-----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, ExAg7KI7pd3E8VAZ/xw3ABafRTy0klhTUgenOV5HpFMZyA4Z1ZmKDj3NBtf5IEfD 4j7gALQEdfkU+G59cuL3nQ== 0000799166-95-000007.txt : 19951119 0000799166-95-000007.hdr.sgml : 19951119 ACCESSION NUMBER: 0000799166-95-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MASSBANK CORP CENTRAL INDEX KEY: 0000799166 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 042930382 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15137 FILM NUMBER: 95590216 BUSINESS ADDRESS: STREET 1: 123 HAVEN STREET CITY: READING STATE: MA ZIP: 01867 BUSINESS PHONE: 6179428192 MAIL ADDRESS: STREET 1: 123 HAVEN STREET CITY: READING STATE: PA ZIP: 01867 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q /x/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from______________to____________ Commission File Number 0-15137 MASSBANK Corp. (Exact name of registrant as specified in its charter) Delaware 04-2930382 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 123 HAVEN STREET Reading, Massachusetts 01867 (Address of principal executive offices, including Zip Code) Registrant's telephone number, including area code: (617) 662-0100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of the issuer's classes of common stock, as of the latest practicable date is: Class: Common stock $1.00 per share. Outstanding at October 31, 1995: 2,739,106 shares. MASSBANK CORP. AND SUBSIDIARIES FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1995 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Page ITEM 1. Financial Statements Consolidated Balance Sheets as of September 30, 1995 (unaudited) and December 31, 1994 3 Consolidated Statements of Income (unaudited) for the three months ended September 30, 1995 and 1994 4 and for the nine months ended September 30, 1995 and 1994 5 - 6 Consolidated Statements of Changes in Stockholders' Equity for the nine months ended September 30, 1995 (unaudited) and the year ended December 31, 1994 7 Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 1995 and 1994 8 - 9 Condensed Notes to the Consolidated Financial Statements 10 - 14 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 - 25 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings 26 ITEM 2. Changes in Securities 26 ITEM 3. Defaults Upon Senior Securities 26 ITEM 4. Submission of Matters to a Vote of Security Holders 26 ITEM 5. Other Information 26 ITEM 6. Exhibits and Reports on Form 8-K 26 Signature Page 27 MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands except share data)
September 30, December 31, 1995 1994 (unaudited) Assets: Cash and due from banks $ 9,828 $ 9,610 Federal funds sold 99,541 22,551 Interest bearing deposits 924 -- Other short-term investments 8,150 -- ______________________________________________________________________________ Total cash and cash equivalents 118,443 32,161 Term federal funds sold 5,000 -- Investment securities (Note 5) 407 567 Mortgage-backed securities (Note 5) 204,356 172,263 Securities available for sale (Note 6) 243,587 257,644 Trading securities, at market value 20,668 115,610 Loans: (Notes 8 and 9) Mortgage loans 214,708 220,269 Other loans 29,229 30,547 Less: allowance for possible loan losses (2,598) (2,566) ______________________________________________________________________________ Net loans 241,339 248,250 Premises and equipment 4,300 4,328 Real estate acquired through foreclosure or substantively repossessed 442 129 Accrued interest receivable 6,778 6,870 Other assets 1,190 5,825 ______________________________________________________________________________ Total assets $846,510 $843,647 Liabilities and Stockholders' Equity: Deposits: Demand and NOW $ 65,251 $ 67,496 Savings 368,188 458,401 Time certificates of deposit 321,883 235,421 Deposit acquisition premium, net of amortization (1,469) (1,642) ______________________________________________________________________________ Total deposits 753,853 759,676 Escrow deposits of borrowers 1,206 966 Employee stock ownership plan loan (Note 4) 1,249 1,249 Other liabilities 5,435 7,252 ______________________________________________________________________________ Total liabilities 761,743 769,143 Stockholders' Equity: Preferred stock, par value $1.00 per share; 2,000,000 shares authorized, none issued -- -- Common stock, par value $1.00 per share; 10,000,000 shares authorized, 5,389,559 and 5,352,138 shares issued, respectively 5,390 5,352 Additional paid-in capital 56,239 55,609 Retained earnings 57,038 51,995 Treasury stock at cost, 2,651,065 and 2,570,411 shares, respectively (35,371) (33,288) Net unrealized gains (losses) on securities available for sale, net of tax effect 2,720 (3,915) Common stock acquired by ESOP (Note 4) (1,249) (1,249) ______________________________________________________________________________ Total stockholders' equity 84,767 74,504 ______________________________________________________________________________ Total liabilities and stockholders' equity $846,510 $843,647 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) 1995 1994 ______________________________________________________________________________ Interest and dividend income: Mortgage Loans $ 4,126 $ 4,288 Other loans 717 642 Mortgage-backed securities 3,379 2,868 Securities available for sale 3,850 3,536 Trading securities 493 1,434 Federal funds sold 1,541 272 Other investments 138 7 ______________________________________________________________________________ Total interest and dividend income 14,244 13,047 ______________________________________________________________________________ Interest expense: Deposits 7,933 6,638 ______________________________________________________________________________ Total interest expense 7,933 6,638 ______________________________________________________________________________ Net interest income 6,311 6,409 Provision for possible loan losses 30 150 ______________________________________________________________________________ Net interest income after provision for possible loan losses 6,281 6,259 Non-interest income: Deposit account service fees 231 240 Gains (losses) on securities, net (57) 86 Other 202 197 ______________________________________________________________________________ Total non-interest income 376 523 ______________________________________________________________________________ Non-interest expense: Salaries and employee benefits 1,845 1,711 Occupancy and equipment 480 440 Data processing 155 164 Professional services 97 138 Deposit insurance (42) 448 Real estate acquired through foreclosure expenses 14 13 Other 491 509 ______________________________________________________________________________ Total non-interest expense 3,040 3,423 ______________________________________________________________________________ Income before income taxes 3,617 3,359 Income tax expense 1,400 1,216 ______________________________________________________________________________ Net income $ 2,217 $ 2,143 ______________________________________________________________________________ Weighted average common shares outstanding: Primary 2,774,112 2,877,525 Fully diluted 2,781,157 2,877,525 Earnings per share (in dollars): Primary $ 0.80 $ 0.74 Fully diluted 0.80 0.74 ______________________________________________________________________________ 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) 1995 1994 ________________________________________________________________________________ Interest and dividend income: Mortgage Loans $12,490 $12,857 Other loans 2,137 1,819 Mortgage-backed securities 9,604 7,767 Securities available for sale 11,856 10,105 Trading securities 2,343 4,283 Federal funds sold 3,689 996 Other investments 193 35 ________________________________________________________________________________ Total interest and dividend income 42,312 37,862 ________________________________________________________________________________ Interest expense: Deposits 22,801 19,211 Borrowed funds -- 1 ________________________________________________________________________________ Total interest expense 22,801 19,212 ________________________________________________________________________________ Net interest income 19,511 18,650 Provision for possible loan losses 140 520 ________________________________________________________________________________ Net interest income after provision for possible loan losses 19,371 18,130 ________________________________________________________________________________ Non-interest income: Deposit account service fees 691 736 Gains (losses) on securities, net (18) (459) Interest on tax settlements 51 1,188 Other 689 716 ________________________________________________________________________________ Total non-interest income 1,413 2,181 ________________________________________________________________________________ Non-interest expense: Salaries and employee benefits 5,493 5,111 Occupancy and equipment 1,488 1,536 Data processing 460 487 Professional services 328 404 Deposit insurance 837 1,346 Real estate acquired through foreclosure expenses 89 134 Write-down in loan valuation premium -- 282 Other 1,423 1,526 ________________________________________________________________________________ Total non-interest expense 10,118 10,826 ________________________________________________________________________________ Income before income taxes 10,666 9,485 Income tax expense 4,154 3,463 ________________________________________________________________________________ Net income $ 6,512 $ 6,022
CONSOLIDATED STATEMENTS OF INCOME (continued) (unaudited)
________________________________________________________________________________ Nine months ended September 30, 1995 1994 ________________________________________________________________________________ Weighted average common shares outstanding: Primary 2,786,770 2,892,667 Fully diluted 2,807,217 2,894,387 Earnings per share (in dollars): Primary $ 2.34 $ 2.08 Fully diluted 2.32 2.08 ________________________________________________________________________________ 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, 1995 (unaudited) and the Year Ended December 31, 1994 (In thousands except share data)
NET UNREALIZED GAINS (LOSSES) ON SECURITIES COMMON ADDITIONAL AVAILABLE FOR STOCK COMMON PAID-IN RETAINED TREASURY SALE, NET OF ACQUIRED STOCK CAPITAL EARNINGS STOCK TAX EFFECT BY ESOP TOTAL ________ __________ _________ __________ __________ ________ ________ Balance at December 31, 1993 $ 3,522 $56,300 $45,502 $(28,225) $ 4,152 $(1,176) $80,075 Net income -- -- 8,185 -- -- -- 8,185 Cash dividends declared ($0.60 per share) -- -- (1,692) -- -- -- ( 1,692) Net increase in liability to ESOP -- -- -- -- -- ( 73) ( 73) Purchase of treasury stock -- -- -- (5,063) -- -- (5,063) Stock options exercised 54 1,085 -- -- -- -- 1,139 Transfer resulting from three-for-two stock split 1,776 (1,776) -- -- -- -- -- Change in net unrealized gains (losses) on securities available for sale, net of tax effect -- -- -- -- (8,067) -- (8,067) ______________________________________________________________________________________________________________________ Balance at December 31, 1994 5,352 55,609 51,995 (33,288) (3,915) (1,249) 74,504 Net Income -- -- 6,512 -- -- -- 6,512 Cash dividends declared ($0.54 per share) -- -- (1,469) -- -- -- (1,469) Purchase of treasury stock -- -- -- (2,083) -- -- (2,083) Stock options exercised 38 630 -- -- -- -- 668 Change in net unrealized gains (losses) on securities available for sale, net of tax effect -- -- -- -- 6,635 -- 6,635 _____________________________________________________________________________________________________________________ Balance at September 30, 1995 $ 5,390 $56,239 $57,038 $(35,371) $ 2,720 $(1,249) $84,767 _____________________________________________________________________________________________________________________ See accompanying condensed notes to consolidated financial statements.
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended September 30, 1995 1994 ____ ____ (In thousands) Cash flows from operating activities: Net income $ 6,512 $ 6,022 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation & amortization 351 392 Amortization of deposit acquisition premium 173 173 Amortization of loan valuation premium 48 345 Decrease in accrued interest receivable 92 1,420 Increase (decrease) in other liabilities (2,262) 209 Decrease in accrued and deferred income taxes payable (275) (286) Accretion of discounts on securities, net of amortization of premiums (858) (468) Net trading securities activity 95,386 16,347 (Gains) losses on securities available for sale (444) (307) (Gains) losses on trading securities 414 766 Increase (decrease) in deferred mortgage loan origination fees, net of amortization (15) 30 (Increase) decrease in deferred income tax asset, net 274 (1,459) Increase in other assets (21) (273) Loans originated for sale (455) (1,034) Loans sold 455 1,285 Provision for possible loan losses 140 520 Provision for losses and writedowns on real estate acquired through foreclosure or substantively repossessed 23 40 (Gains) on sales of real estate acquired through foreclosure -- (31) Increase in escrow deposits of borrowers 240 160 ________________________________________________________________________________ Net cash provided by operating activities 99,778 23,851 ________________________________________________________________________________ Cash flows from investing activities: Purchases of term federal funds (40,000) -- Proceeds from maturities of term federal funds 35,000 -- Proceeds from sales of securities available for sale 36,521 28,266 Proceeds from maturities of investment securities and securities available for sale 34,147 118,227 Purchases of securities available for sale (44,460) (106,108) Purchases of mortgage-backed securities (47,336) (78,077) Principal repayments of mortgage-backed securities 15,421 24,372 Principal repayments of tax-exempt bonds 13 13 Loans originated (21,850) (41,891) Loan principal payments received 28,178 36,959 Purchases of premises & equipment (323) (390) Proceeds from sale of real estate acquired through foreclosure 81 685 Net advances on real estate acquired through foreclosure (7) -- ________________________________________________________________________________ Net cash (used in) investing activities (4,615) (17,944) ________________________________________________________________________________
MASSBANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (unaudited)
Nine Months Ended September 30, 1995 1994 ____ ____ (In thousands) Cash flows from financing activities: Net decrease in deposits (5,996) (3,148) Net decrease in borrowed funds -- (73) Payments to acquire treasury stock (2,083) (3,108) Issuance of common stock under stock option plan 495 647 Tax benefits resulting from stock options exercised 172 250 Dividends paid on common stock (1,469) (1,243) ________________________________________________________________________________ Net cash (used in) financing activities (8,881) (6,675) ________________________________________________________________________________ Net increase (decrease) in cash and cash equivalents 86,282 (768) Cash and cash equivalents at beginning of period 32,161 35,177 ________________________________________________________________________________ Cash and cash equivalents at end of period $118,443 $ 34,409 ________________________________________________________________________________ Supplemental cash flow disclosures: Cash transactions: Cash paid during the period for interest $ 22,863 $ 19,215 Cash paid during the period for taxes, net of refunds 3,937 3,777 Non-cash transactions: SFAS 115: Increase (decrease) in stockholders' equity 6,635 (6,033) Increase (decrease) in deferred tax (assets) liabilities 5,036 (4,580) Foreclosures and in-substance foreclosures 427 167 ________________________________________________________________________________ See accompanying condensed notes to consolidated financial statements. Disclosure of accounting policy: For purposes of reporting cash flows, cash and cash equivalents consist of cash and due from banks, interest-bearing deposits, federal funds sold, and term federal funds sold and other short-term investments with original maturities of less than 90 days.
