UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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 0-24791
MASSACHUSETTS FINCORP, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 04-3431804
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1442 Dorchester Avenue, Boston, Massachusetts 02122
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(Address of principal executive offices) (Zip Code)
(617) 825-5555
------------------------------------------------
(Issuer's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changes since last
report)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: the Issuer had
545,481 shares of common stock, par value $0.01 per share, outstanding as
of August 10, 1999.
MASSACHUSETTS FINCORP, INC.
FORM 10-QSB
Index
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II. OTHER INFORMATION 16
ITEM 1. LEGAL PROCEEDINGS. 16
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 16
ITEM 5. OTHER INFORMATION. 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
Massachusetts Fincorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
At June 30, At December 31,
----------------------------
1999 1998
----------------------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,515,880 $ 708,827
Federal funds sold 1,433,748 1,760,909
---------------------------
Total cash and cash equivalents 2,949,628 2,469,736
Securities available for sale 12,698,043 7,403,857
Securities held to maturity 529,355 1,308,286
Federal Home Loan Bank Stock, at cost 812,700 762,800
Mortgages loans held for sale 1,804,550 6,335,665
Loans 62,296,785 51,801,597
Less: allowance for possible loan losses (564,662) (524,924)
---------------------------
Loans, net 61,732,123 51,276,673
Banking premises and equipment, net 2,306,776 1,206,459
Accrued interest receivable 430,526 350,054
Due from Co-operative Central Bank 242,850 242,850
Other assets 749,670 276,740
---------------------------
$84,256,221 $71,633,120
===========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $57,370,884 $56,992,800
Federal Home Loan Bank borrowings 16,434,371 4,210,889
Mortgagor's escrow accounts 325,088 292,944
Accrued expenses and other liabilities 519,962 633,277
---------------------------
Total liabilities 74,650,305 62,129,910
---------------------------
Commitments and contingencies
Preferred stock, par value $.01 per share,
500,000 shares authorized; no shares are
issued or outstanding - -
Common stock par value $.01 per share,
2,500,000 shares authorized;. 545,481
shares issued and outstanding 5,455 5,455
Additional paid in capital 4,862,717 4,885,076
Unallocated ESOP shares (392,742) (392,742)
Retained earnings 5,268,888 5,003,347
Accumulated other comprehensive income (138,402) 2,074
---------------------------
Total Shareholders' equity 9,605,916 9,503,210
---------------------------
$84,256,221 $71,633,120
===========================
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Massachusetts Fincorp, Inc. and Subsidiaries
STATEMENTS OF INCOME
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------------------------------------------
1999 1998 1999 1998
-------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $1,242,872 $ 955,412 $2,417,070 $1,916,813
Interest on investments 159,884 111,043 281,845 211,983
Dividends on investments 28,988 15,945 53,581 30,747
Interest on short-term investments - 19,039 - 20,368
Interest on federal funds sold 12,506 18,687 26,418 30,597
-------------------------------------------------------------
Total interest and dividend income 1,444,251 1,120,126 2,778,915 2,210,508
-------------------------------------------------------------
Interest expense:
Interest on deposit accounts 517,229 550,409 1,053,674 1,027,217
Interest on borrowed funds 163,324 45,481 235,908 108,788
Total interest expense 680,553 595,890 1,289,582 1,136,005
-------------------------------------------------------------
Net interest income 763,698 524,236 1,489,333 1,074,503
-------------------------------------------------------------
Provision for possible loan lossses - 87,413 - 87,413
Net interest income, after provision
for possible loan losses 763,698 436,823 1,489,333 987,090
-------------------------------------------------------------
Non-interest income:
Customer service fees 39,041 41,883 76,558 79,825
Loan fees and gain on
sale of loans and loan
servicing rights 60,328 128,316 208,770 195,201
Net gain on sales of
securities available for sale - 23,992 5,993 35,446
Miscellaneous 26,165 9,904 43,512 19,653
-------------------------------------------------------------
Total non-interest income 125,534 204,095 334,833 330,125
-------------------------------------------------------------
Non-interest expense:
Salaries and employee benefits 398,682 308,425 798,995 608,127
Occupancy and equipment 92,317 85,156 185,760 167,387
Data processing 41,575 37,240 104,309 73,540
Contributions 1,306 2,580 3,383 4,246
Other general and administrative 206,028 139,163 365,465 276,672
-------------------------------------------------------------
Total non-interest expense 739,908 572,564 1,457,912 1,129,972
-------------------------------------------------------------
Income before income tax provision 149,324 68,354 366,254 187,242
Income tax 50,100 20,233 100,709 55,424
-------------------------------------------------------------
Net income $ 99,224 $ 48,121 $ 265,545 $ 131,819
-------------------------------------------------------------
Other comprehensive income,
net of tax:
Unrealized gains (loss)
on securities:
Unrealized holding gains (loss)
arising during the period (99,585) 7,594 (136,574) 18,876
Less: reclassification adjustment
for (gains) included in net income (15,626) (3,903) (23,086)
-------------------------------------------------------------
Other comprehensive income (loss),
net of tax (99,585) (8,032) (140,477) (4,210)
-------------------------------------------------------------
Comprehensive income $ (361) $ 40,089 $ 125,068 $ 127,609
-------------------------------------------------------------
Basic and diluted earnings per share $ 0.20 - $ 0.52 -
Weighted average common shares
outstanding - basic and diluted 507,844 - 507,298 -
</TABLE>
See accompanying notes to consolidated financial statements.
