SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 July 31, 1996: 2,697,110 shares.
<PAGE>
MASSBANK CORP. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Page
ITEM 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1996 (unaudited) and December 31, 1995 3
Consolidated Statements of Income (unaudited)
for the three months ended June 30, 1996 and 1995 4
and for the six months ended June 30, 1996 and 1995 5
Consolidated Statements of Changes in Stockholders' Equity
for the six months ended June 30, 1996 (unaudited)
and the year ended December 31, 1995 6
Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 30, 1996 and 1995 7 - 8
Condensed Notes to the Consolidated Financial Statements 9
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 20
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 21
ITEM 2. Changes in Securities 21
ITEM 3. Defaults Upon Senior Securities 21
ITEM 4. Submission of Matters to a Vote of Security Holders 21
ITEM 5. Other Information 21
ITEM 6. Exhibits and Reports on Form 8-K 21
Signature Page 22
<PAGE>
<TABLE>
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
<CAPTION>
June 30, December 31,
1996 1995
(unaudited)
<S> <C> <C>
Assets:
Cash and due from banks $ 9,629 $ 8,150
Short-term investments (Note 3) 96,123 117,505
______________________________________________________________________________
Total cash and cash equivalents 105,752 125,655
Term federal funds sold -- 5,000
Interest-bearing deposits in banks 1,694 941
Securities held to maturity, at amortized cost 170 402
Securities available for sale, at market value 497,398 456,101
Trading securities, at market value 6,616 6,819
Loans: (Note 4)
Mortgage loans 230,758 220,603
Other loans 27,165 28,582
Less: allowance for possible loan losses (2,420) (2,529)
______________________________________________________________________________
Net loans 255,503 246,656
Premises and equipment 4,119 4,226
Real estate acquired through foreclosure 226 255
Accrued interest receivable 7,038 7,280
Other assets 2,018 1,207
______________________________________________________________________________
Total assets $880,534 $854,542
Liabilities and Stockholders' Equity:
Deposits:
Demand and NOW $ 66,418 $ 66,413
Savings 358,585 356,598
Time certificates of deposit 354,699 332,057
Deposit acquisition premium, net of amortization (1,296) (1,411)
______________________________________________________________________________
Total deposits 778,406 753,657
Escrow deposits of borrowers 954 992
Employee stock ownership plan liability 1,093 1,093
Accrued and deferred income taxes payable -- 4,760
Other liabilities 13,884 3,223
______________________________________________________________________________
Total liabilities 794,337 763,725
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, 5,463,625 and
5,424,671 shares issued, respectively 5,464 5,425
Additional paid-in capital 57,497 56,842
Retained earnings 62,178 58,773
______________________________________________________________________________
125,139 121,040
Treasury stock at cost, 2,743,765 and
2,683,065 shares, respectively (38,392) (36,370)
Net unrealized gains on securities
available for sale, net of tax effect 543 7,240
Common stock acquired by ESOP (1,093) (1,093)
______________________________________________________________________________
Total stockholders' equity 86,197 90,817
______________________________________________________________________________
Total liabilities and stockholders' equity $880,534 $854,542
<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
June 30,
(In thousands except share data) 1996 1995
______________________________________________________________________________
<S> <C> <C>
Interest and dividend income:
Mortgage Loans $ 4,273 $ 4,146
Other loans 619 752
Mortgage-backed securities 4,740 3,137
Securities available for sale 3,154 4,004
Trading securities 195 760
Federal funds sold 1,073 1,373
Other investments 336 48
______________________________________________________________________________
Total interest and dividend income 14,390 14,220
______________________________________________________________________________
Interest expense:
Deposits 8,139 7,680
______________________________________________________________________________
Total interest expense 8,139 7,680
______________________________________________________________________________
Net interest income 6,251 6,540
Provision for possible loan losses 35 40
______________________________________________________________________________
Net interest income after provision for
possible loan losses 6,216 6,500
______________________________________________________________________________
Non-interest income:
Deposit account service fees 238 233
Gains (losses) on securities, net 211 35
Other 275 341
______________________________________________________________________________
Total non-interest income 724 609
______________________________________________________________________________
Non-interest expense:
Salaries and employee benefits 1,792 1,832
Occupancy and equipment 484 500
Data processing 152 153
Professional services 97 118
Deposit insurance 3 440
Other 502 514
______________________________________________________________________________
Total non-interest expense 3,030 3,557
______________________________________________________________________________
Income before income taxes 3,910 3,552
Income tax expense 1,540 1,383
______________________________________________________________________________
Net income $ 2,370 $ 2,169
______________________________________________________________________________
Weighted average common shares outstanding:
Primary 2,754,461 2,789,240
Fully diluted 2,754,461 2,793,671
______________________________________________________________________________
Earnings per share (in dollars):
Primary $ 0.86 $ 0.78
Fully diluted 0.86 0.78