MASSBANK CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (1) Basis of Presentation The financial condition and results of operations of MASSBANK Corp. (the "Company") essentially reflect the operations of its subsidiary, MASSBANK for Savings (the "Bank") and the Bank's wholly-owned subsidiaries: Readibank Properties, Inc., Readibank Equipment Corporation, Melbank Investment Corporation and Readibank Investment Corporation. All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited consolidated 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, 1995 and December 31, 1994, operating results for the three months and nine months ended September 30, 1995 and 1994, and cash flows for the nine months ended September 30, 1995 and 1994. 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 years' 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, 1994. (2) Common Stock In July, 1994, the Company declared a three-for-two split of the common stock of the Company, to be effected by means of a 50 percent stock distribution. One share for each two shares held by shareholders of record on August 26, 1994, was distributed on September 9, 1994. Prior year weighted average common shares outstanding and earnings per share amounts appearing in the consolidated financial statements have been restated to reflect the three- for-two stock split of September, 1994 to permit comparison with the current fiscal year. (3) Earnings Per Common Share The computation of earnings per common share for the three months and nine months ended September 30, 1995 and 1994 is based on the weighted average number of shares of common stock and common stock equivalents outstanding during the period. Stock options, when dilutive are included as common stock equivalents using the Treasury stock method. (4) Employee Stock Ownership Plan Effective May 28, 1986, the Company established an employee stock owner- ship plan ("ESOP"). Under the plan, the ESOP has borrowed funds from a third party bank to invest in the Company's common stock. As this obligation will be liquidated primarily through future contributions to the ESOP by the Company, the obligation is reflected as a liability of the Company and a reduction of shareholders' equity on the consolidated balance sheet. As of September 30, 1995 and December 31, 1994, such outstanding liabilities totaled $1,249,000. (5) Securities Held To Maturity The amortized cost and approximate market value of investment securities and mortgage-backed securities held to maturity are as follows:
__________________________________________________________________________________________ At At (In thousands) September 30, 1995 December 31, 1994 __________________________________________________________________________________________ Amortized Market Amortized Market Cost Value Cost Value ________ ________ ________ _______ (unaudited) Investment Securities: Other bonds and obligations $ 407 $ 407 $ 567 $ 563 ________ ________ ________ ________ Total investment securities $ 407 $ 407 $ 567 $ 563 ________ ________ ________ ________ Mortgage-Backed Securities: Government National Mortgage Association $ 83,971 $ 84,640 $ 90,153 $ 84,457 Federal Home Loan Mortgage Corporation 105,895 106,298 64,921 61,174 Federal National Mortgage Association 13,682 14,172 16,220 16,237 Other 808 848 969 998 _________ ________ ________ ________ Total mortgage-backed securities $204,356 $205,958 $172,263 $162,866
Investment and mortgage-backed securities are stated at cost, adjusted for amortization of premiums and accretion of discounts, using a method that approximates the level-yield method. An analysis of unrealized gains and losses on investment and mortgage-backed securities held to maturity is as follows:
__________________________________________________________________________________________ (In thousands) September 30, 1995 December 31, 1994 __________________________________________________________________________________________ Unrealized Unrealized Gains Losses Gains Losses ________ ________ ________ ________ (unaudited) Other bonds and obligations $ -- $ -- $ -- $ (4) Mortgage-backed securities 2,818 (1,216) 229 (9,626) ________ ________ ________ _________ Total unrealized gains (losses) $ 2,818 $(1,216) $ 229 $ (9,630)
(6) Securities Available For Sale The amortized cost and approximate market values of securities available for sale are as follows:
__________________________________________________________________________________________ (In thousands) September 30, 1995 December 31, 1994 __________________________________________________________________________________________ Amortized Market Amortized Market Cost Value Cost Value ________ ________ ________ ________ (unaudited) U.S. Treasury obligations $221,604 $223,886 $250,354 $242,787 U.S. Government agency obligations 8,992 9,143 5,987 6,043 Other bonds and obligations 1,995 1,989 1,992 1,914 Marketable and other equity securities 6,211 8,569 6,197 6,900 ________ ________ ________ ________ Total securities available for sale $238,802 $243,587 $264,530 $257,644 ________ ________ ________ ________
Securities held for indefinite periods of time and not intended to be held to maturity are classified as available for sale. The Company records securities available for sale at aggregate market value with the net unrealized holding gains or losses reported net of tax effect, as a separate component of stockholders' equity until realized. Gains or losses on sales of securities are recognized at the time of sale using the specific identification method. An analysis of unrealized holding gains and losses on securities available for sale is as follows:
__________________________________________________________________________________________ (In thousands) September 30, 1995 December 31, 1994 __________________________________________________________________________________________ Unrealized Unrealized Gains Losses Gains Losses ______ ______ ______ ______ (unaudited) U.S. Treasury obligations $2,742 $ (460) $ 146 $(7,713) U.S. Government agency obligations 151 -- 56 -- Other bonds and obligations 4 (10) -- (78) Marketable and other equity securities 2,358 -- 792 (89) _______ _______ _______ _______ Total unrealized gains (losses) $5,255 $ (470) $ 994 $(7,880) _______ ________ _______ _______
(7) Trading Securities Investments classified as trading securities are stated at market with unrealized gains and losses included in earnings. (8) Loans The composition of the Bank's loan portfolio is summarized as follows:
_______________________________________________________________________________________ (In thousands September 30, 1995 December 31, 1994 _______________________________________________________________________________________ Mortgage loans: Residential $207,056 $211,930 Commercial 7,066 8,155 Construction 1,038 603 ________ ________ 215,160 220,688 Add: Premium on loans 404 452 Less: deferred mortgage loan origination fees (856) (871) _________ ________ Total mortgage loans 214,708 220,269 Other loans: Consumer Installment 2,039 1,972 Guaranteed education 10,373 10,152 Other secured 2,015 2,598 Home equity lines of credit 13,710 14,674 Unsecured 281 269 ________ ________ Total consumer loans 28,418 29,665 Commercial 811 882 ________ ________ Total other loans 29,229 30,547 _________ ________ Total loans $243,937 $250,816
(9) Commitments At September 30, 1995, the Company had outstanding commitments to originate mortgage loans and to advance funds for construction loans amounting to $5,791,000 and commitments under existing home equity lines of credit and other loans of approximately $20,635,000 which are not reflected on the consolidated balance sheet. In addition, as of September 30, 1995, the Company had a performance standby letter of credit conveyed to others in the amount of $1,249,000 which is also not reflected on the consolidated balance sheet. (10) Recent Accounting Developments The Financial Accounting Standards Board (FASB) has recently taken action to allow enterprises to reassess the appropriateness of its current FASB 115 classifications. According to the draft announcement, transfers would continue to be made at fair value in accordance with FASB 115. Any transfers made in connection with this announcement would have to be made after issuance of the final guidelines, which are expected to be issued on November 15, 1995 and prior to December 31, 1995. This means that any institution which classified securities as "held-to- maturity" can now reclassify those securities to the available for sale classification without "tainting" its entire held-to-maturity portfolio. MASSBANK expects to reclassify some or all of its "held to maturity" securities to the available for sale classification prior to December 31, 1995. (11) Changes in Accounting Principle Employee Stock Ownership Plans ("ESOPs") Effective January 1, 1994, the Company adopted the American Institute of Certified Public Accounts ("AICPA") Statement of Position ("SOP") 93-6, "Employers' Accounting for Employee Stock Ownership Plans". This SOP replaces existing accounting guidance and brings about changes in the way employees report transactions with leveraged ESOPs. Adoption of the Statement did not have a significant effect on MASSBANK's financial statements. Impaired Loans Effective January 1, 1995, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan", and SFAS No. 118 "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures". These statements require changes in both the disclosure and impairment measurement of non-performing loans. Certain loans which had previously been reported as non-performing and in-substance foreclosures are currently required to be disclosed as impaired loans. Additionally, certain loans are exempt from the provisions of these statements including large groups of smaller balance homogeneous loans that are collectively evaluated for impairment, such as consumer and residential mortgage loans. Commercial and commercial real estate loans are considered to be impaired when it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. The amount of impairment for all impaired loans is determined by the difference between the present value of the expected cash flows related to the loan using the original contractual interest rate, and its recorded value, or, as a practical expedient at the loans observable market price or the fair value of the collateral if the loan is collateral dependent. Loans are placed on non-accrual when payment of principal or interest is past due 90 days or more. Previously accrued income that has not been collec- ted is reversed from current income, and subsequent cash receipts are applied to reduce the unpaid principal balance. Loans are returned to accrual status when collection of all contractual principal and interest is reasonably assured and there has been sustained repayment performance. Adoption of Statements 114 and 118 did not have a significant effect on the Company's financial statements. The Company did not have any impaired loans at September 30, 1995 or during the quarter ended September 30, 1995. Additionally, there was no interest income recognized on impaired loans during the recent quarter. Activity in the allowance for loan losses account during the nine months ended September 30, 1995 was: (in thousands) Balance, December 31, 1994 $ 2,566 Provision 140 Loan losses charged off (150) Less recoveries 42 ________ Net charge-offs (108) ________ Balance, September 30, 1995 $ 2,598 (12) Deposit Acquisition Premium The deposit acquisition premium arising from acquisitions is reported net of accumulated amortization. Such premium is being amortized on a straight line basis over 10 years. MASSBANK CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS September 30, 1995 General The following discussion should be read in conjunction with the consolidated financial statements and related notes included in this report. MASSBANK Corp.'s (the "Company's") financial condition and results of operations essentially reflect the operations of its subsidiary, MASSBANK for Savings (the "Bank") and the Bank's wholly-owned subsidiaries: Readibank Properties, Inc., Readibank Equipment Corporation, Melbank Investment Corporation and Readibank Investment Corporation. The Company's net income depends largely upon net interest income, which is the difference between interest income from loans and investments ("interest-earning assets") and interest expense on deposits and borrowed funds ("interest-bearing liabilities"). Net interest income is significantly affected by general economic conditions, policies established by regulatory authorities and competition. The Company has consistently maintained positive net interest income. Net income is also affected by the provision for possible loan losses and by the level of non-interest income (including gains or losses on securities), non-interest expenses and income taxes. Each of these major elements of consolidated net income is discussed in succeeding paragraphs. FINANCIAL CONDITION The Company's total assets increased modestly from $843.6 million at December 31, 1994 to $846.5 million at September 30, 1995. Funding for the asset growth was essentially provided by current earnings. Total deposits at September 30, 1995 were $753.9 million, a 0.8% decrease from total deposits of $759.7 million at December 31, 1994. Stockholders' equity at September 30, 1995 equalled $84.8 million representing a book value of $30.95 per share, an increase from $74.5 million representing $26.78 per share at December 31, 1994. The Company's book value per share increased by $4.17 per share or 15.6% over the nine months ended September 30, 1995. For the three months ended September 30, 1995, average earning assets equalled $820.9 million, a decline of $7.1 million, from $828.0 million for the same quarter in 1994. Average interest bearing liabilities totaled $749.0 million for the third quarter of 1995 compared to $766.6 million for the comparable quarter of 1994. Loans The Bank's loan portfolio has decreased during the first nine months of 1995, from $250.8 million at December 31, 