[CAPTION]
<TABLE>
Massachusetts Fincorp, Inc. and Subsidiaries
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
June 30, 1999 and Years ended December 31, 1998, 1997 and 1996
Accumulated
Unallocated Other
Common Paid-in Retained ESOP Comprehensive
Stock Capital Earnings Shares Income(Loss) Total
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
Balance at December 31, 1996 $ - $ - $4,565,304 $ - $29,301 $4,594,605
Net income for the year
ended December 31, 1997 - - 367,534 - - 367,534
Other comprehensive income,
net of tax - - - - 24,379 24,379
-------------------------------------------------------------------------------------
Balance at December 31, 1997 - - 4,932,838 - 53,680 4,986,518
Stock issued pursant to initial
common stock offering 4,759 4,753,921 - - - 4,758,680
Issuance of 25,975 shares of
common stock to the Massachusetts
Charitable Foundation 260 259,490 - - - 259,750
Common Stock accquired by ESOP 436 435,944 - - - 436,380
Unallocated ESOP shares - - - (392,742) - -392,742
Expenses incurred for initial
public offering - (564,278) - - - -564,278
Net income for the year ended
December 31, 1998 - - 70,507 - - 70,507
Other comprehensive income,
net of tax - - - - (51,605) -51,605
Balance at December 31, 1998 5,455 4,885,077 5,003,345 (392,742) 2,075 9,503,210
--------------------------------------------------------------------------------------
Expenses incurred for initial
public offering - (22,360) - - - -22,360
Net income for the six months
ended June 30, 1999 - - 265,543 - - 265,543
Other comprehensive income,
net of tax - - - - (140,477) -140,477
--------------------------------------------------------------------------------------
Balance at June 30, 1999 $5,455 $4,862,717 $5,268,888 $(392,742) $(138,402) $9,605,916
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
Massachusetts Fincorp, Inc and Subsidiaries
STATEMENTS OF CASH FLOWS
For the Six Months Ended
June 30,
----------------------------
1999 1998
----------------------------
(unaudited)
<S> <C> <C>
Cash flow activities:
Net income $ 265,543 $131,819
Adjustment to reconcile net income
to net cash (used)provided by
operating activities
Provision for possible loan - -
Depreciation and amortization expense 81,500 67,626
Net gain on sales of securities
available for sale (5,993) (35,446)
Net gain on sale of foreclosed
real estate - -
Loans originated for sale (18,888,500) (21,073,393)
Principal balance on loans sold 23,419,615 21,507,047
Amortization of deferred loan fees (35,410) (28,264)
Amortization of investment
securities, net of accretion 13,467 14,646
Increase in accrued interest receivable (80,472) (66,602)
Increase in other assets (335,796) (176,537)
Increase (decrease) in accrued expenses
and other liabilities (113,315) 106,133
----------------------------
Net cash (used) provided
by operating activities 4,320,639 447,029
----------------------------
Cash flows from investing activities: (6,755,089) (3,689,204)
Purchase of securities held to maturity - (860,041)
Proceeds from maturities of securities
available for sale - -
Proceeds from maturities of
securities held to maturity 770,000 162,000
Proceeds from sales and calls of
securities available 1,155,993 744,661
Proceeds from calls of securities
held to Purchase of Federal Home
Loan Bank stock (49,900) -
Principal payments received on
mortgage-backed and asset backed securities 64,166 27,093
Loan (originations)/ principal
payments, net (10,455,450) (8,456,253)
Purchase of banking premises and equipment (1,181,817) (53,679)
----------------------------
Net cash used by investing activities (16,452,097) (11,375,423)
----------------------------