______________________________________________________________________________
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Six months ended
June 30,
(In thousands except share data) 1996 1995
______________________________________________________________________________
<S> <C> <C>
Interest and dividend income:
Mortgage Loans $ 8,472 $ 8,364
Other loans 1,265 1,420
Mortgage-backed securities 8,670 6,225
Securities available for sale 6,481 8,006
Trading securities 395 1,850
Federal funds sold 2,652 2,148
Other investments 579 55
______________________________________________________________________________
Total interest and dividend income 28,514 28,068
______________________________________________________________________________
Interest expense:
Deposits 16,148 14,868
______________________________________________________________________________
Total interest expense 16,148 14,868
______________________________________________________________________________
Net interest income 12,366 13,200
Provision for possible loan losses 65 110
______________________________________________________________________________
Net interest income after provision for
possible loan losses 12,301 13,090
______________________________________________________________________________
Non-interest income:
Deposit account service fees 456 460
Gains (losses) on securities, net 418 39
Other 467 538
______________________________________________________________________________
Total non-interest income 1,341 1,037
______________________________________________________________________________
Non-interest expense:
Salaries and employee benefits 3,564 3,648
Occupancy and equipment 1,001 1,008
Data processing 305 305
Professional services 206 231
Deposit insurance 6 879
Other 1,004 1,007
______________________________________________________________________________
Total non-interest expense 6,086 7,078
______________________________________________________________________________
Income before income taxes 7,556 7,049
Income tax expense 2,963 2,754
______________________________________________________________________________
Net income $ 4,593 $ 4,295
______________________________________________________________________________
Weighted average common shares outstanding:
Primary 2,768,944 2,793,204
Fully diluted 2,769,458 2,795,752
______________________________________________________________________________
Earnings per share (in dollars):
Primary $ 1.66 $ 1.54
Fully diluted 1.66 1.54
______________________________________________________________________________
<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 Six Months Ended June 30, 1996 (unaudited)
and the Year Ended December 31, 1995
(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, 1994 $ 5,352 $55,609 $51,995 $(33,288) $(3,915) $(1,249) $74,504
Net income -- -- 8,759 -- -- -- 8,759
Cash dividends paid
($0.73 per share) -- -- (1,981) -- -- -- ( 1,981)
Net decrease in liability
to ESOP -- -- -- -- -- 156 156
Amortization of ESOP shares
committed to be released -- 51 -- -- -- -- 51
Purchase of treasury stock -- -- -- (3,082) -- -- (3,082)
Exercise of stock options
and related tax benefits 73 1,182 -- -- -- -- 1,255
Change in net unrealized gains
(losses) on securities available for
sale, net of tax effect -- -- -- -- 11,155 -- 11,155
____________________________________________________________________________________________________________________
Balance at December 31, 1995 5,425 56,842 58,773 (36,370) 7,240 (1,093) 90,817
Net Income -- -- 4,593 -- -- -- 4,593
Cash dividends paid
($0.44 per share) -- -- (1,188) -- -- -- (1,188)
Purchase of treasury stock -- -- -- (2,022) -- -- (2,022)
Exercise of stock options
and related tax benefits 39 655 -- -- -- -- 694
Change in net unrealized gains
(losses) on securities available
for sale, net of tax effect -- -- -- -- (6,697) -- (6,697)
_____________________________________________________________________________________________________________________
Balance at June 30, 1996 $ 5,464 $57,497 $62,178 $(38,392) $ 543 $(1,093) $86,197
_____________________________________________________________________________________________________________________
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Six Months Ended
June 30,
1996 1995
____ ____
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,593 $ 4,295
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 215 241
Amortization of deposit acquisition premium 115 116
Amortization of loan valuation premium 32 32
Decrease in accrued interest receivable 242 407
Increase in other liabilities 661 553
Decrease in accrued and deferred income taxes payable (945) (513)
Accretion of discounts on securities, net of
amortization of premiums (501) (565)
Net trading securities activity 10 79,808
(Gains) losses on securities available for sale (611) (510)
(Gains) losses on trading securities 193 422
Increase (decrease) in deferred mortgage loan
origination fees, net of amortization 113 (42)
Decrease in current and deferred income tax asset, net 236 399
Increase in other assets (103) (316)
Loans originated for sale (145) (214)
Loans sold 208 214
Provision for possible loan losses 65 110
Provision for losses and writedowns on real estate
acquired through foreclosure 40 19
(Decrease) increase in escrow deposits of borrowers (38) 84
______________________________________________________________________________
Net cash provided by operating activities 4,380 84,540
______________________________________________________________________________
Cash flows from investing activities:
Purchases of term federal funds -- (40,000)
Proceeds from maturities of term federal funds 5,000 15,000
Purchases of bank certificates of deposit (753) --
Proceeds from sales of investment securities
available for sale 14,323 36,312
Proceeds from maturities of investment securities
