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 March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______________to____________
Commission File Number 0-15137
MASSBANK Corp.
(Exact name of registrant as specified in its charter)
Delaware 04-2930382
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
123 HAVEN STREET
Reading, Massachusetts 01867
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (781) 662-0100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the issuer's classes of common stock,
as of the latest practicable date is:
Class: Common stock $1.00 per share.
Outstanding at April 23, 1998: 3,586,878 shares.
<PAGE>
MASSBANK CORP. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Page
ITEM 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1998 (unaudited) and December 31, 1997 3
Consolidated Statements of Income (unaudited)
for the three months ended March 31, 1998 and 1997 4
Consolidated Statements of Changes in Stockholders' Equity
for the three months ended March 31, 1998 (unaudited)
and the year ended December 31, 1997 5 - 6
Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 1998 and 1997 7 - 8
Condensed Notes to the Consolidated Financial Statements 9 - 10
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 24
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 25
ITEM 2. Changes in Securities 25
ITEM 3. Defaults Upon Senior Securities 25
ITEM 4. Submission of Matters to a Vote of Security Holders 25
ITEM 5. Other Information 25
ITEM 6. Exhibits and Reports on Form 8-K 25
Signature Page 26
<PAGE>
<TABLE>
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
<CAPTION>
March 31, December 31,
1998 1997
____ ____
(unaudited)
<S> <C> <C>
Assets:
Cash and due from banks $ 6,347 $ 6,808
Short-term investments (Note 3) 120,360 109,755
______________________________________________________________________________
Total cash and cash equivalents 126,707 116,563
Term federal funds sold 20,000 20,000
Interest-bearing deposits in banks 2,552 2,083
Securities held to maturity, at amortized cost
(market value of $367 in 1998 and $372 in 1997) 367 372
Securities available for sale, at market value
(amortized cost of $451,748 in 1998 and $466,749
in 1997) 468,611 482,224
Trading securities, at market value 23,728 21,260
Loans: (Note 4)
Mortgage loans 254,237 248,798
Other loans 22,719 23,505
Less: allowance for loan losses (2,377) (2,334)
______________________________________________________________________________
Net loans 274,579 269,969
Premises and equipment 4,328 4,369
Accrued interest receivable 5,364 5,395
Goodwill 1,462 1,487
Other assets 1,752 1,681
______________________________________________________________________________
Total assets $929,450 $925,403
Liabilities and Stockholders' Equity:
Deposits $809,757 $809,850
Escrow deposits of borrowers 1,548 1,502
Employee stock ownership plan liability 781 781
Accrued and deferred income taxes payable 6,514 6,167
Other liabilities 3,789 3,324
______________________________________________________________________________
Total liabilities 822,389 821,624
Stockholders' Equity:
Preferred stock, par value $1.00 per share;
2,000,000 shares authorized, none issued -- --
Common stock, par value $1.00 per share;
10,000,000 shares authorized, 7,352,900 and
7,336,800 shares issued, respectively 7,353 7,337
Additional paid-in capital 59,127 58,737
Retained earnings 72,937 70,984
______________________________________________________________________________
139,417 137,058
Accumulated other comprehensive income:
Net unrealized gains on securities
available for sale, net of tax effect 9,994 9,071
Treasury stock at cost, 3,766,022 shares (41,569) (41,569)
Common stock acquired by ESOP ( 781) ( 781)
______________________________________________________________________________
Total stockholders' equity 107,061 103,779
______________________________________________________________________________
Total liabilities and stockholders' equity $929,450 $925,403
<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
March 31,
(In thousands except share data) 1998 1997
________________________________________________________________________________
<S> <C> <C>
Interest and dividend income:
Mortgage Loans $ 4,650 $ 4,237
Other loans 525 560
Securities available for sale:
Mortgage-backed securities 5,561 5,365
Other securities 2,188 2,682
Trading securities 296 95
Federal funds sold 1,503 1,482
Other investments 370 339
________________________________________________________________________________
Total interest and dividend income 15,093 14,760
________________________________________________________________________________
Interest expense:
Deposits 8,521 8,349
________________________________________________________________________________
Total interest expense 8,521 8,349
________________________________________________________________________________
Net interest income 6,572 6,411
Provision for loan losses 45 68
________________________________________________________________________________
Net interest income after provision for loan losses 6,527 6,343
________________________________________________________________________________
Non-interest income:
Deposit account service fees 211 222
Gains on securities, net 812 468
Other 223 204
________________________________________________________________________________
Total non-interest income 1,246 894
