-----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, WhDXuWpsPfll/vjP/G7mlMKlLuFIcbJQ6LmC0liiZU7vBz5OMpbJwRXgEJ0AzRJq 4BEVtyKK3qC1KddrGcmJMw== /in/edgar/work/0000799166-00-000003/0000799166-00-000003.txt : 20001114 0000799166-00-000003.hdr.sgml : 20001114 ACCESSION NUMBER: 0000799166-00-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 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: 760083 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 September 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 November 1, 2000: 3,215,593 shares. MASSBANK CORP. AND SUBSIDIARIES INDEX PART I - FINANCIAL INFORMATION Page ITEM 1. Financial Statements Consolidated Balance Sheets as of September 30, 2000 (unaudited) and December 31, 1999 3 Consolidated Statements of Income (unaudited) for the three months ended September 30, 2000 and 1999 4 and for the nine months ended September 30, 2000 and 1999 5 Consolidated Statements of Changes in Stockholders' Equity for the nine months ended September 30, 2000 (unaudited) and the year ended December 31, 1999 6 - 7 Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 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 - 32 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 32 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings 33 ITEM 2. Changes in Securities 33 ITEM 3. Defaults Upon Senior Securities 33 ITEM 4. Submission of Matters to a Vote of Security Holders 33 ITEM 5. Other Information 33 ITEM 6. Exhibits and Reports on Form 8-K 33 Signature Page 34 MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands except share data)
September 30, December 31, 2000 1999 (unaudited) Assets: Cash and due from banks $ 9,929 $ 10,476 Short-term investments (Note 3) 137,387 110,928 _______________________________________________________________________________ Total cash and cash equivalents 147,316 121,404 Term federal funds sold 10,000 -- Interest-bearing deposits in banks 1,517 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 $438,699 in 2000 and $453,844 in 1999) 443,633 457,502 Trading securities, at market value 2 6,042 Loans: (Note 4) Mortgage loans 277,066 288,580 Other loans 36,999 36,785 Allowance for loan losses (2,579) (2,555) _______________________________________________________________________________ Net loans 311,486 322,810 Premises and equipment 4,007 4,127 Real estate acquired through foreclosure -- 62 Accrued interest receivable 5,802 5,045 Goodwill 1,214 1,288 Accrued income tax asset, net -- 292 Other assets 5,006 2,073 _______________________________________________________________________________ Total assets $930,213 $924,716 Liabilities and Stockholders' Equity: Deposits $819,694 $818,057 Escrow deposits of borrowers 1,440 1,477 Employee stock ownership plan liability 468 468 Accrued income taxes payable 129 -- Deferred income taxes payable 508 199 Other liabilities 2,437 3,036 _______________________________________________________________________________ Total liabilities 824,676 823,237 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, 7,412,632 and 7,407,432 shares issued, respectively 7,413 7,407 Additional paid-in capital 61,082 60,591 Retained earnings 91,254 85,873 _______________________________________________________________________________ 159,749 153,871 Accumulated other comprehensive income: (Note 5) Net unrealized gains on securities available for sale, net of tax effect 2,844 1,966 Treasury stock at cost, 4,192,189 and 4,096,189 shares, respectively (56,588) (53,890) Common stock acquired by ESOP (468) (468) _______________________________________________________________________________ Total stockholders' equity 105,537 101,479 _______________________________________________________________________________ Total liabilities and stockholders' equity $930,213 $924,716 See accompanying condensed notes to consolidated financial statements.
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three months ended September 30, (In thousands except share data) 2000 1999 _________________________________________________________________________________ Interest and dividend income: Mortgage Loans $ 4,879 $ 5,158 Other loans 783 652 Securities available for sale: Mortgage-backed securities 4,669 4,944 Other securities 2,327 2,154 Trading securities -- 75 Federal funds sold 2,504 1,411 Other investments 64 336 ______________________________________________________________________________ Total interest and dividend income 15,226 14,730 ______________________________________________________________________________ Interest expense: Deposits 9,079 8,391 ______________________________________________________________________________ Total interest expense 9,079 8,391 ______________________________________________________________________________ Net interest income 6,147 6,339 Provision for loan losses 15 15 ______________________________________________________________________________ Net interest income after provision for loan losses 6,132 6,324 ______________________________________________________________________________ Non-interest income: Deposit account service fees 169 187 Gains on securities, net 580 752 Other 196 150 ______________________________________________________________________________ Total non-interest income 945 1,089 ______________________________________________________________________________ Non-interest expense: Salaries and employee benefits 1,671 1,823 Occupancy and equipment 504 539 Data processing 116 122 Professional services 135 97 Advertising and marketing 51 47 Amortization of intangibles 82 82 Other 335 356 ______________________________________________________________________________ Total non-interest expense 2,894 3,066 ______________________________________________________________________________ Income before income taxes 4,183 4,347 Income tax expense 1,486 1,564 ______________________________________________________________________________ Net income $ 2,697 $ 2,783 ______________________________________________________________________________ Weighted average common shares outstanding: Basic 3,216,527 3,351,825 Diluted 3,292,370 3,465,603 Earnings per share (in dollars): Basic $ 0.84 $ 0.83 Diluted 0.82 0.80 See accompanying condensed notes to consolidated financial statements.