held to maturity and available for sale 51,225 28,147
Purchases of securities available for sale (24,499) (44,889)
Purchases of mortgage-backed securities (100,708) (18,687)
Principal repayments of mortgage-backed securities 18,242 8,969
Principal repayments of tax-exempt bonds 8 9
Loans originated (33,286) (9,227)
Loan principal payments received 24,006 17,570
Purchases of premises & equipment (108) (225)
Proceeds from sales of real estate acquired
through foreclosure 149 80
Net advances on real estate acquired through
foreclosure -- (7)
______________________________________________________________________________
Net cash (used in) investing activities (46,401) (6,948)
______________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
<CAPTION>
Six Months Ended
June 30,
1996 1995
____ ____
(In thousands)
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits 24,634 (12,107)
Payments to acquire treasury stock (2,022) (1,644)
Issuance of common stock under stock option plan 480 257
Tax benefit resulting from stock options exercised 214 85
Dividends paid on common stock (1,188) (958)
______________________________________________________________________________
Net cash provided by (used in) financing
activities 22,118 (14,367)
______________________________________________________________________________
Net increase (decrease) in cash and
cash equivalents (19,903) 63,225
Cash and cash equivalents at beginning of period 125,655 32,161
______________________________________________________________________________
Cash and cash equivalents at end of period $105,752 $95,386
______________________________________________________________________________
Supplemental cash flow disclosures:
Cash transactions:
Cash paid during the period for interest $16,139 $14,869
Cash paid during the period for taxes, net of refunds 3,458 2,735
Non-cash transactions:
SFAS 115:
Increase (decrease) in stockholders' equity (6,697) 6,366
Decrease in deferred tax assets -- 4,832
Decrease in deferred tax liabilities (4,759) --
Transfers from loans to real estate acquired
through foreclosure 160 410
Transfers from other assets to securities
available for sale -- 66
Securities purchases with a July 1996
settlement date 10,000 --
______________________________________________________________________________
<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, federal funds sold and term federal funds sold
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 (the
"Bank"). All significant intercompany balances and transactions have been
eliminated in consolidation.
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles, and in the opinion of management,
include all adjustments of a normal recurring nature necessary for the fair
presentation of the financial condition of the Company as of June 30, 1996 and
December 31, 1995, and its operating results for the three and six months ended
June 30, 1996 and 1995. The results of operations for any interim period are
not necessarily indicative of the results to be expected for the entire year.
Certain amounts in the prior year's consolidated financial statements
have been reclassified to permit comparison with the current fiscal year.
The information in this report should be read in conjunction with the
financial statements and related notes included in the Annual Report on Form
10-K for the year ended December 31, 1995.
(2) Earnings Per Common Share
The computation of earnings per common share for the three and six months
ended June 30, 1996 and 1995 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.
(3) Short-Term Investments
Short-term investments consist of the following:
________________________________________________________________________________
At At
(In thousands) June 30, 1996 December 31, 1995
________________________________________________________________________________
Federal funds sold (overnight) $ 81,343 $100,245
Term federal funds sold (with original
maturities of 90 days or less) -- 10,000
Money market funds 14,780 7,260
________________________________________________________________________________
Total short-term investments $ 96,123 $117,505
________________________________________________________________________________
The investments above are stated at cost which approximates market value and
have original maturities of 90 days or less.
(4) Commitments
At June 30, 1996, the Company had outstanding commitments to originate
mortgage loans and to advance funds for construction loans amounting to
$2,765,000 and commitments under existing home equity lines of credit and other
loans of approximately $19,957,000 which are not reflected on the consolidated
balance sheet. In addition, as of June 30, 1996, the Company had a
performance standby letter of credit conveyed to others in the amount
of $1,093,000 which is also not reflected on the consolidated balance sheet.
<PAGE>
MASSBANK CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1996
GENERAL
The following discussion should be read in conjunction with the
consolidated financial statements and related notes included in this report.
For the quarter ended June 30, 1996, MASSBANK Corp. reported record
consolidated net income of $2,370,000 or $0.86 per share. These results
represent increases of 9.3% and 10.3%, respectively, from the $2,169,000 in
consolidated net income and $0.78 per share earned in 1995's second quarter.
The annualized return on average assets for the recent quarter increased
to 1.10% from 1.04% for the comparable quarter of 1995. In addition, the
Company improved its return on average realized equity for the second quarter
of 1996 to 11.16% from 10.78% in the same quarter of 1995.
For the six months ended June 30, 1996, the Company reported consolidated
net income of $4,593,000 or $1.66 per share, up from $4,295,000 or $1.54 per
share earned in the first six months of 1995.