________________________________________________________________________________
Non-interest expense:
Salaries and employee benefits 1,973 1,869
Occupancy and equipment 555 503
Data processing 130 145
Professional services 121 177
Advertising and marketing 43 56
Amortization of intangibles 69 58
Other 365 387
________________________________________________________________________________
Total non-interest expense 3,256 3,195
________________________________________________________________________________
Income before income taxes 4,517 4,042
Income tax expense 1,683 1,569
________________________________________________________________________________
Net income $ 2,834 $ 2,473
________________________________________________________________________________
Weighted average common shares outstanding:
Basic 3,534,654 3,529,781
Diluted 3,696,584 3,646,863
________________________________________________________________________________
Earnings per share (in dollars):
Basic $ 0.80 $ 0.70
Diluted 0.77 0.68
<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 Three Months Ended March 31, 1998 (unaudited)
(In thousands except share data)
<CAPTION>
ACCUMULATED COMMON
ADDITIONAL OTHER STOCK
COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE ACQUIRED
STOCK CAPITAL EARNINGS STOCK INCOME BY ESOP TOTAL
________ __________ _________ __________ __________ _________ ________
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $7,337 $58,737 $70,984 $(41,569) $9,071 $(781) $103,779
Net Income -- -- 2 ,834 -- -- -- 2,834
Other incomprehensive income, net of tax:
Unrealized gains on securities,
net of reclassification adjustment (Note 5) -- -- -- -- 923 -- 923
_____
Comprehensive income 3,757
Cash dividends declared and paid
($0.25 per share) -- -- (884) -- -- -- (884)
Tax benefit resulting from dividends
paid on unallocated shares held by the ESOP -- -- 3 -- -- -- 3
Amortization of ESOP shares
committed to be released -- 66 -- -- -- -- 66
Exercise of stock options
and related tax benefits 16 324 -- -- -- -- 340
___________________________________________________________________________________________________________________________
Balance at March 31, 1998 $7,353 $59,127 $72,937 $(41,569) $9,994 $(781) $107,061
<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 Year Ended December 31, 1997 (unaudited)
(In thousands except share data)
<CAPTION>
ACCUMULATED COMMON
ADDITIONAL OTHER STOCK
COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE ACQUIRED
STOCK CAPITAL EARNINGS STOCK INCOME BY ESOP TOTAL
________ __________ _________ __________ __________ _________ ________
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $5,476 $57,858 $65,756 $(39,904) $ 4,001 $(937) $ 92,250
Net income -- -- 10,167 -- -- -- 10,167
Other comprehensive income, net of tax:
Unrealized gains on securities,
net of reclassification adjustment (Note 5) -- -- -- -- 5,070 -- 5,070
______
Comprehensive income 15,237
Cash dividends declared and paid
($0.885 per share) -- -- (3,124) -- -- -- (3,124)
Tax benefit resulting from dividends
paid on unallocated shares held by the ESOP -- -- 15 -- -- -- 15
Net decrease in liability to ESOP -- -- -- -- -- 156 156
Amortization of ESOP shares
committed to be released -- 184 -- -- -- -- 184
Purchase of treasury stock -- -- -- (1,665) -- -- (1,665)
Exercise of stock options
and related tax benefits 31 695 -- -- -- -- 726
Transfer resulting from four-for-three
stock split 1,830 -- (1,830) -- -- -- --
__________________________________________________________________________________________________________________________
Balance at December 31, 1997 $7,337 $58,737 $70,984 $(41,569) $9,071 $(781) $103,779
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Three Months Ended
March 31,
1998 1997
____ ____
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,834 $ 2,473
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 230 189
Loan interest capitalized (11) --
Amortization of ESOP shares committed to be released 66 --
Decrease (increase) in accrued interest receivable 31 (170)
Increase in other liabilities 497 250
Decrease in current income taxes payable (182) (434)
Accretion of discounts on securities, net of amortization
of premiums (282) (259)
Net trading securities activity (1,325) (8,589)
Gains on securities available for sale (780) (500)
(Gains) losses on trading securities (32) 32
Increase in deferred mortgage loan
origination fees, net of amortization 46 45
Deferred income tax expense (benefit) 63 (42)
Increase in other assets (62) (146)
Loans originated for sale (129) --
Loans sold 129 --
Provision for loan losses 45 68
Gains on sales of real estate acquired through foreclosure (1) (7)
Increase in escrow deposits of borrowers 46 135
__________________________________________________________________________________________
Net cash provided by (used in) operating activities 1,183 (6,955)
__________________________________________________________________________________________
Cash flows from investing activities:
Purchases of term federal funds (10,000) (5,000)
Proceeds from maturities of term federal funds 10,000 --
Increase in interest bearing bank deposits (469) (29)
Proceeds from sales of investment securities available for sale 5,073 9,279
Proceeds from maturities of investment securities