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Nine months ended September 30, (In thousands except share data) 2000 1999 ______________________________________________________________________________ Interest and dividend income: Mortgage Loans $14,803 $15,421 Other loans 2,240 1,573 Securities available for sale: Mortgage-backed securities 14,227 13,759 Other securities 7,112 6,519 Trading securities 53 420 Federal funds sold 6,006 4,778 Other investments 410 978 ______________________________________________________________________________ Total interest and dividend income 44,851 43,448 ______________________________________________________________________________ Interest expense: Deposits 26,121 24,839 ______________________________________________________________________________ Total interest expense 26,121 24,839 ______________________________________________________________________________ Net interest income 18,730 18,609 Provision for loan losses 45 125 ______________________________________________________________________________ Net interest income after provision for loan losses 18,685 18,484 ______________________________________________________________________________ Non-interest income: Deposit account service fees 515 543 Gains on securities, net 2,433 3,261 Other 602 604 ______________________________________________________________________________ Total non-interest income 3,550 4,408 ______________________________________________________________________________ Non-interest expense: Salaries and employee benefits 5,140 5,585 Occupancy and equipment 1,577 1,598 Data processing 361 363 Professional services 801 317 Advertising and marketing 169 142 Amortization of intangibles 247 245 Other 1,104 1,106 ______________________________________________________________________________ Total non-interest expense 9,399 9,356 ______________________________________________________________________________ Income before income taxes 12,836 13,536 Income tax expense 4,594 4,974 ______________________________________________________________________________ Net income $ 8,242 $ 8,562 ______________________________________________________________________________ Weighted average common shares outstanding: Basic 3,236,156 3,393,807 Diluted 3,311,474 3,509,139 Earnings per share (in dollars): Basic $ 2.55 $ 2.52 Diluted 2.49 2.44 See accompanying condensed notes to consolidated financial statements.
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For The Nine Months Ended September 30, 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 -- -- 8 ,242 -- -- -- 8,242 Other comprehensive income, net of tax: Unrealized gains on securities, net of reclassification adjustment (Note 5) -- -- -- -- 878 -- 878 _____ Comprehensive income 9,120 Cash dividends declared and paid ($0.885 per share) -- -- (2,869) -- -- -- (2,869) Tax benefit resulting from dividends paid on unallocated shares held by the ESOP -- -- 8 -- -- -- 8 Amortization of ESOP shares committed to be released -- 69 -- -- -- -- 69 Purchase of Company stock for deferred compensation plan -- 347 -- (347) -- -- -- Purchase of treasury stock -- -- -- (2,351) -- -- (2,351) Exercise of stock options and related tax benefits 6 75 -- -- -- -- 81 ___________________________________________________________________________________________________________________________ Balance at September 30, 2000 $7,413 $61,082 $91,254 $(56,588) $ 2,844 $(468) $105,537 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)
Nine Months Ended September 30, 2000 1999 ____ ____ (In thousands) Cash flows from operating activities: Net income $ 8,242 $ 8,562 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 657 711 Loan interest capitalized (31) (42) Amortization of ESOP shares committed to be released 69 130 Increase (decrease) in accrued interest receivable (757) 101 (Decrease) increase in other liabilities (599) 412 Increase (decrease) in current income taxes payable 421 (1,044) Accretion of discounts on securities, net of amortization of premiums (649) (750) Net trading securities activity 6,569 25,132 Gains on securities available for sale, net (2,078) (3,233) Gains on trading securities, net (355) (28) (Decrease) increase in deferred mortgage loan origination fees, net of amortization (117) 27 Deferred income tax benefit (90) (104) Increase in other assets (1,309) (286) Provision for loan losses 45 125 Gains on sales of real estate acquired through foreclosure (8) -- Gains on sales of premises and equipment -- (2) (Decrease) increase in escrow deposits of borrowers (37) 79 __________________________________________________________________________________________ Net cash provided by operating activities 9,973 29,790 __________________________________________________________________________________________ Cash flows from investing activities: Purchases of term federal funds (10,000) -- Proceeds from maturities of term federal funds -- 25,000 Net decrease (increase) in interest bearing bank deposits 2,324 (1,757) Proceeds from sales of investment securities available for sale 28,700 54,281 Proceeds from maturities of investment securities available for sale 29,000 60,800 Purchases of investment securities available for sale (48,479) (130,414) Purchases of mortgage-backed securities (28,652) (88,397) Principal repayments of mortgage-backed securities 35,503 56,271 Principal repayments of securities held to maturity -- 124 Principal repayments of securities available for sale 3 43 Loans originated (22,304) (74,648) Loan principal payments received 33,692 49,799 Loans purchased -- (345) Purchases of premises & equipment (251) (334) 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 19,606 (49,489) __________________________________________________________________________________________ Continued on next page.