MASSBANK Corp.'s increased earnings for the second quarter and year-to-
date period can be attributed to a decrease in non-interest expense, due
primarily to a sharp decline in deposit insurance premiums, and an increase in
net gains on securities. These improvements were partially offset by a
decrease in net interest income.
Net interest income declined 4.4% to $6,251,000 from $6,540,000 when
compared to the second quarter of 1995 and 6.3% to $12,366,000 from $13,200,000
when compared to the six months ended June 30, 1995. This decrease was due
primarily to a decrease in the Company's net interest margin partially offset
by an increase in the Company's average earning assets. The Company's net
interest margin of 2.98% for the quarter and 2.96% for the year-to-date period
decreased from 3.21% and 3.24%, respectively, for the same periods in the prior
year. Average earnings assets for the second quarter of 1996 increased to
$843.3 million from $819.6 million in the corresponding quarter of 1995. For
the first six months of 1996 the Company's average earning assets were $841.7
million, up from $818.2 million in the first half of 1995.
MASSBANK Corp.'s provision for loan losses was $35,000 for the recent
quarter and $65,000 year-to-date. This compares favorably with $40,000 and
$110,000, respectively, for the corresponding periods in 1995. Non-performing
assets were $2,588,000 or 0.29% of total assets at June 30, 1996. At June 30,
1996, the allowance for loan losses was $2,420,000 representing 102% of non-
performing loans.
The Company had total assets of $880.5 million at June 30, 1996, an
increase of $26.0 million over total assets reported at December 31, 1995.
Total deposits at June 30, 1996 were $778.4 million, up $24.7 million from year
end 1995. Stockholders' equity at June 30, 1996 equalled $86.2 million
representing a book value of $31.69 per share, a decrease from $90.8 million
representing a book value of $33.13 per share at December 31, 1995. This
decrease in stockholders' equity resulted primarily from unrealized
depreciation in the market value of the Bank's securities available for sale
portfolio due to the rise in interest rates in the last six months.
A more detailed discussion and analysis of the Company's financial condition
and results of operations follows.
<PAGE>
<TABLE>
FINANCIAL CONDITION
INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities
at June 30, 1996 and December 31, 1995 with gross unrealized gains and losses,
follows:
<CAPTION>
__________________________________________________________________________________________
Gross Gross
(In thousands) At June 30, 1996 Amortized Unrealized Unrealized Market
Cost Gains Losses Value
__________________________________________________________________________________________
<S> <C> <C> <C> <C>
Securities held to maturity:
Other bonds and obligations $ 170 $ -- $ -- $ 170
__________________________________________________________________________________________
Total securities held to maturity $ 170 $ -- $ -- $ 170
__________________________________________________________________________________________
Securities available for sale:
Debt securities:
U.S. Treasury obligations $169,931 $ 1,378 $ (128) $171,181
U.S. Government agency obligations 11,897 46 (136) 11,807
Other bonds and obligations 998 3 -- 1,001
__________________________________________________________________________________________
Total 182,826 1,427 (264) 183,989
__________________________________________________________________________________________
Mortgage-backed securities:
Government National Mortgage
Association 75,290 469 (965) 74,794
Federal Home Loan Mortgage
Corporation 217,531 613 (4,163) 213,981
Federal National Mortgage
Association 10,834 368 -- 11,202
Other 518 23 -- 541
__________________________________________________________________________________________
Total mortgage-backed securities 304,173 1,473 (5,128) 300,518
__________________________________________________________________________________________
Total debt securities 486,999 2,900 (5,392) 484,507
__________________________________________________________________________________________
Equity securities 9,393 3,515 (17) 12,891
__________________________________________________________________________________________
Total securities available for sale 496,392 $ 6,415 $ (5,409) $497,398
__________________________________________________________________________________________
Net unrealized gains on securities
available for sale 1,006
__________________________________________________________________________________________
Total securities available
for sale, net $497,398
__________________________________________________________________________________________
Trading securities $ 6,834 $ 6,616
__________________________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
INVESTMENT SECURITIES (continued)
<CAPTION>
__________________________________________________________________________________________
Gross Gross
(In thousands) At December 31, 1995 Amortized Unrealized Unrealized Market
Cost Gains Losses Value
__________________________________________________________________________________________
<S> <C> <C> <C> <C>
Securities held to maturity:
Other bonds and obligations $ 402 $ -- $ -- $ 402
__________________________________________________________________________________________
Total securities held to maturity $ 402 $ -- $ -- $ 402
__________________________________________________________________________________________
Securities available for sale:
Debt securities:
U.S. Treasury obligations $207,771 $ 4,387 $ (43) $212,115
U.S. Government agency obligations 13,994 178 -- 14,172
Other bonds and obligations 1,996 10 (2) 2,004
__________________________________________________________________________________________
Total 223,761 4,575 (45) 228,291
__________________________________________________________________________________________
Mortgage-backed securities:
Government National Mortgage
Association 81,411 2,160 (19) 83,552
Federal Home Loan Mortgage
Corporation 116,500 2,339 (100) 118,739
Federal National Mortgage
Association 12,886 574 -- 13,460
Other 726 43 -- 769
__________________________________________________________________________________________
Total mortgage-backed securities 211,523 5,116 (119) 216,520
__________________________________________________________________________________________
Total debt securities 435,284 9,691 (164) 444,811
__________________________________________________________________________________________
Equity securities 8,354 2,961 (25) 11,290
__________________________________________________________________________________________
Total securities available for sale 443,638 $ 12,652 $ (189) $456,101
__________________________________________________________________________________________
Net unrealized gains on securities
available for sale 12,463
__________________________________________________________________________________________
Total securities available
for sale, net $456,101
__________________________________________________________________________________________
Trading securities $ 6,834 $ 6,819
__________________________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
INVESTMENT SECURITIES (Continued)
The amortized cost and estimated market value of debt securities by
contractual maturity at June 30, 1996 and December 31, 1995 are as follows:
<CAPTION>
June 30, 1996
____________________________________________
Available for Sale Held to Maturity
Amortized Market Amortized Market
Maturing: Cost Value Cost Value
(In thousands)
<S> <C> <C> <C> <C>
Within 1 year $ 65,943 $ 66,324 $ -- $ --
After 1 year through 5 years 112,897 113,741 -- --
After 5 years through 10 years 3,986 3,924 118 118
After 10 years through 15 years -- -- 52 52
________ _______ ________ _______
182,826 183,989 170 170
Mortgage-backed securities 304,173 300,518 -- --
________ _______ ________ _______
$486,999 $484,507 $ 170 $ 170
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
____________________________________________
Available for Sale Held to Maturity
Amortized Market Amortized Market
Maturing: Cost Value Cost Value
(In thousands)
<S> <C> <C> <C> <C>
Within 1 year $ 83,942 $ 84,351 $ 225 $ 225
After 1 year through 5 years 136,834 140,792 -- --
After 5 years through 10 years 2,985 3,148 124 124
After 10 years through 15 years -- -- 53 53
________ _______ ______ ______
223,761 228,291 402 402
Mortgage-backed securities 211,523 216,520 -- --
________ _______ ______ ______
$435,284 $444,811 $ 402 $ 402
Investment securities consisting of securities held to maturity, securities
available for sale and trading securities increased $40.9 million from
December 31, 1995 to $504.2 million at June 30, 1996. The increase was
primarily in higher yielding 15 year mortgage-backed securities designated as
available for sale. Rising interest rates during the first half of 1996 eroded
the market value of the Company's debt securities. At June 30, 1996 the
Company's portfolio of debt securities available for sale had net unrealized
losses of $2.5 million compared to net unrealized gains of $9.5 million at
December 31, 1995.
</TABLE>
<PAGE>
<TABLE>
LOANS
The composition of the Bank's loan portfolio is summarized as follows:
<CAPTION>
_______________________________________________________________________________________
At At
(In thousands June 30, 1996 December 31, 1995
_______________________________________________________________________________________
<S> <C> <C>
Mortgage loans:
Residential $223,755 $212,652
Commercial 6,484 6,975
Construction 1,204 1,516
_______________________________________________________________________________________
231,443 221,143
Add: Premium on loans 356 388
Less: deferred mortgage loan origination fees (1,041) (928)
_______________________________________________________________________________________
Total mortgage loans 230,758 220,603
Other loans:
Consumer:
Installment 1,890 1,988
Guaranteed education 9,953 10,420
Other secured 2,075 2,012
Home equity lines of credit 12,320 13,144
Unsecured 262 265
_______________________________________________________________________________________
Total consumer loans 26,500 27,829
Commercial 665 753
_______________________________________________________________________________________
Total other loans 27,165 28,582
_______________________________________________________________________________________
Total loans $257,923 $249,185
_______________________________________________________________________________________
The Bank's loan portfolio increased during the first six months of 1996
principally in the residential 1-4 family category as loan originations during
this period exceeded loan amortization and payoffs. Loan originations in the
first half of 1996 increased to $33.4 million from $9.4 million in the
corresponding period of 1995. Lower residential mortgage loan rates in the
first six months of 1996 when compared to the first six months of 1995
stimulated loan demand which resulted in loan growth for the Bank.