Cash flows from financing activities
Net increase in deposits 378,084 13,819,693
Net increase (decrease) in
Federal Home Loan Bank advances
with maturities less than
three months 1,227,000 -
Federal Home Loan Bank advances with
maturities in excess of three months 28,000,000 2,595,327
Repayment of Federal Home Loan Bank
advances with maturities in excess
of three months (17,003,518) (4,503,380)
Net increase (decrease) in mortgagor's
escrow accounts 32,144 (5,667)
IPO expenses (22,360) -
----------------------------
Net cash provided by financing
activities 12,611,350 11,905,973
----------------------------
Net change in cash and cash equivalents 479,892 977,578
Cash and cash equivalents at
beginning of period 2,469,736 1,492,833
Cash and cash equivalents at
end of period $2,949,628 $2,470,411
============================
Supplementary Information
Interest paid on deposit accounts $1,053,675 $1,027,217
Interest paid on borrowed funds 235,908 108,788
Income tax payments (refunds), net 112,500 180,000
</TABLE>
See accompanying notes to consolidated financial statements.
MASSACHUSETTS FINCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Massachusetts Fincorp, Inc. have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
instructions to Form 10-QSB and of Regulation S-B. Accordingly, the
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of a
normal recurring nature) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended June
30, 1999 are not necessarily indicative of the results that may be expected
for the current fiscal year.
For further information, refer to the consolidated financial
statements included in the Company's annual report and Form 10-KSB for the
period ended December 31, 1998, filed with the Securities and Exchange
Commission.
(2) REORGANIZATION AND STOCK OFFERING
MASSACHUSETTS FINCORP, INC. (the "Company") was incorporated under
Delaware law on July 10, 1998. On December 21, 1998, the Company acquired
The Massachusetts Co-operative Bank (the "Bank") as a part of the Bank's
conversion from a mutual to a stock Massachusetts-chartered co-operative
Bank (the "Conversion"). The Company is a savings and loan holding company
and is subject to regulation by the Office of Thrift Supervision (the
"OTS"). Currently, the Company does not transact any material business
other than through the Bank. Prior to December 21, 1998, the Company had
no operations. The Company retained 50% of the net conversion proceeds
amounting to $4.9 million which it used for general business activities and
to form and capitalize the Employee Stock Ownership Plan ("ESOP") Loan
Subsidiary (MCB Funding Corp.), which loaned funds to the ESOP to purchase
8% of the stock issued in the Conversion.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Form 10-QSB may include forward-looking statements that involve
inherent risks and uncertainties. A number of important factors could cause
actual results to differ materially from those forward looking statements.
Those factors include fluctuations in interest rates, inflation, government
regulations and economic conditions and competition in the geographic and
business areas in which the Bank conducts its operations.
General
Massachusetts Fincorp, Inc. (the "Company") was incorporated under
Delaware law on July 10, 1998. On December 21, 1998, the Company acquired
The Massachusetts Co-operative Bank (the "Bank") as a part of the Bank's
conversion from a mutual to a stock Massachusetts-chartered co-operative
Bank (the "Conversion"). The Company is a savings and loan holding company
and is subject to regulation by the Office of Thrift Supervision (the
"OTS").