available for sale 14,500 13,000
Purchases of investment securities
available for sale (19,005) (30,835)
Purchases of mortgage-backed securities -- (19,713)
Principal repayments of mortgage-backed securities 14,351 8,789
Principal repayments of securities held to maturity 5 4
Principal repayments of securities available for sale 1 --
Loans originated (19,632) (12,798)
</TABLE>
<PAGE>
<TABLE>
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
<CAPTION>
Three Months Ended
March 31,
1998 1997
____ ____
(In thousands)
<S> <C> <C>
Cash flows from investing activities: (Continued)
Loan principal payments received 14,834 10,478
Purchases of premises & equipment (109) (84)
Proceeds from sales of real estate acquired through foreclosure 89 284
__________________________________________________________________________________________
Net cash provided by (used in) investing activities 9,638 (26,625)
__________________________________________________________________________________________
Cash flows from financing activities:
Net (decrease) increase in deposits (137) 6,565
Payments to acquire treasury stock -- (202)
Issuance of common stock under stock option plan 269 70
Tax benefit resulting from stock options exercised 71 17
Dividends paid on common stock (884) (716)
Tax benefit resulting from dividends paid on
unallocated shares held by the ESOP 4 3
__________________________________________________________________________________________
Net cash (used in) provided by financing activities (677) 5,737
__________________________________________________________________________________________
Net increase (decrease) in cash and
cash equivalents 10,144 (27,843)
Cash and cash equivalents at beginning of period 116,563 140,922
_________________________________________________________________________________________
Cash and cash equivalents at end of period $126,707 $113,079
_________________________________________________________________________________________
Supplemental cash flow disclosures:
Cash transactions:
Cash paid during the period for interest $8,522 $8,338
Cash paid during the period for taxes, net of refunds 1,403 2,023
Sales of securities incomplete (not settled) at
beginning of period which settled during the period 32 30
Non-cash transactions:
SFAS 115:
Increase (decrease) in stockholders' equity 923 (3,950)
Increase (decrease) in deferred tax liabilities 466 (2,770)
Transfers from loans to real estate acquired through foreclosure 88 217
Purchases of securities incomplete (not settled) at end of period -- 10,551
Sales of securities incomplete (not settled) at end of period -- 151
Transfers from securities available for sale to trading securities 1,111 --
Transfers from premises and equipment to other assets 9 --
_________________________________________________________________________________________
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
</PAGE>
<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 March 31, 1998
and December 31, 1997, and its operating results for the three months ended
March 31, 1998 and 1997. 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
Company's per share information reported for the prior year has been restated
to reflect the four-for-three stock split of the Company's common stock which
was effected in the form of a stock dividend on September 15, 1997.
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, 1997.
(2) Cash and Cash Equivalents:
For purposes of reporting cash flows, cash and cash equivalents consist of
cash and due from banks, and short-term investments with original maturities of
less than 90 days.
(3) Short-Term Investments
Short-term investments consist of the following:
<TABLE>
<CAPTION>
________________________________________________________________________________
At At
(In thousands) March 31, 1998 December 31, 1997
________________________________________________________________________________
<S> <C> <C>
Federal funds sold (overnight) $ 95,518 $ 85,241
Money market funds 24,842 24,514
________________________________________________________________________________
Total short-term investments $120,360 $109,755
________________________________________________________________________________
The investments above are stated at cost which approximates market value and
have original maturities of 90 days or less.
</TABLE>
(4) Commitments
At March 31, 1998, the Company had outstanding commitments to originate
mortgage loans and to advance funds for construction loans amounting to
$5,986,000 and commitments under existing home equity lines of credit and other
loans of approximately $20,752,000 which are not reflected on the consolidated
balance sheet. In addition, as of March 31, 1998, the Company had a performance
standby letter of credit conveyed to others in the amount of $781,000 which is
also not reflected on the consolidated balance sheet.
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(5) Reporting Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income".
SFAS 130 establishes standards for reporting and displaying comprehensive
income, which is defined as all changes to equity except investments by, and
distributions to, shareholders. Net income is a component of comprehensive
income, with all other components referred to in the aggregate as other
comprehensive income.