</TABLE>
<PAGE>
<TABLE>
NON-PERFORMING ASSETS
<CAPTION>
June 30, December 31, June 30,
(In thousands) 1996 1995 1995
______________________________________________________________________________
<S> <C> <C> <C>
Non-Performing Assets:
Non-accrual loans $ 2,362 $ 2,428 $ 1,520
Real estate acquired through foreclosure 226 255 430
______________________________________________________________________________
Total non-performing assets $ 2,588 $ 2,683 $ 1,950
______________________________________________________________________________
Allowance for possible loan losses $ 2,420 $ 2,529 $ 2,568
Allowance as percent of
non-accrual loans 102.5 % 104.2 % 169.0 %
Non-accrual loans as percent
of total loans 0.92% 0.97% 0.63%
Non-performing assets as percent
of total assets 0.29% 0.31% 0.23%
______________________________________________________________________________
The Bank does not accrue interest on loans which are 90 days or more past
due. It is the Bank's policy to place such loans on nonaccural status and to
reverse from income all interest previously accrued but not collected and to
discontinue all amortization of deferred loan fees. Non-performing assets
decreased slightly from December 31, 1995 to June 30, 1996 as noted in the
table above. The principal balance of non-accrual loans was $2.4 million, or
less than 1% of total loans and real estate acquired through foreclosure was
$226 thousand at June 30, 1996. Real estate formally acquired in settlement
of loans is recorded at the lower of the carrying value of the loan or the fair
value of the property received, less estimated costs to sell the property
following foreclosure.
The Bank did not have any impaired loans as of June 30, 1996.
</TABLE>
<PAGE>
<TABLE>
ALLOWANCE FOR LOAN LOSSES
An analysis of the activity in the allowance for possible loan losses is
as follows:
<CAPTION>
Six Months Ended
June 30,
1996 1995
_______________________________________________________________________________
(In thousands)
<S> <C> <C>
Balance at beginning of period $ 2,529 $ 2,566
Provision for loan losses 65 110
Recoveries of loans previously charged-off 5 42
Less: Charge-offs (179) (150)
_________________________________________________________________________________
Balance at end of period $ 2,420 $ 2,568
_________________________________________________________________________________
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
characteristics of the portfolio, underlying collateral, current and
anticipated economic conditions that may effect the borrowers ability to pay
and trends in loan delinquencies and charge-offs. Realized losses, net of
recoveries, are charged directly to the allowance. While management uses
the information available in establishing the allowance for losses, future
adjustments to the allowance may be necessary if economic conditions differ
substantially from the assumptions used in making the evaluation. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for possible loan losses. Such
agencies may require the Bank to recognize additions to the allowance based on
judgments different from those of management.
At June 30, 1996 the balance of the allowance for possible loan losses
was $2,420,000 representing 102.5% of total non-performing loans. Management
believes that the allowance for possible loan losses is adequate to cover the risks
inherent in the portfolio under current conditions.
</TABLE>
<PAGE>
<TABLE>
DEPOSITS
Deposit accounts of all types have traditionally been the primary source
of funds for the Bank's lending and investment activities. The Bank's deposit
flows are influenced by prevailing interest rates, competition and other market
conditions. The Bank's management attempts to manage its deposits through
selective pricing and marketing.
The Bank's total deposits increased by $24.7 million or 3.3% to $778.4
million at June 30, 1996 from $753.7 million at December 31, 1995.
The composition of the Bank's total deposits at the dates shown are
summarized as follows:
<CAPTION>
June 30, December 31,
1996 1995
______________________________________________________________________________
(In thousands)
<S> <C> <C>
Demand and NOW $ 66,418 $ 66,413
Savings and money market accounts 358,585 356,598
Time certificates of deposit 354,699 332,057
Deposit acquisition premium,
net of amortization (1,296) (1,411)
________________________________________________________________________________
Total deposits $778,406 $753,657
________________________________________________________________________________
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THREE AND SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
INTEREST AND DIVIDEND INCOME
Interest and dividend income from loans and investments increased by
$170,000 to $14,390,000 for the three months ended June 30, 1996 from
$14,220,000 for the three months ended June 30, 1995. This increase is
primarily attributable to a $23.7 million increase in the Company's average
earning assets partially offset by a decrease in yield on average earning
assets.
The Company's average total earning assets increased to $843.3 million
in the second quarter of 1996 from $819.6 million in the corresponding quarter
of 1995. The yield on the Company's average earning assets for the second
quarter of 1996 decreased 11 basis points to 6.84% from 6.95% for the same
quarter in 1995. The decrease in the yield on average earning assets when
compared to the second quarter of 1995 reflects the reinvestment of securities
at lower yields, a decrease in yield on overnight federal funds sold and other
similar short-term investments and the downward repricing of adjustable rate
real estate loans, home equity lines of credit, and other loans. In addition,
the Bank was originating new loans at rates lower than the prior year.
Interest and dividend income from loans and investments increased to
$28,514,000 for the six months ended June 30, 1996 from $28,068,000 for the
six months ended June 30, 1995. This increase is attributable to an increase
of $23.5 million in the Company's average earning assets partially offset by a
decrease in yield on average earning assets.
