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.
<PAGE>
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
<PAGE>
<TABLE>
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
<CAPTION>
September 30, December 31,
1995 1994
<S> (unaudited)
Assets: <C> <C>
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
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three months ended
September 30,
(In thousands except share data) 1995 1994
______________________________________________________________________________
<S> <C> <C>
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
______________________________________________________________________________
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
________________________________________________________________________________
Nine months ended
September 30,
(In thousands except share data) 1995 1994
________________________________________________________________________________
<S> <C> <C>
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
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME (continued)
(unaudited)
<CAPTION>
________________________________________________________________________________
Nine months ended
September 30,
1995 1994
________________________________________________________________________________
<S> <C> <C>
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
________________________________________________________________________________
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
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)
<CAPTION>
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
________ __________ _________ __________ __________ ________ ________
<S> <C> <C> <C> <C> <C> <C> <C>
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
_____________________________________________________________________________________________________________________
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Nine Months Ended
September 30,
1995 1994
____ ____
(In thousands)
<S> <C> <C>
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)
________________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
<CAPTION>
Nine Months Ended
September 30,
1995 1994
____ ____
(In thousands)
<S> <C> <C>
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
________________________________________________________________________________
<FN>
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.
</TABLE>
<PAGE>
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.
<PAGE>
<TABLE>
(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:
<CAPTION>
__________________________________________________________________________________________
At At
(In thousands) September 30, 1995 December 31, 1994
__________________________________________________________________________________________
Amortized Market Amortized Market
Cost Value Cost Value
________ ________ ________ _______
(unaudited)
<S> <C> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
__________________________________________________________________________________________
(In thousands) September 30, 1995 December 31, 1994
__________________________________________________________________________________________
Unrealized Unrealized
Gains Losses Gains Losses
________ ________ ________ ________
(unaudited)
<S> <C> <C> <C> <C>
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)
</TABLE>
<PAGE>
<TABLE>
(6) Securities Available For Sale
The amortized cost and approximate market values of securities available
for sale are as follows:
<CAPTION>
__________________________________________________________________________________________
(In thousands) September 30, 1995 December 31, 1994
__________________________________________________________________________________________
Amortized Market Amortized Market
Cost Value Cost Value
________ ________ ________ ________
(unaudited)
<S> <C> <C> <C> <C>
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
________ ________ ________ ________
</TABLE>
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:
<TABLE>
<CAPTION>
__________________________________________________________________________________________
(In thousands) September 30, 1995 December 31, 1994
__________________________________________________________________________________________
Unrealized Unrealized
Gains Losses Gains Losses
______ ______ ______ ______
(unaudited)
<S> <C> <C> <C> <C>
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)
_______ ________ _______ _______
</TABLE>
(7) Trading Securities
Investments classified as trading securities are stated at market with
unrealized gains and losses included in earnings.
<PAGE>
<TABLE>
(8) Loans
The composition of the Bank's loan portfolio is summarized as follows:
<CAPTION>
_______________________________________________________________________________________
(In thousands September 30, 1995 December 31, 1994
_______________________________________________________________________________________
<S> <C> <C>
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
</TABLE>
(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.
<PAGE>
(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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
<TABLE>
AVERAGE BALANCE SHEETS
Three Months Ended
<CAPTION>
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
__________________________________________________________________________________________
<S>
Assets:
Earning assets: <C> <C> <C> <C> <C> <C>
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
__________________________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
AVERAGE BALANCE SHEETS (continued)
Three Months Ended
<CAPTION>
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
__________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
<PAGE>
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.
<PAGE>
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.
<PAGE>
<TABLE>
AVERAGE BALANCE SHEETS
Nine Months Ended
<CAPTION>
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
__________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
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
__________________________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
AVERAGE BALANCE SHEETS (continued)
Nine Months Ended
<CAPTION>
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
__________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
<TABLE> 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.
<CAPTION>
Three Months Ended Nine Months Ended
Calculation of Primary September 30, September 30,
Earnings Per Share 1995 1994* 1995 1994*
______________________________ ____ ____ ____ ____
<S> <C> <C> <C> <C>
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
__________ __________ __________ __________
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Calculation of Fully Diluted September 30, September 30,
Earnings Per Share 1995 1994* 1995 1994*
______________________________ ____ ____ ____ ____
<S> <C> <C> <C> <C>
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
<FN>
* 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.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 9,828
<INT-BEARING-DEPOSITS> 924
<FED-FUNDS-SOLD> 104,541
<TRADING-ASSETS> 20,668
<INVESTMENTS-HELD-FOR-SALE> 243,587
<INVESTMENTS-CARRYING> 204,763
<INVESTMENTS-MARKET> 206,365
<LOANS> 243,937
<ALLOWANCE> (2,598)
<TOTAL-ASSETS> 846,510
<DEPOSITS> 753,853
<SHORT-TERM> 1,206
<LIABILITIES-OTHER> 5,435
<LONG-TERM> 1,249
<COMMON> 5,390
0
0
<OTHER-SE> 79,377
<TOTAL-LIABILITIES-AND-EQUITY> 846,510
<INTEREST-LOAN> 14,627
<INTEREST-INVEST> 23,803
<INTEREST-OTHER> 3,882
<INTEREST-TOTAL> 42,312
<INTEREST-DEPOSIT> 22,801
<INTEREST-EXPENSE> 22,801
<INTEREST-INCOME-NET> 19,511
<LOAN-LOSSES> 140
<SECURITIES-GAINS> (18)
<EXPENSE-OTHER> 10,118
<INCOME-PRETAX> 10,666
<INCOME-PRE-EXTRAORDINARY> 10,666
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,512
<EPS-PRIMARY> 2.34
<EPS-DILUTED> 2.32
<YIELD-ACTUAL> 3.19
<LOANS-NON> 2,023
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,023
<ALLOWANCE-OPEN> 2,566
<CHARGE-OFFS> (150)
<RECOVERIES> 42
<ALLOWANCE-CLOSE> 2,598
<ALLOWANCE-DOMESTIC> 273
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,325
</TABLE>