The Company's other comprehensive income and related tax effect for the
three months ended March 31, 1998 and the year ended December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1998
____________________________________________________________________________________
Tax
Before-Tax (Expense) Net-of-Tax
(In thousands) Amount or Benefit Amount
______ __________ ______
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during period $2,168 $ (795) $1,373
Less: reclassification adjustment for
gains realized in net income (780) 330 (450)
______ ________ ______
Net unrealized gains 1,388 (465) 923
______ ________ ______
Other comprehensive income $1,388 $ (465) $ 923
______ ________ _____
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1997
____________________________________________________________________________________
Tax
Before-Tax (Expense) Net-of-Tax
(In thousands) Amount or Benefit Amount
______ __________ ______
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during period $10,411 $(4,290) $6,121
Less: reclassification adjustment for
gains realized in net income (1,831) 780 (1,051)
______ ________ ______
Net unrealized gains 8,580 (3,510) 5,070
______ ________ ______
Other comprehensive income $8,580 $(3,510) $5,070
______ ________ _____
</TABLE>
<PAGE>
MASSBANK CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 1998
The discussions set forth below and elsewhere herein contain certain
statements that may be considered forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended and Section 21E of
the Securities Exchange Act of 1934, as amended. A number of important factors
could cause actual results to differ materially from those in the forward-
looking statements. Those factors include fluctuations in interest rates,
inflation, government regulations and economic conditions and competition in
the geographic and business areas in which the Company conducts its operations.
Results of Operations for the three months ended March 31, 1998
GENERAL
For the quarter ended March 31, 1998, MASSBANK Corp. reported consolidated
net income of $2,834,000 or $0.80 in basic earnings per share compared to net
income of $2,473,000, or $0.70 in basic earnings per share in the first
quarter of 1997. This represents an increase of 14.6% in net income and a
14.3% increase in basic earnings per share. Diluted earnings per share
increased to $0.77 per share from $0.68 per share in last year's comparable
period, representing an increase of 13.2%. The current and prior year per
share amounts reflect the four-for-three stock split of the Company's common
stock which was effected in the form of a stock dividend on September 15,
1997.
The Company's positive earnings performance in the recent quarter reflects
an improvement in net interest income due to continued growth in the
Company's average earning assets. Average earning assets for the first quarter
of 1998, as shown in the tables appearing on pages 12 and 13 of this Form 10-Q,
increased to $907.1 million, up $32.0 million from the corresponding quarter in
1997. Net interest income for the recent quarter was $6,572,000, up $161,000
over the same quarter last year.
Results for the quarter ended March 31, 1998 were also influenced by the
following:
(a) The provision for loan losses was $45,000 in the recent quarter
compared to $68,000 in the first quarter of the prior year.
(b) Non-interest income for the quarter totalled $1,246,000, an increase
of $352,000 or 39% from the same period in 1997.
(c) Non-interest expense in the first quarter of 1998 increased 1.9% to
$3,256,000 from $3,195,000 in the first quarter of 1997.
(d) Income taxes were favorably impacted by the receipt of a non-
recurring state income tax refund, net of federal tax, of
approximately $44,000.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS
Three Months Ended
March 31,
1998 1997
______________ ______________
Interest Average Interest Average
Average Income Yield/ Average Income Yield/
(In thousands) Balance Expense Rate Balance Expense Rate
(4) (4) (4) (4)
__________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Assets:
Earning assets:
Federal funds sold $110,451 $ 1,503 5.52% $112,977 $ 1,482 5.32%
Short-term investments (2) 27,007 365 5.49 25,666 336 5.31
Investment securities 149,901 2,224 5.93 170,616 2,724 6.39
Mortgage-backed securities 324,699 5,561 6.85 308,492 5,365 6.96
Trading securities 21,955 296 5.40 6,476 95 5.97
Mortgage loans (1) 249,825 4,650 7.45 225,649 4,237 7.51
Other loans (1) 23,256 525 9.14 25,233 560 8.96
__________________________________________________ ________________
Total earning assets 907,094 $15,124 6.68% 875,109 $14,799 6.77%
Allowance for loan losses (2,339) (2,200)
__________________________________________________________________________________________
Total earning assets
less allowance for
loan losses 904,755 872,909
Other assets 19,044 17,805
__________________________________________________________________________________________
Total assets $923,799 $890,714
__________________________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS - Continued
Three Months Ended
March 31,
1998 1997
______________ ______________
Interest Average Interest Average
Average Income Yield/ Average Income Yield/
(In thousands) Balance Expense Rate Balance Expense Rate
(4) (4) (4) (4)
__________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Liabilities:
Deposits:
Demand and NOW $ 67,050 $ 133 0.80% $ 63,359 $ 128 0.82%
Savings 353,515 2,982 3.42 357,098 3,053 3.47
Time certificates of deposit 386,843 5,406 5.67 371,170 5,168 5.65
__________________________________________________ ________________
Total deposits 807,408 8,521 4.28 791,627 8,349 4.28
Other liabilities 10,467 5,778
__________________________________________________________________________________________
Total liabilities 817,875 797,405
Stockholders' Equity 105,924 93,309
__________________________________________________________________________________________
Total liabilities and
stockholders' equity $923,799 $890,714
__________________________________________________________________________________________
Net interest income
(tax-equivalent basis) 6,603 6,450
Less adjustment of tax-exempt
interest income 31 39
__________________________________________________________________________________________
Net interest income $ 6,572 $ 6,411
__________________________________________________________________________________________
Interest rate spread 2.40% 2.49%
__________________________________________________________________________________________
Net interest margin (3) 2.91% 2.95%
__________________________________________________________________________________________
(1) Loans on non-accrual status are included in the average balance.