1994 to $243.9 million at September 30, 1995. Loan originations during this period have not kept pace with the level of loan amortization and payoffs in the Bank's portfolio. Loan originations in the first nine months of 1995 declined to $22.3 million, compared to $42.9 million for the same period in 1994, due primarily to the lack of loan demand in the Bank's market area. Investments MASSBANK's investment portfolio, consisting of federal funds sold, term federal funds sold, investment and mortgage-backed securities, securities available for sale, trading securities, interest-bearing deposits and other short-term investments remained fairly stable during the first nine months of 1995, increasing slightly to $582.6 million or 68.8% of total assets at September 30, 1995, from $568.6 million or 67.4% of total assets at December 31, 1994. The Bank's securities available for sale decreased $14.1 million from December 31, 1994 to $243.6 million at September 30, 1995. Mortgage-backed securities, designated as held to maturity, increased $32.1 million to $204.4 million during the same period. The decline in interest rates, since year end 1994, has increased the market value of the Bank's debt securities as shown in notes 5 and 6 of the condensed notes to the consolidated financial statements. The valuation reserve on securities available for sale improved significantly to $4.8 million in net unrealized gains at September 30, 1995 from $6.9 million in net unrealized losses at December 31, 1994, due to improvements in the bond market during the first nine months of 1995. Deposits Deposit accounts of all types have historically 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. Management attempts to manage its deposits through selective pricing. MASSBANK's total deposits decreased $5.8 million in the first nine months of 1995, from $759.7 million at December 31, 1994 to $753.9 million at September 30, 1995. Attractive returns on U.S. Treasuries and other alternative investment opportunities have lured away some of the Bank's depositors. ASSET QUALITY Net loans represented 28.5% of total assets at September 30, 1995 as compared to 29.4% of total assets at December 31, 1994. The Bank's securities and other short-term investments, representing 68.8% of total assets at September 30, 1995, consist primarily of U.S. Treasuries, Government Agency obligations, high quality mortgage-backed securities, federal funds sold and investments in mutual funds of approximately $5.8 million. At September 30, 1995, the Bank's loan portfolio consisted of residential mortgages of $207.6 million, commercial mortgages of $7.1 million, consumer loans of $28.4 million and commercial loans of approximately $0.8 million. Non-performing assets were $2.5 million at September 30, 1995, representing 0.29% of total assets. This compares to $2.2 million, or 0.26% of total assets, at December 31, 1994. At September 30, 1995, the Bank's allowance for possible loan losses was $2.6 million, representing 128.4% of non-performing loans and 1.07% of total loans. The Bank believes that its allowance for possible loan losses is adequate to cover the risks inherent in the loan portfolio under current conditions. Results of Operations for the Three Months Ended September 30, 1995 Compared to the Corresponding Period in 1994 General MASSBANK Corp. reported record consolidated net income of $2,217,000 or $0.80 per share for the third quarter of 1995, compared to $2,143,000 or $0.74 per share for the same quarter of 1994. Earnings results for the third quarter of 1995 were favorably impacted by a $478,000 refund in Federal Deposit Insurance Corporation ("FDIC") deposit insurance premiums. This was due to a reduction in FDIC premiums to four cents per $100 of domestic deposits announced in the third quarter, but effective as of June 1, 1995. Earnings for the third quarter also reflect a modest decline in net interest margin, a lower provision for possible loan losses, and a decrease in non-interest income. Net Interest Income Net interest income before provision for possible loan losses totaled $6,311,000 in the third quarter of 1995 compared to $6,409,000 in the comparable quarter of 1994. As detailed in the average balance sheets on the following pages, this is the result of a decline in the Company's net interest margin and interest rate spread. The interest rate spread was 2.74% for the third quarter of 1995 compared to 2.87% for the same quarter of 1994. The net interest margin for the three months ended September 30, 1995 and 1994 was 3.09% and 3.11%, respectively. Interest and Dividend Income Interest and dividend income from loans and investments increased by $1,197,000 or 9.2% for the three months ended September 30, 1995 from $13,047,000 for the same period in 1994. The increase is primarily attributable to an increase in yield on average earning assets partially offset by a decrease in the Company's average earning assets. The yield on the Company's average earning assets for the third quarter of 1995 increased 63 basis points to 6.94% from 6.31% for the same quarter in 1994. The increase in the yield on earning assets reflects the reinvestment of securities, federal funds sold and other short term investments at higher yields, and the upward repricing of adjustable rate real estate loans, equity lines of credit, and other loans. The average total earnings assets of the Company decreased to $820.9 million in the third quarter of 1995 from $828.0 million for the corresponding quarter of 1994. Interest Expense Total interest expense increased by 19.5% to $7,933,00 for the three months ended September 30, 1995 from $6,638,000 for the same period in 1994. This increase is primarily due to an increase in the Company's cost of funds, partially offset by a decrease of $17.5 million in the Company's average deposits and borrowed funds. The average cost of funds in the third quarter of 1995 was 4.20% compared to 3.44% for the third quarter of 1994. The increase of 76 basis points is principally due to a change in the mix of deposits, combined with higher rates on term certificates of deposit. The Bank has essentially held core deposit rates flat while selectively increasing rates on term certificates of deposit. As a result, a significant number of bank customers have shifted their savings deposits to term certificates of deposit and increased the Bank's overall cost of funds. Average deposits and borrowed funds for the three months ended September 30, 1995 were $749.0 million compared to $766.5 million for the same period in 1994. AVERAGE BALANCE SHEETS Three Months Ended