The Bank is a community-oriented co-operative bank which was
originally organized in 1908 as The Massachusetts Co-operative Bank, a
Massachusetts-chartered mutual co-operative bank. The Bank's principal
business consists of the acceptance of retail deposits from the general
public in the areas surrounding its two full-service banking offices and
the investment of those deposits, together with funds generated from
operations and borrowings, primarily in mortgage loans secured by one- to
four-family residences, multi-family, commercial real estate loans and
construction loans, and, to a lesser extent, home equity lines of credit
and consumer loans. The Bank operates through its two full-service banking
offices and its two loan origination offices, all of which are located in
the greater Boston metropolitan area. The Bank originates loans for
investment and loans for sale in the secondary market, generally releasing
the servicing rights to all loans sold. The Bank also invests in mortgage-
backed securities, securities issued by the U.S. Government and other
investments permitted by applicable laws and regulations. The Bank's
revenues are derived principally from the generation of interest and fees
on loans originated and, to a lesser extent, interest and dividends on
investment securities. The Bank's primary sources of funds are retail
savings deposits and, to a lesser extent, principal and interest payments
on loans and investment securities, advances from the FHLB-Boston and
proceeds from the sale of loans.
Operating Strategy
The Bank's operating strategy consists of maintaining profitability
and managing its interest rate risk mainly by originating fixed-rate one-
to four-family mortgage loans primarily for sale, generally on a servicing
released basis, and originating adjustable and fixed-rate one- to four-
family mortgage loans, multi family, commercial real estate and
construction loans for investment. The Bank's originations consist of both
retail and wholesale. The Bank has also pursued a growth strategy to
broaden the Bank's lending and deposit base through the establishment of a
de novo branch office in 1996 and two loan origination centers in the
greater Boston metropolitan area in 1997 and 1998. The Bank has purchased
a building for $975,000 to establish another de novo branch office in
Quincy, Massachusetts and expects renovations to be completed this summer
and the branch to be operational in the fall of 1999. The Bank anticipates
moving its administrative and back office functions to the new branch
facility. The opening of the Quincy branch office represents the Bank's
strategy to increase market share in both retail banking and the mortgage
origination in the Quincy market area. The Bank has made substantial
infrastructure investments recently, including staffing, offices and
technology, to support future growth.
Average Balance Sheet
Presented below are the average balance sheets for the period
<TABLE>
<CAPTION>
For the Six Months Ended
(unaudited)
-------------------------------------------------------------------
June 30, 1999 June 30, 1998
-------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
-------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Federal funds sold and
short term investments $ 1,745 $ 33 3.78% $ 1,935 $ 58 5.99%
Securities 8,968 275 6.13% 6,723 205 6.10%
Mortgage loans, net 59,333 2,412 8.13% 46,620 1,910 8.19%
Other 888 30 6.76% 902 32 7.10%
------------------- -------------------
Total interest earning assets 70,934 2,750 7.75% 56,180 2,205 7.85%
Noninterest-earning assets 6,595 2,557
-------- --------
Equity securities 1,095 29 5.30% 560 6 2.14%
------------------- -------------------
Total assets $78,624 $ 2,779 $ 59,297 2,211
========----------- ========-----------
Liabilities and Surplus:
Interest bearing liabilities:
Deposits:
Savings accounts $ 9,769 $ 96 1.97% $ 9,704 $ 96 1.98%
Money market accounts 452 5 2.21% 871 12 2.76%
Now accounts 13,546 228 3.37% 10,821 223 4.12%
Certificates of deposit 28,225 725 5.14% 25,143 697 5.54%
------------------- ------------------
Total deposits 51,992 1,054 4.05% 46,539 1,028 4.42%
FHLB advances 8,931 236 5.28% 3,609 108 5.99%
Total interest bearing liabilities 60,923 1,290 4.23% 50,148 1,136 4.53%
------------------- ------------------
Noninterest -bearing demand
checking accounts 4,761 2,999
Noninterest-bearing liabilities 1,883 1,088
-------- ------
Total liabilities 67,567 54,235
Total surplus 11,057 5,062
-------- -------
Total liabilities and surplus $78,624 $59,297
======== =======
Net interest income $ 1,489 $1,075
======= ======
Net interest income/interest
rate spread 3.52% 3.32%
======= =======
Net interest margin as a percent
of interest-earning assets 2.10% 1.91%
======= =======
Ratio of interest-earning assets
to interest-bearing liabilities 116.43% 112.03%
======= =======
</TABLE>
Comparison of Financial Condition at June 30, 1999 and December 31, 1998
The Company's total assets increased by $12.6 million, or 17.6% from
$71.6 million at December 31, 1998 to $84.3 million at June 30, 1999. This
growth in assets was primarily due to growth in loans, investments and bank
premises and equipment, which were funded by increased Federal Home Loan
Bank borrowings. Net loans and mortgage loans available for sale increased
$5.9 million, from $57.6 million at December 31, 1998, to $63.5 million at
June 30, 1999. The increase in loans was the result of enhanced marketing
efforts in commercial real estate, multi family and construction products.