(2) Short-term investments consist of interest-bearing deposits in banks and
investments in money market funds.
(3) Net interest income (tax equivalent basis) before provision for loan
losses divided by average interest-earning assets.
(4) Includes the effects of SFAS No. 115.
</TABLE>
<PAGE>
Net Interest Income
Net interest income was $6.572 million for the first quarter of 1998 as
compared to $6.411 million for the same period in 1997. This increase resulted
from the growth in the Company's interest-earning assets partially offset by
a decrease in net interest margin. The net interest margin for the three
months ended March 31, 1998 and 1997 was 2.91% and 2.95%, respectively.
The Company's interest rate spread decreased to 2.40% for the first
quarter of 1998, from 2.49% in the first quarter of 1997. The yield on the
Company's average earning assets in the first quarter of 1998 decreased by
9 basis points to 6.68% from 6.77% in the corresponding quarter of 1997.
The Company's average cost of funds in the recent quarter was 4.28% the same
as in the first quarter of the prior year.
Provision for Loan Losses
The allowance for loan losses 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 affect the borrower's 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 loan losses, future
adjustments to the allowance may be necessary if economic conditions differ
substantially from the assumptions used in making the evaluation. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to recognize additions to the allowance based on judgments
different from those of management.
The provision for loan losses for the first quarter of 1998 was $45,000
versus $68,000 for the comparable period in 1997. This decrease was
essentially due to lower net loan charge-offs. Loan charge-offs net of
recoveries equalled $2,000 in the recent quarter, down from $95,000 for the
same quarter last year.
The reserve coverage as a percentage of the Bank's non-performing assets
showed improvement in the recent quarter. At March 31, 1998, MASSBANK's
allowance for loan losses totalled $2.377 million representing 152.3% of
non-performing assets compared to $2.210 million representing 128.6% of
non-performing assets at the end of the first quarter in 1997.
Non-Interest Income
Non-interest income consists of deposit account service fees, net gains
on securities and other non-interest income.
Non-interest income for the first quarter of 1998 totalled $1,246,000, up
$352,000 or approximately 39% from the $894,000 reported in the corresponding
quarter last year. This growth is primarily attributable to an increase in
net securities gains. The Company has benefited from the stock market's
favorable performance. The Company's equity portfolio has yielded substantial
realized and unrealized gains. Net unrealized gains in the equity securities
portfolio totalled $9.5 million at March 31, 1998. The Company reported net
securities gains of $812,000 for the recent quarter compared to $468,000 for
the same quarter last year.
<PAGE>
Non-Interest Expense
Non-interest expenses increased by $61,000, or 1.9% to $3,256,000 in the
first quarter of 1998 from $3,195,000 in the first quarter of 1997.
Salaries and employee benefits, the largest component of non-interest
expense, increased $104,000 or 5.6% from $1,869,000 in the first quarter of
1997 to $1,973,000 in the recent quarter. This increase is due principally to
salary increases and an increase in the Company's employee stock ownership plan
(ESOP) expense. The expense related to this plan is tied closely to the market
value of the Company's common stock. The market value of the Company's common
stock has increased from $30.75 per share at March 31, 1997 to $50.125 per share
at March 31, 1998. The Company's favorable stock performance has resulted in a
higher ESOP expense for the Company.