September 30, 1995 September 30, 1994 __________________ __________________ (1) Interest Average (1) Interest Average Average Income/ Yield/ Average Income/ Yield/ (In thousands) Balance Expense Rate Balance Expense Rate __________________________________________________________________________________________ Assets: Earning assets: Federal funds sold $104,033 $ 1,541 5.88% $ 23,854 $ 272 4.52% Mortgage-backed securities 189,075 3,379 7.15 161,686 2,868 7.09 Securities available for sale 244,792 3,879 6.34 250,326 3,566 5.70 Trading securities 30,883 493 6.40 138,299 1,434 4.15 Other investments 9,382 140 5.97 596 10 6.85 Mortgage loans (2) 213,270 4,126 7.74 223,760 4,288 7.67 Other loans (2) 29,474 717 9.68 29,440 642 8.65 __________________________________________________ ________________ Total earning assets 820,909 $14,275 6.94% 827,961 $13,080 6.31% __________________________________________________________________________________________ Allowance for possible loan losses (2,584) (2,400) __________________________________________________________________________________________ Total earning assets less allowance for possible loan losses 818,325 825,561 Other assets 20,267 22,308 __________________________________________________________________________________________ Total assets $838,592 $847,869 __________________________________________________________________________________________
AVERAGE BALANCE SHEETS (continued) Three Months Ended
September 30, 1995 September 30, 1994 ___________________ __________________ (1) Interest Average (1) Interest Average Average Income/ Yield/ Average Income/ Yield/ (In thousands) Balance Expense Rate Balance Expense Rate __________________________________________________________________________________________ Liabilities: Deposits: Demand and NOW $ 64,836 $ 164 1.00% $ 66,258 $ 172 1.03% Savings 371,050 3,121 3.34 509,084 4,233 3.30 Time certificates of deposit 313,135 4,648 5.89 191,137 2,233 4.63 __________________________________________________ _________________ Total deposits 749,021 7,933 4.20 766,479 6,638 3.44 Borrowed funds -- -- -- 86 -- -- __________________________________________________ ________________ Total deposits and borrowed funds 749,021 7,933 4.20% 766,565 6,638 3.44% Other liabilities 5,628 4,701 __________________________________________________________________________________________ Total liabilities 754,649 771,266 __________________________________________________________________________________________ Stockholders' equity 83,943 77,345 __________________________________________________________________________________________ Total liabilities and stockholders' equity $838,592 $848,611 __________________________________________________________________________________________ Net interest income (tax-equivalent basis) 6,342 6,442 Less adjustment of tax-exempt interest income 31 33 __________________________________________________________________________________________ Net interest income $6,311 $6,409 __________________________________________________________________________________________ Interest rate spread 2.74% 2.87% __________________________________________________________________________________________ Net interest margin (3) 3.09% 3.11% __________________________________________________________________________________________ (1) Includes SFAS No. 115 adjustment. (2) Loans on non-accrual status are included in the average balance. (3) Annualized net interest income (tax equivalent basis) before provision for possible loan losses divided by average interest-earning assets.
Provision for Possible Loan Losses Possible losses on loans are provided for under the allowance method of accounting. The allowance is increased by provisions charged to operations based on management's assessment of many factors including the risk charac- teristics of the portfolio, underlying collateral, current and anticipated economic conditions that may affect 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 possible loan losses. Such agencies may require the Bank to recognize additions to the allowance based on judgments different from those of management. As a result of management's assessment and analysis, the Bank provided $30,000 for potential loan losses during the third quarter of 1995 compared to $150,000 for the same quarter in 1994. Loan charge-offs net of recoveries, were $0 and $9,000 for the respective periods. Non-performing assets increased slightly to $2,465,000 as of September 30, 1995, from $2,227,000 as of December 31, 1994. At September 30, 1995 the balance of the allowance for possible loan losses was $2,598,000 compared to $2,566,000 at the end of 1994. The reserve for loan losses remains strong at 128.4% of total non-performing loans. Non-Performing Assets September 30, December 31, June 30, (In thousands) 1995 1994 1994 ________________________________________________________________________________ Non-Performing Assets: Non-accrual loans $ 2,023 $ 2,098 $ 1,794 Real estate acquired through foreclosure or substantively repossessed 442 129 273 ________________________________________________________________________________ Total non-performing assets $ 2,465 $ 2,227 $ 2,067 ________________________________________________________________________________ Allowance for possible loan losses $ 2,598 $ 2,566 $ 2,353 Allowance as percent of non-accrual loans 128.4 % 122.3 % 131.2 % Non-accrual loans as percent of total loans 0.83% 0.84% 0.70% Non-performing assets as percent of total assets 0.29% 0.26% 0.24% The Company adopted Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan", and SFAS No. 118 "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures" effective January 1, 1995. However, the Bank did not have any impaired loans as of September 30, 1995. Non-Interest Income Non-interest income consists of deposit account service fees, gains or losses on securities and other non-interest income. Non-interest income for the recent quarter was $376,000, down from $523,000 a year ago. The decrease is principally due to net losses on securities of $57,000 recorded in the third quarter of 1995 compared to net securities gains of $86,000 recorded in the comparable quarter of 1994. Non-Interest Expense Non-interest expenses for the three months ended September 30, 1995 decreased to $3,040,000 from $3,423,000 for the corresponding period in 1994. Non-interest expenses were positively impacted by a $478,000 refund in FDIC premiums covering the four month period ended September 30, 1995, as FDIC premiums have been reduced to four cents per $100 of domestic deposits. Non- interest expenses, excluding deposit insurance premiums, increased by 3.6% to $3,082,000 for the three months ended September 30, 1995, from $2,975,000 for the same quarter a year ago. Income Tax Expense The Company and its subsidiaries file consolidated federal income tax returns on an October 31, year-end. The Parent Company is subject to a State of Delaware Franchise Tax and a State of Massachusetts Bank Excise Tax and the Bank's subsidiaries are subject to a State of Massachusetts Corporate Excise Tax. Provisions for deferred income taxes are made as a result of timing differences between financial and income tax methods of accounting. The provision for federal and state income taxes increased to $1,400,000 for the three months ended September 30, 1995 from $1,216,000 for the same period in 1994. The increase is due to higher income before taxes and an increase in the Company's combined effective income