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (unaudited)
Nine Months Ended September 30, 2000 1999 ____ ____ (In thousands) Cash flows from financing activities: Net increase in deposits 1,464 1,761 Payments to acquire treasury stock (2,698) (5,529) Purchase of Company stock for deferred compensation plan 347 -- Issuance of common stock under stock option plan 81 164 Dividends paid on common stock (2,869) (2,808) Tax benefit resulting from dividends paid on unallocated shares held by the ESOP 8 10 __________________________________________________________________________________________ Net cash used in financing activities (3,667) (6,402) __________________________________________________________________________________________ Net increase (decrease) in cash and cash equivalents 25,912 (26,101) Cash and cash equivalents at beginning of period 121,404 154,814 __________________________________________________________________________________________ Cash and cash equivalents at end of period $147,316 $128,713 __________________________________________________________________________________________ Supplemental cash flow disclosures: Cash transactions: Cash paid during the period for interest $26,119 $24,844 Cash paid during the period for taxes, net of refunds 4,250 6,071 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: Increase (decrease) in accumulated other comprehensive income 878 (8,150) Increase (decrease) in deferred tax liabilities 399 (5,510) Purchases of securities executed but not settled at end of period 253 236 Sales of securities executed but not settled at end of period 1,962 270 __________________________________________________________________________________________ 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 September 30, 2000 and December 31, 1999, and its operating results for the three and nine months ended September 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 90 days or less. (3) Short-Term Investments Short-term investments consist of the following:
________________________________________________________________________________ At At (In thousands) September 30, 2000 December 31, 1999 ________________________________________________________________________________ Federal funds sold (overnight) $126,873 $ 86,211 Term federal funds sold 10,000 -- Money market funds 514 24,717 ________________________________________________________________________________ Total short-term investments $137,387 $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 September 30, 2000, the Company had outstanding commitments to originate mortgage loans and to advance funds for construction loans amounting to $2,478,000 and commitments under existing home equity lines of credit and other loans of approximately $30,742,000 which are not reflected on the consolidated balance sheet. In addition, as of September 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 income (loss) and related tax effect for the nine months ended September 30, 2000 and the year ended December 31, 1999 is as follows:
For the Nine Months Ended September 30, 2000 ____________________________________________________________________________________ Tax Before-Tax (Expense) Net-of-Tax (In thousands) Amount or Benefit Amount ______ __________ ______ Unrealized gains on securities: Unrealized holding gains arising during period $ 3,355 $1,287 $ 2,068 Less: reclassification adjustment for gains realized in net income 2,078 888 1,190 ______ ________ ______ Net unrealized gains 1,277 399 878 ______ ________ ______ Other comprehensive income $ 1,277 $ 399 $ 878 ______ ________ _____
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 September 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 September 30, 2000 GENERAL For the quarter ended September 30, 2000, MASSBANK Corp. reported net income of $2,697,000 or $0.84 in basic earnings per share ($0.82 diluted), compared to net income of $2,783,000 or $0.83 in basic earnings per share ($0.80 diluted) in the third quarter of 1999. The Company's net income performance for the third quarter 2000 compared to the same quarter of 1999 reflects a decrease in non-interest expense due to tighter expense controls. This is offset by a decrease in net interest income due to a decrease in net interest margin and average earning assets and lower securities gains. Additionally, the earnings per share results for the recent quarter were positively affected by the reduced number of average common shares outstanding due to the shares purchased by the Company pursuant to its stock repurchase program.