Occupancy and equipment expenses increased from $503,000 in the first
quarter of 1997 to $555,000 in the first quarter of 1998. This increase
reflects higher real estate taxes and depreciation expense, due in part, to
the Glendale Co-operative Bank acquisition in July 1997 and the Bank's
investment in new computer systems during the past year.
Professional services expenses decreased from $177,000 in the first quarter
of 1997 to $121,000 in the recent quarter. This was due, in large part, to a
decrease in legal fees.
All other non-interest expenses combined decreased by $39,000 or 6.0%,
from $646,000 for the three months ended March 31, 1997 to $607,000 for the
three months ended March 31, 1998.
Income Tax Expense
The Company, the Bank and its subsidiaries file a consolidated federal
income tax return. The Company, in the recent quarter, changed its tax year
from a tax year ending October 31 to a tax year ending December 31. The Company
will be filing the short period tax returns required by this change. The
Parent Company is subject to a State of Delaware Franchise Tax and a State of
Massachusetts Bank Excise Tax and the Bank's subsidiaries are subject to a State
of Massachusetts Corporate Excise Tax.
The provision for federal and state income taxes increased to $1,683,000
for the three months ended March 31, 1998 from $1,569,000 for the same period
in 1997. The Company's combined effective income tax rate for the first quarter
of 1998 is 37.3% as compared to 38.8% for the same quarter a year ago.
The reduction in effective income tax rate is partly due to a state
income tax refund of approximately $44,000, net of federal tax, that the
Company received in the recent quarter, representing the final settlement
of a state income tax issue for prior years.
<PAGE>
Financial Condition
Total assets at March 31, 1998 were $929.5 million, an increase of $4.1
million from $925.4 million at December 31, 1997. The Company's securities
available for sale portfolio in the recent quarter decreased $13.6 million.
This was partially offset by an increase of $10.6 million in short-term
investments.
MASSBANK's loan portfolio increased to $277.0 million at March 31, 1998
reflecting a net increase in loans of $4.7 million in the first quarter of
1998. This improvement was due to an increase in loan originations. Loan
originations totaled $19.8 million in the three months ended March 31, 1998,
up 55%, or $7.0 million compared to $12.8 million in the three months ended
March 31, 1997.
Total deposits were $809.8 million at March 31, 1998 essentially unchanged
from $809.9 million at year end 1997.
Total stockholders' equity rose to $107.1 million at March 31, 1998 from
$103.8 million at December 31, 1997. Book value increased to $29.85 per share,
from $29.06 per share at year end 1997. The Company's book value per share has
increased $4.73 or 18.8% since March 31, 1997.
Investments
Total investments consisting of investment securities, short-term
investments, term federal funds sold and interest-bearing bank deposits
equalled $635.6 million at March 31, 1998, essentially unchanged from $635.7
million at year end 1997. These investments are principally in federal funds
sold, short-term U.S. Treasury notes and government agency fifteen year
mortgage-backed securities. The Bank also maintains an equity securities
portfolio, valued at $17.6 million as of March 31, 1998, that has yielded
substantial realized and unrealized gains. Nearly all of the Bank's investment
securities are classified as available for sale or trading securities.
Management evaluates its investment alternatives in order to properly manage
the mix of assets on its balance sheet. Investment securities available for
sale and trading securities provide liquidity, facilitate interest rate
sensitivity management and enhance the Bank's ability to respond to customers'
needs should loan demand increase and/or deposits decline.
The Bank continues to maintain a large proportion of its securities
portfolio in government agency mortgage-backed securities. These represent an
attractive investment with minimal credit risk, no servicing responsibilities,
and no delinquencies. The Bank's investment in mortgage-backed securities
totalled $316.8 million at March 31, 1998 versus $330.7 million at year end
1997.