tax rate from 36.2% for the third quarter of 1994 to 38.7% for the third quarter of 1995. The Company's estimated effective income tax rate for 1994 was reduced due to the resolution of a federal income tax matter. Results of Operations for the Nine Months Ended September 30, 1995 Compared to the Corresponding Period in 1994 General For the nine months ended September 30, 1995, the Company reported consolidated net income of $6,512,000 or $2.34 per share ($2.32 per share on a fully diluted basis) compared to $6,022,000 or $2.08 per share earned in the first nine months of 1994. The Company's favorable earnings results for the nine months ended September 30, 1995, compared to the same period in 1994, can be attributed primarily to an improvement in net interest margin, a lower provision for possible loan losses, and a decrease in non-interest expense, partially offset by a reduction in non-interest income. Net Interest Income Net interest income before provision for possible loan losses totaled $19,511,000 for the nine months ended September 30, 1995, compared to $18,650,000 for the same period in 1994. As detailed in the average balance sheets on the following pages, this is the result of an improvement in the Company's net interest margin and interest rate spread. The interest rate spread was 2.85% for the nine months ended September 30, 1995 compared to 2.74% for the same period a year ago. The net interest margin for the nine months ended September 30, 1995 and 1994 was 3.19% and 3.01%, respectively. AVERAGE BALANCE SHEETS Nine Months Ended
September 30, 1995 September 30, 1994 __________________ __________________ (1) Interest Average (1) Interest Average Average Income/ Yield/ Average Income/ Yield/ (In thousands) Balance Expense Rate Balance Expense Rate __________________________________________________________________________________________ Assets: Earning assets: Federal funds sold $ 82,648 $ 3,689 5.97% $ 36,392 $ 996 3.66% Mortgage-backed securities 178,495 9,604 7.18 145,435 7,767 7.13 Securities available for sale 254,060 11,944 6.27 248,649 10,195 5.47 Trading securities 54,073 2,343 5.78 148,277 4,283 3.86 Other investments 4,460 200 5.98 1,152 45 5.27 Mortgage loans (2) 215,267 12,490 7.74 222,351 12,857 7.71 Other loans (2) 30,129 2,137 9.47 29,596 1,819 8.21 __________________________________________________ ________________ Total earning assets 819,132 $42,407 6.90% 831,852 $37,962 6.09% __________________________________________________________________________________________ Allowance for possible loan losses (2,585) (2,289) __________________________________________________________________________________________ Total earning assets less allowance for possible loan losses 816,547 829,563 Other assets 21,363 22,215 __________________________________________________________________________________________ Total assets $837,910 $851,778 __________________________________________________________________________________________
AVERAGE BALANCE SHEETS (continued) Nine Months Ended
September 30, 1995 September 30, 1994 ___________________ __________________ (1) Interest Average (1) Interest Average Average Income/ Yield/ Average Income/ Yield/ (In thousands) Balance Expense Rate Balance Expense Rate __________________________________________________________________________________________ Liabilities: Deposits: Demand and NOW $ 64,806 $ 492 1.02% $ 65,875 $ 513 1.04% Savings 396,332 9,839 3.32 527,482 12,996 3.29 Time certificates of deposit 291,013 12,470 5.73 174,173 5,702 4.38 ___________________________________________________ _________________ Total deposits 752,151 22,801 4.05 767,530 19,211 3.35 Borrowed funds -- -- -- 213 1 0.69 ____________________________________________________ ________________ Total deposits and borrowed funds 752,151 22,801 4.05% 767,743 19,212 3.35% Other liabilities 5,083 6,731 __________________________________________________________________________________________ Total liabilities 757,234 774,474 __________________________________________________________________________________________ Stockholders' equity 80,676 77,304 __________________________________________________________________________________________ Total liabilities and stockholders' equity $837,910 $851,778 __________________________________________________________________________________________ Net interest income (tax-equivalent basis) 19,606 18,750 Less adjustment of tax-exempt interest income 95 100 __________________________________________________________________________________________ Net interest income $19,511 $18,650 __________________________________________________________________________________________ Interest rate spread 2.85% 2.74% __________________________________________________________________________________________ Net interest margin (3) 3.19% 3.01% __________________________________________________________________________________________ (1) Includes SFAS No. 115 adjustment. (2) Loans on non-accrual status are included in the average balance. (3) Annualized net interest income (tax equivalent basis) before provision for possible loan losses divided by average interest-earning assets.
Interest and Dividend Income Interest and dividend income from loans and investments increased by $4,450,000 or 11.8% to $42,312,000 for the nine months ended September 30, 1995 from $37,862,000 for the same period in 1994. The increase is primarily attributable to an increase in yield on earning assets, partially offset by a decrease in the Company's average earning assets. The Company's yield on total average earning assets for the first nine months of 1995 increased 81 basis points to 6.90% from 6.09% for the same period in 1994. This improvement is due primarily to higher interest rates (particularly short-term rates) and the Company's decision to add more higher-yielding mortgage-backed securities to its portfolio to make up for the lack of residential real estate loan demand in its market area. The total average earning assets of the Company decreased to $819.1 million in the first nine months of 1995 from $831.8 million for the corresponding period of 1994. Interest Expense Total interest expense increased 18.7% to $22,801,000 for the nine months ended September 30, 1995 from $19,212,000 for the same period in 1994. The increase in interest expense was primarily due to an increase in the Company's cost of funds, partially offset by a decrease of $15.6 million in the Company's average deposits and borrowed funds. During the first nine months of 1995, the Company's average cost of funds increased 70 basis points to 4.05% from 3.35% in the first nine months of 1994. This increase was primarily due to the rise in market interest rates over the last twelve months, which increased rates on customer deposits, and a shift in mix of deposits as customers have migrated from savings deposits to higher yielding time deposits. Average deposits and borrowed funds for the nine months ended September 30, 1995 were $752.1 million compared to $767.7 million for the same period