Securities available for sale increased $5.3 million, primarily due to the
purchase of mortgage backed securities and bank premises and equipment
increased $1.1 million as result of purchasing a new building in Quincy,
Ma. The office is being renovated during the summer and is expected to
open in the fall.
Non-performing assets totaled $64,000 at June 30, 1999 as compared to
$173,000 at December 31, 1998 a decrease of $109,000. The decrease of
$109,000, was the result of a reduction in non-accrual loans which where
paid off in full in January 1999. Non-accrual loans decreased $109,000
from $173,000, or 0.21% of total loans, at December 31, 1998 to $64,000 or
0.10% of total loans at June 30, 1999.
Total shareholders' equity increased $103,000 from $9.5 million, at
December 31, 1998 to $9.6 million at June 30, 1999. This increase was
primarily due to $266,000 in net income offset with a $140,000 decrease in
other comprehensive income, as the result of the market valuation in
available for sale investments.
Comparison of Operating Results for the Three and Six Months Ended June 30,
1999 and 1998
General
Net earnings for the three and six months ended June 30, 1999 were
$99,000, and $266,000 compared to $48,000 and $132,000 for the three and
six months ended June 30, 1998, representing increases of $51,000, or
106.2%, and $134,000 or 101.5%, respectively. Basic earnings per share
were $.20 and $.52 for the three and six months ended June 30, 1999. Due
to the timing of the Bank's conversion to stock form and initial public
offering by the Company, per share figures for the prior years are not
meaningful. The increase in earnings for the six months ended June 30,
1999 was primarily due to a $568,000 increase in interest and dividend
income as the result of increased portfolio loan originations, and an
increase in interest and dividends on investments. This increase was
partially offset by an increase in non-interest expense of $328,000, which
was primarily attributed to increases in salaries and benefits due to
additional staff based on growth, occupancy expense, as the result of the
purchase of the Quincy office and data processing expense due to a data
servicer conversion in connection with becoming Year 2000 compliant.
Interest and Dividend Income
Interest and dividend income for the three and six months ended June
30, 1999 was $1.4 million and $2.8 million, compared to $1.1 million and
$2.2 million for the three and six months ended June 30, 1998. The
$568,000 increase in interest and dividend income for the six months ended
June 30, 1999, was primarily due to an increase in average interest
earning assets of $14.8 million from $56.2 million for the six months
ended June 30, 1998, to $70.9 million for the six months ended June 30,
1999, due to increased loan originations and a larger securities portfolio.
This increase was offset in part, by a decrease in the average yield on
interest earning assets of 10 basis points to 7.75% for the six months
ended June 30, 1999, as compared to 7.85% for the six months ended June 30,
1998, due to a lower interest rate environment.
Interest Expense
Interest expense for the three and six months ended June 30, 1999 was
$681,000 and $1.3 million, compared to $596,00 and $1.1 million for the
three and six months ended June 30, 1998. The $154,000 increase in
interest expense for the six months ended June 30, 1999, was the result of
a $10.8 million increase in average interest bearing liabilities, which was
primarily due to a $2.7 million, or 25.0% increase in average interest
bearing checking accounts to $13.5 million for the six months ended June
30, 1999 compared to $10.8 million for the six months ended June 30, 1998.
The average balance of term certificates of deposit increased $3.1
million, or 12.4% to $28.2 million for the six months ended June 30, 1999
compared to $25.1 million, for the six months ended June 30, 1998. The
increase in average interest bearing checking accounts was mainly the
result of the Bank's promotion of tiered interest bearing checking accounts
for retail customers and the increase in term certificates was mainly the
result of the promotion of a new 14 month term certificate. The increase
in average interest bearing liabilities was offset by a 30 basis point
decrease in the cost of funds. Average Federal Home Loan Bank borrowings
increased $5.3 million, or 147.2% to $8.9 million for the six months ended
June 30, 1999 compared to $3.6 million, for the six months ended June 30,
1998, offset by a 71 basis point decrease in average cost on such advances.