The Bank also maintains a portfolio of trading securities which consisted
of the following as of the dates shown:
March 31, December 31,
(In thousands) 1998 1997
_____________ ____________
U.S. Treasury bills $21,695 $18,542
Investment in mutual funds 2,033 2,718
_______ _______
Total $23,728 $21,260
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL CONDITION
INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities
at March 31, 1998 with gross unrealized gains and losses, follows:
__________________________________________________________________________________________
Gross Gross
Amortized Unrealized Unrealized Market
(In thousands) At March 31, 1998 Cost Gains Losses Value
__________________________________________________________________________________________
<S> <C> <C> <C> <C>
Securities held to maturity:
Other bonds and obligations $ 367 $ -- $ -- $ 367
__________________________________________________________________________________________
Total securities held to maturity $ 367 $ -- $ -- $ 367
__________________________________________________________________________________________
Securities available for sale:
Debt securities:
U.S. Treasury obligations $125,374 $ 1,519 $ (16) $126,877
U.S. Government agency obligations 7,304 15 (2) 7,317
__________________________________________________________________________________________
Total 132,678 1,534 (18) 134,194
__________________________________________________________________________________________
Mortgage-backed securities:
Government National Mortgage
Association 58,176 1,344 (23) 59,497
Federal Home Loan Mortgage
Corporation 237,855 4,363 (142) 242,076
Federal National Mortgage
Association 7,102 221 -- 7,323
Collateralized mortgage
obligations 7,520 71 -- 7,591
Other 271 11 -- 282
__________________________________________________________________________________________
Total mortgage-backed securities 310,924 6,010 (165) 316,769
__________________________________________________________________________________________
Total debt securities 443,602 7,544 (183) 450,963
__________________________________________________________________________________________
Equity securities 8,146 9,502 -- 17,648
__________________________________________________________________________________________
Total securities available for sale 451,748 $ 17,046 $ (183) $468,611
__________________________________________________________________________________________
Net unrealized gains on securities
available for sale 16,863
__________________________________________________________________________________________
Total securities available
for sale, net $468,611
__________________________________________________________________________________________
Trading securities $ 23,727 $ 23,728
__________________________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL CONDITION
INVESTMENT SECURITIES (continued)
The amortized cost and estimated market value of investment securities
at December 31, 1997 with gross unrealized gains and losses, follows:
__________________________________________________________________________________________
Gross Gross
Amortized Unrealized Unrealized Market
(In thousands) At December 31, 1997 Cost Gains Losses Value
__________________________________________________________________________________________
<S> <C> <C> <C> <C>
Securities held to maturity:
Other bonds and obligations $ 372 $ -- $ -- $ 372
__________________________________________________________________________________________
Total securities held to maturity $ 372 $ -- $ -- $ 372
__________________________________________________________________________________________
Securities available for sale:
Debt securities:
U.S. Treasury obligations $121,399 $ 1,622 $ -- $123,021
U.S. Government agency obligations 9,800 24 (11) 9,813
__________________________________________________________________________________________
Total 131,199 1,646 (11) 132,834
__________________________________________________________________________________________
Mortgage-backed securities:
Government National Mortgage
Association 60,493 1,247 (31) 61,709
Federal Home Loan Mortgage
Corporation 248,744 4,257 (180) 252,821
Federal National Mortgage
Association 7,733 258 -- 7,991
Collateralized mortgage
obligations 7,836 62 -- 7,898
Other 298 14 -- 312
__________________________________________________________________________________________
Total mortgage-backed securities 325,104 5,838 (211) 330,731
__________________________________________________________________________________________
Total debt securities 456,303 7,484 (222) 463,565
__________________________________________________________________________________________
Investments in mutual funds 1,110 4 -- 1,114
Equity securities 9,336 8,227 (18) 17,545
__________________________________________________________________________________________
Total securities available for sale 466,749 $ 15,715 $ (240) $482,224
__________________________________________________________________________________________
Net unrealized gains on securities
available for sale 15,475
__________________________________________________________________________________________
Total securities available
for sale, net $482,224
__________________________________________________________________________________________
Trading securities $ 21,305 $ 21,260
__________________________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT SECURITIES (continued)
The amortized cost and estimated market value of debt securities held to
maturity and debt securities available for sale by contractual maturity at
March 31, 1998 and December 31, 1997 are as follows:
March 31, 1998
____________________________________________
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 $ 34,786 $ 34,929 $ -- $ --
After 1 year but within 5 years 92,752 94,107 230 230
After 5 years but within 10 years 4,941 4,960 93 93
After 10 years but within 15 years -- -- 44 44
After 15 years 199 198 -- --
________ _______ ______ ______
132,678 134,194 367 367
Mortgage-backed securities 310,924 316,769 -- --
________ _______ ______ ______
$443,602 $450,963 $ 367 $ 367
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
____________________________________________
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 $ 37,869 $ 38,007 $ -- $ --
After 1 year but within 5 years 92,130 93,634 230 230
After 5 years but within 10 years 1,000 994 97 97
After 15 years 200 199 45 45
________ _______ ______ ______
131,199 132,834 372 372
Mortgage-backed securities 325,104 330,731 -- --
________ _______ ______ ______
$456,303 $463,565 $ 372 $ 372
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOANS
The composition of the Bank's loan portfolio is summarized as follows:
_______________________________________________________________________________________
At At
(In thousands) March 31, 1998 December 31, 1997
_______________________________________________________________________________________
<S> <C> <C>
Mortgage loans:
Residential $251,555 $245,325
Commercial 2,690 3,861
Construction 941 492
_______________________________________________________________________________________
255,186 249,678
Add: Premium on loans 320 343
Less: deferred mortgage loan origination fees (1,269) (1,223)
_______________________________________________________________________________________
Total mortgage loans 254,237 248,798
Other loans:
Consumer:
Installment 2,055 2,199
Guaranteed education 8,842 8,934
Other secured 1,475 1,600
Home equity lines of credit 10,070 10,470
Unsecured 254 266
_______________________________________________________________________________________
Total consumer loans 22,696 23,469
Commercial 23 36
_______________________________________________________________________________________
Total other loans 22,719 23,505
_______________________________________________________________________________________
Total loans $276,956 $272,303
_______________________________________________________________________________________
The Bank's loan portfolio increased $4.7 million during the first three
months of 1998, from $272.3 million at December 31, 1997 to $277.0 million at
March 31, 1998. Most of the increase was in the residential 1-4 family
category.