in 1994. Provision for Possible Loan Losses The provision for loan losses charged against income was $140,000 for the nine months ended September 30, 1995 compared to $520,000 for the same period in 1994. Loan charge-offs net of recoveries totaled $108,000 for the nine months ended September 30, 1995. The allowance for possible loan losses at September 30, 1995 stands at $2,598,000, which equals 128.4% of non-performing loans and 1.07% of total loans. Non-Interest Income Non-interest income consists of deposit account services fees, gains or losses on securities and other non-interest income. Non-interest income for the nine months ended September 30, 1995 was $1,413,000 down from $2,181,000 a year ago due primarily to extraordinary items (i.e. interest on tax settlements of $1,188,000 partially offset by securities losses of $459,000 recorded in the first nine months of 1994). Non-Interest Expense Non-interest expenses for the nine months ended September 30, 1995 decreased to $10,118,000 from $10,826,000 for the corresponding period in 1994. The reduction was primarily due to a $282,000 write-down in loan valuation premium in 1994 and a reduction in FDIC deposit insurance premiums in 1995. Deposit insurance premiums for the nine months ended September 30, 1995 were $837,000, down from $1,346,000 for the comparable period of 1994. Income Tax Expense Total income tax expense for the first nine months of 1995 was $4,154,000 compared to $3,463,000 for the same period in 1994. The increase is due to higher income before taxes coupled with an increase in the Company's combined effective income tax rate from 36.5% for the nine months ended September 30, 1994 to 38.9% for the same period in 1995. The Company's estimated effective income tax rate for 1994 was reduced due to the resolution of a federal income tax matter. In addition, the Bank's use of subsidiaries with securities corporation status for state income tax purposes has also helped to reduce the estimated effective income tax rate for 1994 and 1995. Liquidity and Capital Resources The Bank must maintain a sufficient amount of cash and assets which can readily be converted into cash in order to meet cash outflow from normal depositor requirements and loan demands. The Bank's primary sources of funds are deposits, loan amortization and prepayments, sale 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, 1995 the Bank had $99.5 million or 11.8% of total assets and $247.9 million or 29.3% of total assets invested respectively in overnight federal funds sold and United States Treasury and Government agency obligations. The Bank is an FDIC insured institution subject to the FDIC regulatory capital requirements. The FDIC regulations require all FDIC insured institutions to maintain minimum levels of Tier 1 capital. Highly rated banks (i.e., those with a composite rating of 1 under the CAMEL rating system) are required to maintain Tier 1 capital of at least 3% of their total assets. All other banks are required to have Tier 1 capital of 4% to 5%. The FDIC has authority to impose higher requirements for individual banks. The Bank is also required to maintain a minimum level of risk-based capital. Under the new risk-based capital standards, FDIC insured institutions generally are expected to meet a minimum total qualifying capital to risk-weighted assets ratio of 8.00% as of December 31, 1992. At September 30, 1995, the Bank had ratios of Tier 1 capital to total assets of 9.47% and qualifying capital to risk-weighted assets of 38.10%. The Company had ratios of Tier 1 capital to total assets of 9.57% and total qualifying capital to risk-weighted assets of 38.48% at September 30, 1995. 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 institutions performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. PART II - OTHER INFORMATION Item 1. Legal Proceedings From time to time, MASSBANK Corp. and/or the Bank are involved as a plaintiff or defendant in various legal actions incident to their business. As of September 30, 1995, none of these actions individually or in the aggregate is believed by management to be material to the financial condition of MASSBANK Corp. or the Bank. Item 2. Changes in Securities Not Applicable. Item 3. Defaults Upon Senior Securities Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K a. Exhibits Exhibit No. 11.1: Statement regarding computation of per share earnings. b. Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MASSBANK Corp. & Subsidiaries _____________________________ (Registrant) Date November 13, 1995 /s/Gerard H. Brandi ___________________________ (Signature) Gerard H. Brandi President and CEO Date November 13, 1995 /s/Reginald E. Cormier ___________________________ (Signature) Reginald E. Cormier V.P., Treasurer and CFO EX-1 2 EXHIBIT 11.1 MASSBANK CORP. Earnings Per Share The following is a calculation of earnings per share for the three months and nine months ended September 30, 1995 and 1994.
Three Months Ended Nine Months Ended Calculation of Primary September 30, September 30, Earnings Per Share 1995 1994* 1995 1994* ______________________________ ____ ____ ____ ____ Average common shares outstanding 2,736,869 2,844,741 2,762,929 2,867,831 Less: Unallocated Employee Stock Ownership Plan (ESOP) shares not committed to be released (52,800) (62,979) (52,800) (62,979) Shares assumed to be repurchased under treasury stock method of stock options 90,043 95,763 76,641 87,815 _______ _______ _______ _______ Total Shares 2,774,112 2,877,525 2,786,770 2,892,667 __________ __________ _________ _________ Net Income $2,217,000 $2,143,000 $6,512,000 $6,022,000 __________ __________ __________ __________ Per Share Amount $ 0.80 $ 0.74 $ 2.34 $ 2.08 __________ __________ __________ __________
Three Months Ended Nine Months Ended Calculation of Fully Diluted September 30, September 30, Earnings Per Share 1995 1994* 1995 1994* ______________________________ ____ ____ ____ ____ Average common shares outstanding 2,736,869 2,844,741 2,762,929 2,867,831 Less: Unallocated Employee Stock Ownership Plan (ESOP) shares not committed to be released (52,800) (62,979) (52,800) (62,979) Shares assumed to be repurchased under treasury stock method of stock options 97,088 95,763 97,088 89,535 ________ _______ _______ _______ Total Shares 2,781,157 2,877,525 2,807,217 2,894,387 _________ _________ _________ _________ Net Income $2,217,000 $2,143,000 $6,512,000 $6,022,000 __________ __________ __________ __________ Per Share Amount $ 0.80 $ 0.74 $ 2.32 $ 2.08 * Prior year total shares outstanding and earnings per share amounts have been restated to reflect the three-for-two stock split of September, 1994 to permit comparison with the current fiscal year.
EX-27 3
9 9-MOS DEC-31-1995 SEP-30-1995 9,828 924 104,541 20,668 243,587 204,763 206,365 243,937 (2,598) 846,510 753,853 1,206 5,435 1,249 5,390 0 0 79,377 846,510 14,627 23,803 3,882 42,312 22,801 22,801 19,511 140 (18) 10,118 10,666 10,666 0 0 6,512 2.34 2.32 3.19 2,023 0 0 2,023 2,566 (150) 42 2,598 273 0 2,325
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