AVERAGE BALANCE SHEETS Three Months Ended September 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 $151,918 $ 2,504 6.54% $110,481 $ 1,411 5.07% Short-term investments (2) 4,008 61 6.02 26,392 334 5.02 Investment securities 167,144 2,364 5.66 161,175 2,192 5.44 Mortgage-backed securities 268,229 4,669 6.96 289,508 4,944 6.83 Trading securities 39 -- -- 6,000 75 4.95 Mortgage loans (1) 278,662 4,879 7.00 295,165 5,158 6.99 Other loans (1) 36,826 783 8.40 36,164 652 7.13 __________________________________________________ ________________ Total earning assets 906,826 $15,260 6.73% 924,885 $14,766 6.37% Allowance for loan losses (2,569) (2,521) __________________________________________________________________________________________ Total earning assets less allowance for loan losses 904,257 922,364 Other assets 20,581 20,213 __________________________________________________________________________________________ Total assets $924,838 $942,577 Continued on next page.
[CAPTION] AVERAGE BALANCE SHEETS - (continued) Three Months Ended September 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 $ 76,149 $ 124 0.64% $ 75,282 $ 121 0.64% Savings 341,608 2,932 3.41 358,576 3,083 3.41 Time certificates of deposit 401,761 6,023 5.95 399,681 5,187 5.15 __________________________________________________ ________________ Total deposits 819,518 9,079 4.40 833,539 8,391 3.99 Other liabilities 3,018 5,851 __________________________________________________________________________________________ Total liabilities 822,536 839,390 Stockholders' equity 102,302 103,187 __________________________________________________________________________________________ Total liabilities and stockholders' equity $924,838 $942,577 __________________________________________________________________________________________ Net interest income (tax-equivalent basis) 6,181 6,375 Less adjustment of tax-exempt interest income 34 36 __________________________________________________________________________________________ Net interest income $ 6,147 $ 6,339 __________________________________________________________________________________________ Interest rate spread 2.33% 2.38% __________________________________________________________________________________________ Net interest margin (3) 2.73% 2.76% __________________________________________________________________________________________ (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 $6,147,000 for the third quarter of 2000 reflecting a decrease of $192,000 from the same quarter a year ago. The recent quarter's decrease in net interest income is due to a decrease in the Company's net interest margin and average earning assets. The Company's net interest margin for the recent quarter decreased to 2.73% from 2.76% in the third quarter of 1999. Average earning assets in the recent quarter were $906.8 million, down from $924.9 million in the third quarter of 1999. Interest and Dividend Income Interest and dividend income on a fully taxable equivalent basis for the three months ended September 30, 2000, increased to $15,260,000 from $14,766,000 for the three months ended September 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 13 of this report, the yield on average earning assets in the third quarter of 2000 improved 36 basis points to 6.73% from 6.37% in the same quarter of 1999. The Federal Reserve Bank has raised the Federal Funds rate four times in the last twelve months, raising the rate from 5.25% 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, mortgage-backed 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. In addition, the yield on the Bank's commercial and consumer loans also show an improvement due to the higher market interest rates. Interest Expense Total interest expense for the three months ended September 30, 2000 was $9,079,000, up from $8,391,000 for the same quarter last year. The Company's average deposits, as shown in the table on page 14, decreased $14.0 million to $819.5 million in the third quarter of 2000, from $833.5 million in the third 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 September 30, 2000 was 4.40%, up from 3.99% 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 third quarter of 2000 was $15,000, unchanged from the third 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 September 30, 2000, the allowance for loan losses was $2,579,000 representing 308.0% of nonaccrual loans. The Bank's nonaccrual loans totaled $838,000 at September 30, 2000 compared to $790,000 a year earlier. There were zero net charge-offs for the recent quarter compared to $67,000 in net-charge-offs for the same quarter last year. Management believes that the allowance for loan losses as of September 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 $144,000 to $945,000 for the recent quarter, from $1,089,000 for the comparable quarter of the prior year. This decrease is due essentially to lower net securities gains in the third quarter of 2000. Net