighted assets of 35.18% at June 30, 2000. 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. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Sensitivity and Liquidity See discussion and analysis of interest rate sensitivity and liquidity provided in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1999. There have been no material changes in reported market risks faced by the Corporation since the filing of the Corporation's 1999 Annual Report on Form 10-K. 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 June 30, 2000, 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 At the Annual Meting of Stockholders of MASSBANK Corp. held on April 18, 2000, stockholders voted affirmatively on the following proposal: 1.) To elect one Director to serve until the 2001 Annual Meeting of Stockholders and four Directors to serve until the 2003 Annual Meeting of Stockholders. Elected At Meeting Term: Mathias B. Bedell 3 Years Allan S. Bufferd 3 Years Robert S. Cummings 1 Year Leonard Lapidus 3 Years Herbert G. Schurian 3 Years Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K a. Exhibits: 1. Exhibit No. 11.1: Statement regarding computation of per share earnings. 2. Exhibit No. 27: Financial Data Schedule. 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: August 10, 2000 /s/Gerard H. Brandi ___________________________ (Signature) Gerard H. Brandi President and CEO Date: August 10, 2000 /s/Reginald E. Cormier ___________________________ (Signature) Reginald E. Cormier Sr. V.P., Treasurer and CFO EX-1 2 0002.txt
EXHIBIT 11.1 MASSBANK CORP. Earnings Per Share The following is a calculation of earnings per share for the three and six months ended June 30, 2000 and 1999. Three Months Ended Six Months Ended Calculation of Basic June 30, June 30, Earnings Per Share 2000 1999 2000 1999 ______________________________ ____ ____ ____ ____ Net Income $2,717,000 $2,866,000 $5,545,000 $5,779,000 _________ _________ _________ _________ Average common shares outstanding 3,255,432 3,414,996 3,272,478 3,450,346 Less: Unallocated Employee Stock Ownership Plan (ESOP) shares not committed to be released (26,400) (35,200) (26,400) (35,200) __________ _________ __________ ________ Weighted average shares outstanding 3,229,032 3,379,796 3,246,078 3,415,146 _________ _________ _________ _________ Earnings per share (in dollars) $ 0.84 $ 0.85 $ 1.71 $ 1.69 _________ _________ _________ _________
Three Months Ended Six Months Ended Calculation of Diluted June 30, June 30, Earnings Per Share 2000 1999 2000 1999 ______________________________ ____ ____ ____ ____ Net Income $2,717,000 $2,866,000 $5,545,000 $5,779,000 _________ _________ _________ _________ Average common shares outstanding 3,255,432 3,414,996 3,272,478 3,450,346 Less: Unallocated Employee Stock Ownership Plan (ESOP) shares not committed to be released (26,400) (35,200) (26,400) (35,200) Diluted stock options 75,872 115,822 75,054 116,121 _________ _________ _________ _______ Weighted average shares outstanding 3,304,904 3,495,618 3,321,132 3,531,267 _________ _________ _________ _________ Earnings per share (in dollars) $ 0.82 $ 0.82 $ 1.67 $ 1.64 _________ __________ __________ __________
EX-27 3 0003.txt
9 0000799166 MASSBANK CORP. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 11163 1496 140142 2 441216 230 230 317624 2564 925155 819812 1349 2673 468 0 0 7412 93441 925155 11381 14396 3848 29625 17042 17042 12583 30 1853 6505 8653 8653 0 0 5545 1.71 1.67 2.81 953 0 0 953 2555 23 2 2564 1892 0 672
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