These increases were used to fund increased loan origination.
Provision for Possible Loan Losses
There was no provision for possible loan losses for the three and six
months ended June 30, 1999 as compared to an $87,000 provision for the
three and six months ended June 30, 1998. The decrease in provision was
primarily the result of recoveries on previously charged off loans. At June
30, 1999 and December 31, 1998, the allowance for possible loan losses was
$565,000 and $525,000 respectively, which represented 882.8% of non-
performing loans and 0.88% of total loans at June 30, 1999 compared to
820.3% of non-performing loans and 0.90% of total loans at December 31,
1998. The allowance for possible loan losses is maintained through
provisions for loan losses based on management's on-going evaluation of the
risks inherent in its loan portfolio in consideration of the trends in its
loan portfolio, the national and regional economies and the real estate
market in the Bank's primary lending area. The allowance for possible loan
losses is maintained at an amount management considers adequate to cover
estimated losses in its loan portfolio which are deemed probable and
estimable based on information currently known to management. The Bank's
loan loss allowance determinations also incorporate factors and analyses
which consider the potential principal loss associated with the loan, costs
of acquiring the property securing the loan through foreclosure or deed in
lieu thereof, the periods of time involved with the acquisition and sale of
such property, and costs and expenses associated with maintaining and
holding the property until sale and the costs associated with the Bank's
inability to utilize funds for other income producing activities during the
estimated holding period of the property.
Management periodically calculates a loan loss allowance sufficiency
analysis based upon the loan portfolio composition, asset classifications,
loan-to-value ratios, potential impairments in the loan portfolio and other
factors. Management believes that, based on information available at June
30, 1999, the Bank's allowance for possible loan losses was sufficient to
cover losses inherent in its loan portfolio at that time
Net Interest Income
Net interest income for three and six months ended June 30, 1999 was
$764,000 and $1.5 million compared to $437,000 and $1.0 million for the
three and six months ended June 30, 1998. The $415,000 increase in net
interest income for the six months ended June 30, 1999, was due to an
increase in average interest earning assets in excess of average interest
bearing liabilities of $3.9 million, as well as, a 20 basis point increase
in interest rate spread, which increased from 3.32% for the six months
ended June 30, 1998 to 3.52% for the six months ended June 30, 1999.
Non-Interest Income
Non-interest income for the three and six months ended June 30, 1999
was $126,000 and $335,000, compared to $204,000 and $330,000 for the three
and six months ended June 30, 1998. The $4,700, or 1.5% increase for the
six months ended June 30, 1999 was the result of a $14,000 increase in the
gain of sale of loans, resulting from increased mortgage banking activity,
and a $24,000 increase in miscellaneous income. The increase was partially
offset with a $29,000 decrease on the gain on sale of securities available
for sale.
Non-Interest Expense
Non-interest expense for the three and six months ended June 30, 1999
was $740,000 and $1.5 million, compared to $573,000 and $1.1 million for
the three and six months ended June 30, 1998. The $328,000, or 36.4%
increase for the six months ended June 30, 1999, was primarily due to a
$191,000 increase in salaries and benefits, which was the result of salary
increases, additions to staff based on growth and increased benefit
administration costs. Occupancy expense increased $18,000 which was
partially related to the purchase of our new Quincy Office and more
significantly an increase in depreciation expense due to the purchase of
computer software and equipment as the result of Y2K preparedness. Data
processing expense increased $31,000, which was primarily the result of a
non-recurring data conversion expense related to implementation of a new
data processing system and Y2K preparedness. General and administrative
expenses increased $89,000 which was partially related to the general
operating expenses of a public institution and overall growth.
Income Tax Expense
Income tax expense differs from statutory tax rates due to the effect
of permanent differences such as tax credits and dividends received
deductions.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, principal and
interest payments on loans, proceeds from maturing securities and
borrowings from the FHLB-Boston. While maturities and scheduled
amortization of loans and securities are predictable sources of the funds,
deposit outflows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.