gains on securities totaled $580,000 in the third quarter of this year compared to $752,000 in the third quarter of last year. Realized gains on the sale of equity securities totaled $624,000 for the three months ended September 30, 2000. These gains, however, were partially offset by net losses realized on the sale of debt securities of $44,000. The Bank's deposit account service fees and other non-interest income totaled $169,000 and $196,000, respectively, in the third quarter of 2000 compared to $187,000 and $150,000, respectively, in the third quarter of 1999. The increase in other non-interest income primarily reflects an increase of $42,000 in income earned on the Bank's deferred compensation plan assets during the recent quarter compared to the same quarter last year. A corresponding increase of $42,000 is also reflected in non-interest expense. Non-Interest Expense Non-interest expense decreased $172,000 to $2,894,000 in the third quarter of 2000, from $3,066,000 in the same quarter of the prior year. This decrease is due largely to a decrease in salaries and employee benefits. Salaries and employee benefits, the largest component of non-interest expense, decreased by $152,000 or 8.3% in the third quarter of 2000 to $1,671,000 from $1,823,000 in the third quarter of the prior year. This reduction is due to a decrease in salaries and lower expenses associated with various employee benefits. Occupancy and equipment expense decreased $35,000 to $504,000 in the third quarter of 2000. This decrease is due largely to a reduction in depreciation expense. Professional services expense increased by $38,000 to $135,000 in the recent quarter, from $97,000 for the same quarter last year due to increased legal fees. All other expenses combined, consisting of data processing, advertising and marketing, amortization of intangibles and other expenses, decreased $23,000 to $584,000 for the three months ended September 30, 2000 from $607,000 for the three months ended September 30, 1999. 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 $1,486,000 in the third quarter of 2000, a decrease of $78,000 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 $4,183,000 in the recent quarter compared to $4,347,000 for the same quarter a year ago. The effective income tax rate for the three months ended September 30, 2000 was 35.5% down from 36.0% for the three months ended September 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 nine months ended September 30, 2000 General For the nine months ended September 30, 2000, the Company reported net income of $8,242,000 or $2.55 in basic earnings per share ($2.49 per share on a diluted basis) compared to net income of $8,562,000 or $2.52 in basic earnings per share ($2.44 per share on a diluted basis) earned in the first nine months of 1999. Net income for the first nine months of 2000 includes (net) non-recurring charges of $363,000 ($211,000 post tax) incurred in connection with MASSBANK's successful prosecution of its trademark case. Excluding the impact of these charges, the Company's net income for the first nine months of 2000 was $8,453,000 or $2.61 in basic earnings per share ($2.55 diluted) compared to $8,562,000 or $2.52 in basic earnings per share ($2.44 diluted) for the same period in 1999. The Company's financial performance in the first nine months of 2000 also reflects an improvement in net interest income of $121,000 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 $858,000 due essentially to lower securities gains and an increase of $43,000 in non-interest expense due to (net) non- recurring charges of $363,000 incurred by the Company in the aforementioned trademark dispute. Additionally, the earnings per share results for the first nine months of 2000 were positively affected by the reduced number of average common shares outstanding as a result of the Company's purchase of 147,182 shares of its common stock, in the last twelve months, pursuant to its stock repurchase program.
AVERAGE BALANCE SHEETS Nine Months Ended September 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 $128,617 $ 6,006 6.24% $133,167 $ 4,778 4.80% Short-term investments (2) 9,305 402 5.77 26,609 966 4.85 Investment securities 172,471 7,213 5.58 163,415 6,628 5.40 Mortgage-backed securities 271,666 14,227 6.98 270,268 13,759 6.79 Trading securities 1,388 53 5.05 12,345 420 4.54 Mortgage loans (1) 282,822 14,803 6.98 292,545 15,421 7.03 Other loans (1) 36,677 2,240 8.10 27,212 1,573 7.71 __________________________________________________ ________________ Total earning assets 902,946 $44,944 6.64% 925,561 $43,545 6.27% Allowance for loan losses (2,567) (2,493) __________________________________________________________________________________________ Total earning assets less allowance for loan losses 900,379 923,068 Other assets 21,032 19,957 __________________________________________________________________________________________ Total assets $921,411 $943,025 Continued on next page.