The Company's total average earning assets for the first half of 1996 were
$841.7 million compared to $818.2 million for the same period a year ago. The
yield on the Company's average earning assets for the first six months of 1996
decreased by 9 basis points to 6.79% from 6.88% for the same prior year period.
Total investments contributed $493,000 in additional income, while interest
on loans contributed $37,000 less income when comparing the six months ended
June 30, 1996 to the six months ended June 30, 1995.
INTEREST EXPENSE
Total interest expense increased 6% to $8,139,000 for the three months
ended June 30, 1996 from $7,680,000 for the comparable 1995 period. This
increase is principally due to the Bank's deposit growth and an increase in its
average cost of funds.
The average deposit volume for the second quarter of 1996 increased by
$18.6 million to $770.8 million from $752.2 million in the second quarter of
1995. The average cost of funds in the recent 1996 quarter was 4.25% compared
to 4.10% for the second quarter of 1995. The increase of 15 basis points is
due, in part, to a shift of deposits from lower fixed rate savings accounts to
higher yielding variable rate savings accounts and time certificates of
deposit.
The Bank has maintained regular (fixed rate) savings account rates flat
while selectively increasing longer term time certificate of deposit rates.
In addition, the Bank introduced a new higher yielding variable rate savings
account in June 1995. This strategy has negated the need for the Bank to raise
its regular savings account rates, but has enticed some bank customers to
transfer some of their deposits into the higher yielding accounts and thus
contributing to the Bank's higher cost of funds.
<PAGE>
Total interest expense increased to $16,148,000 for the six months ended
June 30, 1996 from $14,868,000 for the six months ended June 30, 1995. The
increase in average deposits of $10.3 million from the prior year, and an
increase of 27 basis points in the Company's average cost of funds from 3.98%
in the first half of 1995 to 4.25% in the first half of 1996 increased interest
expense on deposits by $1,280,000. The increase in the Bank's cost of funds is
principally due to a shift of deposits from lower fixed rate savings accounts
to higher yielding variable rate savings accounts and time certificates of
deposit for the reasons previously noted.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses represents a charge against current
earnings and an addition to the allowance for possible loan losses. The
provision is based on management's assessment of many factors including the risk
characteristics of the loan portfolio, underlying collateral, current and
anticipated economic conditions that may effect the borrowers ability to pay,
and trends in loan delinquencies and charge-offs.
As a result of management's assessment and analysis, the Bank provided
$35,000 and $65,000 for potential loan losses during the three months and six
months ended June 30, 1996, a decrease from $40,000 and $110,000 for the same
periods a year ago. Loan charge-off net of recoveries were $55,000 and
$119,000 for the respective 1996 periods.
NON-INTEREST INCOME
Non-interest income consists of deposit account service fees, net gains
or losses on securities and other non-interest income.
Non-interest income increased $115,000 or 18.9% to $724,000 in the second
quarter of 1996 and increased $304,000 or 29.3% to $1,341,000 for the six
months ended June 30, 1996 when compared to the comparable periods of 1995.
The increase is due principally to net gains on securities of $211,000 and
$418,000 recorded for the three and six months ended June 30, 1996,
respectively, as compared to net securities gains of $35,000 and $39,000
recorded for the comparable 1995 periods.
NON-INTEREST EXPENSE
Non-interest expenses for the second quarter of 1996 decreased 14.8% to
$3,030,000 from $3,557,000 for the second quarter of 1995. For the six months
ended June 30, 1996, non-interest expenses decreased by $992,000 or 14.0% to
$6,086,000 when compared to $7,078,000 for the six months ended June 30, 1995.
Non-interest expenses for the 1996 periods have been favorably affected by
a significantly lower deposit insurance expense and a modest reduction in
other expenses. The significant decrease in deposit insurance expense results
from a reduction in the Federal Deposit Insurance Corporation ("FDIC") deposit
insurance rates for well capitalized banks from $0.23 per hundred dollars of
deposits paid in the first half of 1995 to an annual minimum premium of
$2 thousand paid in the first half of 1996.
<PAGE>
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 $1,540,000
for the three months ended June 30, 1996 from $1,383,000 for the same period
in 1995.
For the six months ended June 30, 1996 the Company's provision for federal
and state income taxes increased to $2,963,000 from $2,754,000 for the same
period in 1995.
The increase is due principally to higher income before taxes. The
Company's combined effective income tax rate for the first half of 1996
is 39.2% as compared to 39.1% for the same period a year ago.
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, sales or maturities of
investment securities and income on earning assets. In addition to loan
payments and maturing investment securities, which are relatively predictable
sources of funds, the Bank maintains a high percentage of its assets invested
in overnight federal funds sold, which can be immediately converted into cash
and United States Treasury and Government agency securities, which can be sold
or pledged to raise funds. At June 30, 1996 the Bank had $81.3 million or 9.2%
of total assets and $183.0 million or 20.8% 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%. At June 30, 1996, the Bank had ratios of Tier 1 capital to
total assets of 9.49% and qualifying capital to risk-weighted assets of 34.35%.