The primary investing activities of the Bank are the origination of
loans, including residential one-to four-family mortgage loans, multi-
family, commercial real estate loans, construction loans, and, to a lesser
extent, home equity lines of credit and consumer loans and the investment
in mortgage-backed securities, U.S. Government and agency obligations and
corporate equity securities and debt obligations. These activities are
funded primarily by principal and interest payments on loans, the maturing
of investment securities, deposit growth and the utilization of FHLB
advances. During the six months ended June 30, 1999 and 1998, the Bank's
loan originations totaled $18.9 million, and $21.1 million, respectively.
For the six months ended June 30, 1999 and 1998, the Bank's investments in
U.S. Government and agency obligations and corporate equity securities and
debt obligations totaled $6.8 million and $4.5 million, respectively. The
Bank experienced a net increase in total deposits of $378,000 for the six
months ended June 30, 1999, as compared to a net increase of $13.9 million
for the six months ended June 30, 1998. Deposit flows are affected by the
overall level of interest rates, the interest rates and products offered by
the Bank and its local competitors and other factors. The Bank closely
monitors its liquidity position on a daily basis. In the event the Bank
should require funds beyond its ability to generate them internally,
additional sources of funds are available through FHLB advances. The Bank
has total borrowing capacity of approximately $39.8 million at June 30,
1999 at which time the Bank had $16.4 million of outstanding FHLB
borrowings.
Outstanding commitments for all loans totaled $9.9 million at June
30, 1999. Management of the Bank anticipates that it will have sufficient
funds available to meet its current loan commitments. Certificates of
deposit which are scheduled to mature in one year or less from June 30,
1999 totaled $23.6 million. From June 30, 1998 to June 30, 1999, the Bank
experienced an 77.6% retention rate of funds maturing from certificates of
deposit. It has been and will continue to be a priority of management to
retain time deposits. The Bank relies primarily on competitive rates,
customer service, and long-standing relationships with customers to retain
deposits. From time to time, the Bank will also offer competitive special
products to its customers to increase retention. Based upon the Bank's
experience with deposit retention and current retention strategies,
management believes that, although it is not possible to predict future
terms and conditions upon renewal, a significant portion of such deposits
will remain with the Bank.
At June 30,1999, the Bank exceeded all of its regulatory capital
requirements with a leverage capital level of $7.8 million, or 14.3% of
adjusted assets, which is above the required level of $1.8 million, or
4.00%, and risk-based capital of $8.3 million, or 15.2% of adjusted assets,
which is above the required level of $3.7 million, or 8.00%.
The net proceeds of the capital injection, as the result of the
Conversion, have been utilized for the funding of loan growth.
Additionally, the Bank has incurred capital expenditures of approximately
$1.0 million and expects to incur an additional $1.0 million in connection
with the establishment of a de novo branch office and relocation of its
administrative offices, and approximately $186,000 in connection with
achieving Year 2000 compliance and upgrading its related technology
systems.
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a
year in the date field. These programs were designed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications and systems could fail or create erroneous results by
or at the year 2000. In addressing the year 2000, the Bank has adopted a
"Year 2000 Policy" and has broken down the process into six steps:
awareness, inventory, assessment, conversion and implementation, testing
and contingency.
The Bank has substantially completed its awareness phase with the
exception of its ongoing task of notifying its customers and shareholders
of its preparedness. The Bank has also completed its inventory phase.
During the inventory phase the Bank identified all hardware and software
applications as well as vendor and service providers. The various systems
identified were then prioritized in consideration of their overall
importance of use to the Bank. During the conversion and implementation
phase, the Bank has replaced all internal systems, which were deemed
critical or necessary to the Bank's operation.
While the Bank maintains an internal computer system for certain
operating functions, the substantial majority of the Bank's data processing
is out-sourced to a third party. The Bank has reviewed the Year 2000
compliance of its third party data processing vendor. In connection with
such review, the Bank determined that its prior third party data processing
vendor was not Year 2000 compliant and, accordingly, began using a new
third party data processing vendor on March 22, 1999. Such new third party
vendor has provided the Bank with written assurances that the system and
the software which it is licensed to use are Year 2000 compliant. The
Bank's new third party data processor has completed testing the integration
of the system with its licensed software to ensure that the integrated
system will be Year 2000 compliant. The Bank has received notification on
June 21, 1999 that the third party data processing system has been tested
and is compliant.
The Bank has completed the internal and external portion of its
testing phase. During the contingency phase, the Bank has identified
alternative action plans or systems for all critical and necessary systems,
which were not compliant and tested by March 31, 1999. The Bank has
identified appropriate business responses to all critical core processes.