AVERAGE BALANCE SHEETS - (continued) Nine Months Ended September 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 $ 75,350 $ 366 0.65% $ 74,965 $ 382 0.68% Savings 345,825 8,838 3.41 352,955 8,987 3.40 Time certificates of deposit 396,837 16,917 5.69 400,018 15,470 5.17 __________________________________________________ ________________ Total deposits 818,012 26,121 4.27 827,938 24,839 4.01 Other liabilities 3,142 8,105 __________________________________________________________________________________________ Total liabilities 821,154 836,043 Stockholders' equity 100,257 106,982 __________________________________________________________________________________________ Total liabilities and stockholders' equity $921,411 $943,025 __________________________________________________________________________________________ Net interest income (tax-equivalent basis) 18,823 18,706 Less adjustment of tax-exempt interest income 93 97 __________________________________________________________________________________________ Net interest income $18,730 $18,609 __________________________________________________________________________________________ Interest rate spread 2.37% 2.26% __________________________________________________________________________________________ Net interest margin (3) 2.78% 2.69% __________________________________________________________________________________________ (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 $18,730,000 for the nine months ended September 30, 2000, compared to $18,609,000 for the same period in 1999. The $121,000 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 nine months of 2000 was 2.78% compared to 2.69% for the same period last year. Average earning assets for the nine months ended September 30, 2000 decreased $22.6 million to $902.9 million from $925.5 million for the corresponding period in 1999. The Company's interest rate spread increased to 2.37% for the first nine months of 2000, from 2.26% in the first nine months of last year. The yield on the Company's average earning assets in the first nine months of 2000 increased by 37 basis points to 6.64% from 6.27% in the corresponding period of 1999. This increase was partially offset by an increase of 26 basis points in the Company's average cost of funds, from 4.01% for the nine months ended September 30, 1999 to 4.27% for the same period this year. Provision for Loan Losses The provision for loan losses for the first nine months of 2000 was $45,000 compared to $125,000 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 nine months ended September 30, 2000 and 1999 were $21,000 and $69,000, 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 nine months of 2000 decreased $858,000 to $3,550,000 from $4,408,000 for the same period in 1999. This decrease is essentially due to lower net securities gains. Net securities gains totaled $2,433,000 for the nine months ended September 30, 2000 compared to $3,261,000 for the nine months ended September 30, 1999. Deposit account service fees and other non-interest income combined decreased $30,000 to $1,117,000 for the first nine months of 2000 from $1,147,000 for the first nine months of 1999. This reduction is due primarily to a decrease in deposit account service fees. Non-Interest Expense Non-interest expense for the nine months ended September 30, 2000 increased $43,000 to $9,399,000 from $9,356,000 for the same period last year. This increase is due to (net) non-recurring charges of $363,000 that the Company incurred in the second quarter of this year in protecting its trademarks from infringement by another financial institution. The Company's non-interest expense for the first nine months of 2000 excluding the aforementioned non-recurring charges decreased 3.4% or $320,000 to $9,036,000 from $9,356,000 for the comparable period last year. The decrease was due primarily to a decrease in salaries and employee benefit expenses. Salaries and employee benefits, the largest component of non-interest expense, decreased $445,000 or 8.0% to $5,140,000 for the first nine months of 2000 from $5,585,000 for the first nine months of last year. This reduction is due to a decrease in salaries and lower expenses associated with various employee benefits. All other expenses combined, consisting of occupancy and equipment, data processing, professional services, advertising and marketing, amortization of intangibles and other expenses totaled $4,259,000 for the first nine months of 2000, reflecting an increase of $488,000 over the $3,771,000 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 $125,000 or 3.3% compared to the same period of 1999. This increase is due primarily to an increase 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 $4,594,000 for the nine months ended September 30, 2000 from $4,974,000 for the same period in 1999. This decrease is due primarily to a decrease in income before income taxes for the first nine months of 2000 and a reduction in the Company's effective income tax rate. The Company's combined effective income tax rate for the first nine months of 2000 is 35.8% compared to 36.7% for the same period a year ago. Financial Condition The Company's total assets increased by $5.5 million to $930.2 million at September 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 $14.2 million and $2.6 million, respectively, partially offset by a decrease in total loans of $11.3 million. Total investments consisting of investment securities, interest-bearing bank deposits, term federal funds sold and other short-term investments increased from $578.5 million at December 31, 1999 to $592.7 million at September 30, 2000. The mix of the Company's investments also changed during the first nine months of 2000. Short-term investments and term federal funds sold increased by $26.4 million and $10.0 million, respectively. Offsetting these increases were reductions in the Company's securities available for sale, trading account and interest bearing bank deposits of $13.9 million, $6.0 million and $2.3 million, respectively. The Bank's total loan portfolio at September 30, 2000, prior to the allowance for loan losses, amounted to $314.1 million compared to $325.4 million at December 31, 1999. The decrease in the loan portfolio reflects a decline in the Bank's loan originations during the first nine months of 2000 compared to the same period of 1999. Higher market interest rates during the first nine months of 2000 compared to the first nine months of 1999 significantly reduced the demand for mortgage refinancings resulting in lower loan originations for the Bank. Loan originations were $22.3 million in the first nine months of 2000 compared to $74.6 million in the first nine months of last year. Loan originations for the first nine months of 1999 include a single commercial loan in the amount of $15.0 million. Total deposits were $819.7 million at September 30, 2000 reflecting an increase of $1.6 million from $818.1 million at year-end 1999. Total stockholders' equity increased to $105.5 million at September 30, 2000 from $101.5 million at December 31, 1999. The increase results primarily from increases in retained earnings, additional paid-in capital, and net unrealized gains (net of tax effect) on the Company's available for sale securities of $5.4 million, $0.5 million and $0.9 million, respectively. These increases were partially offset by the $2.7 million cost of the treasury shares purchased by the Company during the period pursuant to its stock repurchase program. As a result, the Company's book value per share at September 30, 2000 increased to $32.64, from $30.65 at year-end 1999. Investments As previously noted, total investments consisting of investment securities, short-term investments, term federal funds sold and interest-bearing bank deposits equalled $592.7 million at September 30, 2000, up $14.2 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 $19.2 million as of September 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 $278.7 million at September 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:
September 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 September 30, 2000 with gross unrealized gains and losses, follows: __________________________________________________________________________________________ Gross Gross Amortized Unrealized Unrealized Market (In thousands) At September 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 $136,565 $ 203 $ (165) $136,603 U.S. Government agency obligations 9,148 -- (44) 9,104 __________________________________________________________________________________________ Total 145,713 203 (209) 145,707 __________________________________________________________________________________________ Mortgage-backed securities: Government National Mortgage Association 32,422 311 (240) 32,493 Federal Home Loan Mortgage Corporation 242,009 928 (2,056) 240,881 Federal National Mortgage Association 2,673 39 (26) 2,686 Collateralized mortgage obligations 2,661 3 (41) 2,623 __________________________________________________________________________________________ Total mortgage-backed securities 279,765 1,281 (2,363) 278,683 __________________________________________________________________________________________ Total debt securities 425,478 1,484 (2,572) 424,390 __________________________________________________________________________________________ Equity securities 13,221 7,093 (1,071) 19,243 __________________________________________________________________________________________ Total securities available for sale 438,699 $ 8,577 $ (3,643) $443,633 __________________________________________________________________________________________ Net unrealized gains on securities available for sale 4,934 __________________________________________________________________________________________ Total securities available for sale, net 443,633 __________________________________________________________________________________________ Total investment securities, net $443,863 __________________________________________________________________________________________ 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 September 30, 2000 and December 31, 1999 are as follows: September 30, 2000 ____________________________________________ Available for Sale Held to Maturity Amortized Market Amortized Market Maturing: Cost Value Cost Value (In thousands) Within 1 year $ 70,880 $ 70,832 $ -- $ -- After 1 year but within 5 years 71,715 71,767 230 230 After 5 years but within 10 years 2,970 2,963 -- -- After 15 years 148 145 -- -- ________ _______ ______ ______ 145,713 145,707 230 230 Mortgage-backed securities 279,765 278,683 -- -- ________ _______ ______ ______ $425,478 $424,390 $ 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) September 30, 2000 December 31, 1999 _______________________________________________________________________________________ Mortgage loans: Residential $274,575 $287,169 Commercial 3,194 2,471 Construction 512 232 _______________________________________________________________________________________ 278,281 289,872 Add: Premium on loans 118 159 Deferred mortgage loan origination fees (1,333) (1,451) _______________________________________________________________________________________ Total mortgage loans 277,066 288,580 Other loans: Consumer: Installment 2,026 1,418 Guaranteed education 6,403 7,037 Other secured 1,020 1,318 Home equity lines of credit 12,272 11,737 Unsecured 220 225 _______________________________________________________________________________________ Total consumer loans 21,941 21,735 Commercial 15,058 15,050 _______________________________________________________________________________________ Total other loans 36,999 36,785 _______________________________________________________________________________________ Total loans $314,065 $325,365 _______________________________________________________________________________________ The Bank's loan portfolio decreased $11.3 million during the first nine months of 2000, from $325.4 million at December 31, 1999 to $314.1 million at September 30, 2000. The decrease was primarily in the residential 1-4 family mortgage loan category. Loan originations decreased by $6.0 million to $7.6 million in the recent quarter compared to $13.6 million in the third 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 nine months of 2000, loan originations were $22.3 million, down from $74.6 million for the same period last year. Loan originations for the first nine 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 September 30, 2000 and 1999, and December 31, 1999: At At At September 30, December 31, September 30, (In thousands) 2000 1999 1999 ____________________________________________________________________________________ Non-Performing Assets: Non-accrual loans $ 838 $ 795 $ 790 Real estate acquired through foreclosure -- 62 58 ____________________________________________________________________________________ Total non-performing assets $ 838 $ 857 $ 848 ____________________________________________________________________________________ Allowance for loan losses $ 2,579 $ 2,555 $ 2,506 Allowance as a percent of non-accrual loans 307.7 % 321.4 % 317.2 % Allowance as a percent of non-performing assets 307.7 % 298.1 % 295.5 % Non-accrual loans as a percent of total loans 0.27% 0.24% 0.24% Non-performing assets as a percent of total assets 0.09% 0.09% 0.09% ____________________________________________________________________________________ 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 slightly from December 31, 1999 to September 30, 2000 as noted in the table above. The principal balance of non- accrual loans at September 30, 2000 was $838,000 representing less than 3/10 of 1% of total loans at September 30, 2000. The Bank did not have any impaired loans as of September 30, 2000.