The Company had ratios of Tier 1 capital to total assets of 9.59% and total
qualifying capital to risk-weighted assets of 34.71% at June 30, 1996.
IMPACT OF INFLATION AND CHANGING PRICES
MASSBANK Corp.'s financial statements presented herein have been prepared
in accordance with generally accepted accounting principles which require the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time, due to the fact that substantially all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or in the same magnitude as the
prices of goods and services.
<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 June 30, 1996, none of these actions individually
or in the aggregate is believed by management to be material to the
financial condition of MASSBANK Corp. or the Bank.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of MASSBANK Corp. on April 16,
1996, stockholders voted affirmatively on the following proposal:
To elect each Class I Director to serve until the 1999 Annual
Meeting of Stockholders and until their successors are chosen and
qualified.
Elected at Meeting
Louise A. Hickey
Stephen E. Marshall
Arthur W. McPherson
Donald B. Stackhouse
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 August 13, 1996 /s/Gerard H. Brandi
___________________________
(Signature)
Gerard H. Brandi
President and CEO
Date August 13, 1996 /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 six months ended June 30, 1996 and 1995.
<CAPTION>
Three Months Ended Six Months Ended
Calculation of Primary June 30, June 30,
Earnings Per Share 1996 1995 1996 1995
______________________________ ____ ____ ____ ____
<S> <C> <C> <C> <C>
Average common shares outstanding 2,726,564 2,767,811 2,737,785 2,776,176
Less: Unallocated Employee Stock Ownership
Plan (ESOP) shares not committed
to be released (46,200) (52,800) (46,200) (52,800)
Shares assumed to be repurchased
under treasury stock method
for stock options 74,097 74,229 77,359 69,828
_______ _______ _______ _______
Total Shares 2,754,461 2,789,240 2,768,944 2,793,204
__________ __________ _________ _________
Net Income $2,370,000 $2,169,000 $4,593,000 $4,295,000
__________ __________ __________ __________
Per Share Amount $ 0.86 $ 0.78 $ 1.66 $ 1.54
__________ __________ __________ __________
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Calculation of Fully Diluted June 30, June 30,
Earnings Per Share 1996 1995 1996 1995
______________________________ ____ ____ ____ ____
<S> <C> <C> <C> <C>
Average common shares outstanding 2,726,564 2,767,811 2,737,785 2,776,176
Less: Unallocated Employee Stock Ownership
Plan (ESOP) shares not committed
to be released (46,200) (52,800) (46,200) (52,800)
Shares assumed to be repurchased
under treasury stock method
for stock options 74,097 78,660 77,873 72,376
________ _______ _______ _______
Total Shares 2,754,461 2,793,671 2,769,458 2,795,752
_________ _________ _________ _________
Net Income $2,370,000 $2,169,000 $4,593,000 $4,295,000
__________ __________ __________ __________
Per Share Amount $ 0.86 $ 0.78 $ 1.66 $ 1.54
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000799166
<NAME> MASSBANK CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,629
<INT-BEARING-DEPOSITS> 1,694
<FED-FUNDS-SOLD> 81,343
<TRADING-ASSETS> 6,616
<INVESTMENTS-HELD-FOR-SALE> 497,398
<INVESTMENTS-CARRYING> 170
<INVESTMENTS-MARKET> 170
<LOANS> 257,923
<ALLOWANCE> (2,420)
<TOTAL-ASSETS> 880,534
<DEPOSITS> 778,406
<SHORT-TERM> 954
<LIABILITIES-OTHER> 13,884
<LONG-TERM> 1,093
<COMMON> 5,464
0
0
<OTHER-SE> 80,733
<TOTAL-LIABILITIES-AND-EQUITY> 880,534
<INTEREST-LOAN> 9,737
<INTEREST-INVEST> 15,546
<INTEREST-OTHER> 3,231
<INTEREST-TOTAL> 28,514
<INTEREST-DEPOSIT> 16,148
<INTEREST-EXPENSE> 16,148
<INTEREST-INCOME-NET> 12,366
<LOAN-LOSSES> 65
<SECURITIES-GAINS> 418
<EXPENSE-OTHER> 6,086
<INCOME-PRETAX> 7,556
<INCOME-PRE-EXTRAORDINARY> 7,556
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,593
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.66
<YIELD-ACTUAL> 2.98
<LOANS-NON> 2,362
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,362
<ALLOWANCE-OPEN> 2,529
<CHARGE-OFFS> (179)
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 2,420
<ALLOWANCE-DOMESTIC> 2,382
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 38
</TABLE>