The Bank's operations may also be affected by the Year 2000
compliance of its significant customers, suppliers and other vendors. The
Bank's loan portfolio consists primarily of loans on residential and mixed
use properties whose cash flows depended on payments of leases by tenants
that are unlikely to be materially affected by Year 2000 issues. The Bank
has reviewed its loan relationships and has determined that it does not
have any material amount of loans to individuals or entities that are
susceptible to Year 2000 issues such that their noncompliance with
Year 2000 issues will materially affect their ability to repay such loans.
New loan relationships are reviewed for potential year 2000 implications
during the underwriting process.
Although the Bank has contacted each of its significant suppliers and
vendors and continues to monitor their progress, the Bank has developed
contingency plans for any critical system supplier or vendor which has not
yet been able to respond positively as regards to their year 2000
compliance. The Bank's business or operations could be adversely affected
if any of the Bank's significant customers and suppliers do not
successfully achieve Year 2000 compliance in a timely manner. However,
management believes that the Bank's own internal system, networks and
resources would allow the Bank to effectively operate and service its
customers in the event its significant vendors do not achieve satisfactory
Year 2000 compliance. In addition, if significant suppliers fail to meet
Year 2000 operating requirements, the Bank intends to engage alternative
suppliers. In the event that the Bank's progress towards becoming Year 2000
complaint is deemed inadequate, regulatory action may be undertaken.
The Bank is currently engaging in an upgrade of its technology
systems in addition to implementing its Year 2000 policy. To date, the Bank
has expended approximately $128,000 on Year 2000 issues and related
technology updates. In addition, the Bank has estimated that it will spend
another $55,000 in connection with the future costs associated with
achieving Year 2000 compliance and its related technology systems upgrade.
Approximately $69,000 of the past and $55,000 of the future expenses
represents upgrades to the Bank's general ledger and data processing
systems. The cost of these systems will be capitalized and depreciated over
their expected useful life. While the Bank cannot estimate the costs and
expenses associated with hiring new vendors and suppliers, management
believes that such costs would not have a material impact on the Bank's
earnings or results of operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not involved in any pending legal proceedings
other than routine legal proceedings occurring in the ordinary
course of business. Such routine legal proceedings, in the
aggregate, are believed by management to be immaterial to the
Company's financial condition or results of operation.
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None.
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
11.0 Statement Regarding Computation of Per
Share Earnings
27.0 Financial Data Schedule
-------------------------------------------------
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MASSACHUSETTS FINCORP, INC.
Date: August 9, 1999 By: /s/Paul C. Green
---------------- -------------------------------
Paul C. Green
President and Chief Executive
Officer
Date: August 9, 1999 By: /s/Ruth J. Rogers
---------------- -------------------------------
Ruth J. Rogers
Chief Financial Officer, Treasurer
and Secretary
Exhibit 11 Statement Re Computation of Per Share Earnings
<TABLE>
Quarters Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
--------------------------------------------------
<S> <C> <C> <C> <C>
Basic and Diluted Earnings:
Net earnings applicable to common stock $ 99,222 $48,121 $265,543 $131,819
Shares:
Weighted average number of common
shares outstanding 545,481 - 545,481 -
Effect of uynallocated Employee
Stock Ownership Plan shares (37,637) - (38,183) -
Weighted average number of shares
outstanding, as adjusted 507,844 - 507,298 -
Basic and Diluted earnings per share $ 0.20 $ - $ 0.52 $ -
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary information extracted from the Form 10-QSB and is
qualified in its entirety by refernce to the unaudited financial statements
contained herein.
</LEGEND>
<CIK> 0001066170
<NAME> MASSACHUSETTS FINCORP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,499
<INT-BEARING-DEPOSITS> 17
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<TRADING-ASSETS> 0
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<LOANS> 62,297
<ALLOWANCE> 565
<TOTAL-ASSETS> 84,256
<DEPOSITS> 57,371
<SHORT-TERM> 0
<LIABILITIES-OTHER> 845
<LONG-TERM> 16,434
0
0
<COMMON> 5
<OTHER-SE> 9,600
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<YIELD-ACTUAL> 7.75
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</TABLE>