ALLOWANCE FOR LOAN LOSSES An analysis of the activity in the allowance for loan losses is as follows: Nine Months Ended September 30, 2000 1999 ________________________________________________________________________________ (In thousands) Balance at beginning of period $ 2,555 $ 2,450 Provision for loan losses 45 125 Recoveries of loans previously charged-off 3 4 Charge-offs (24) (73) ________________________________________________________________________________ Balance at end of period $ 2,579 $ 2,506 ________________________________________________________________________________ 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 September 30, 2000 the balance of the allowance for loan losses was $2,579,000 representing 307.7% 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 $1.6 million to $819.7 million at September 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: September 30, December 31, 2000 1999 ______________________________________________________________________________ (In thousands) Demand and NOW $ 76,442 $ 72,938 Savings and money market accounts 336,839 353,090 Time certificates of deposit 406,727 392,516 Deposit acquisition premium, net of amortization (314) (487) ______________________________________________________________________________ Total deposits $819,694 $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. In June 2000, the FASB issued SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities", which amends the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and certain hedging activities. The Company intends to adopt SFAS No. 133 as of January 1, 2001. These 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 September 30, 2000 the Bank had $126.9 million or 13.6% of total assets and $145.7 million or 15.7% 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 September 30, 2000, the Bank had a leverage Tier I capital to total assets ratio of 10.71%, a Tier 1 capital to risk-weighted assets ratio of 33.50% and a total capital to risk- weighted assets ratio of 35.29%. The Company, on a consolidated basis, had ratios of leverage Tier I capital to total assets of 10.93%, Tier I capital to risk-weighted assets of 34.17% and total capital to risk-weighted assets of 35.96% at September 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 September 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 None. 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: November 13, 2000 /s/Gerard H. Brandi ___________________________ (Signature) Gerard H. Brandi President and CEO Date: November 13, 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 nine months ended September 30, 2000 and 1999. Three Months Ended Nine Months Ended Calculation of Basic Septemeber 30, September 30, Earnings Per Share 2000 1999 2000 1999 ______________________________ ____ ____ ____ ____ Net Income $2,697,000 $2,783,000 $8,242,000 $8,562,000 _________ _________ _________ _________ Average common shares outstanding 3,242,927 3,387,025 3,262,556 3,429,007 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 3,216,527 3,351,825 3,236,156 3,393,807 _________ _________ _________ _________ Earnings per share (in dollars) $ 0.84 $ 0.83 $ 2.55 $ 2.52 _________ _________ _________ _________
Three Months Ended Nine Months Ended Calculation of Diluted September 30, September 30, Earnings Per Share 2000 1999 2000 1999 ______________________________ ____ ____ ____ ____ Net Income $2,697,000 $2,783,000 $8,242,000 $8,562,000 _________ _________ _________ _________ Average common shares outstanding 3,242,927 3,387,025 3,262,556 3,429,007 Less: Unallocated Employee Stock Ownership Plan (ESOP) shares not committed to be released (26,400) (35,200) (26,400) (35,200) Diluted stock options 75,843 113,778 75,318 115,332 _________ _________ _________ _______ Weighted average shares outstanding 3,292,370 3,465,603 3,311,474 3,509,139 _________ _________ _________ _________ Earnings per share (in dollars) $ 0.82 $ 0.80 $ 2.49 $ 2.44 _________ __________ __________ __________
EX-27 3 0003.txt
9 0000799166 MASSBANK CORP. 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 9929 1517 146873 2 443633 230 230 314065 2579 930213 819694 1440 3074 468 0 0 7413 98124 930213 17043 21392 6416 44851 26121 26121 18730 45 2433 9399 12836 12836 0 0 8242 2.55 2.49 2.78 838 0 0 838 2555 24 3 2579 1794 0 785
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