Loan originations increased to $19.8 million in the first quarter of 1998
compared to $12.8 million in the first quarter of last year, an increase of
$7.0 million or 55%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
The following table shows the composition of the Bank's non-performing assets
at March 31, 1998 and 1997, and December 31, 1997:
At At At
March 31, December 31, March 31,
(In thousands) 1998 1997 1997
____________________________________________________________________________________
<S> <C> <C> <C>
Non-Performing Assets:
Non-accrual loans $ 1,561 $ 1,771 $ 1,275
Real estate acquired through foreclosure -- -- 443
____________________________________________________________________________________
Total non-performing assets $ 1,561 $ 1,771 $ 1,718
____________________________________________________________________________________
Allowance for possible loan losses $ 2,377 $ 2,334 $ 2,210
Allowance as percent of
non-performing assets 152.3 % 131.9 % 128.6 %
Non-accrual loans as percent
of total loans 0.56% 0.65% 0.51%
Non-performing assets as percent
of total assets 0.17% 0.19% 0.19%
____________________________________________________________________________________
The Bank generally does not accrue interest on loans which are 90 days or
more past due. It is the Bank's policy to place such loans on non-accrual
status and to reverse from income all interest previously accrued but not
collected and to discontinue all amortization of deferred loan fees.
Non-performing assets decreased from December 31, 1997 to March 31, 1998
as noted in the table above. The principal balance of non-accrual loans was
$1.6 million, or approximately 6/10 of 1% of total loans and real estate
acquired through foreclosure remained at zero, a milestone reached at year-end
1997. 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 March 31, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES
An analysis of the activity in the allowance for loan losses is as follows:
Three Months Ended
March 31,
1998 1997
_______________________________________________________________________________
(In thousands)
<S> <C> <C>
Balance at beginning of period $ 2,334 $ 2,237
Provision for loan losses 45 68
Recoveries of loans previously charged-off 6 35
Less: Charge-offs (8) (130)
_________________________________________________________________________________
Balance at end of period $ 2,377 $ 2,210
_________________________________________________________________________________
</TABLE>
Potential 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 loan losses. Such agencies may
require the Bank to recognize additions to the allowance based on judgments
different from those of management.
At March 31, 1998 the balance of the allowance for loan losses was
$2,377,000 representing 152.3% of non-accrual loans. Management believes that
the allowance for loan losses is adequate to cover the risks inherent in the
portfolio under current conditions.
<PAGE>
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 decreased by approximately $0.1 million to
$809.8 million at March 31, 1998 from $809.9 million at December 31, 1997.
The composition of the Bank's total deposits as of the dates shown are
summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
______________________________________________________________________________
(In thousands)
<S> <C> <C>
Demand and NOW $ 67,775 $ 66,859
Savings and money market accounts 356,717 352,875
Time certificates of deposit 386,139 391,034
Deposit acquisition premium,
net of amortization (874) (918)
________________________________________________________________________________
Total deposits $809,757 $809,850
________________________________________________________________________________
</TABLE>
Recent Accounting Developments
"Disclosures about Segments of an Enterprise and Related Information"
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information".
This Statement establishes standards for reporting information about operating
segments. An operating segment is defined as a component of an enterprise for
which separate financial information is available and reviewed regularly by
the enterprise's chief operating decision maker in order to make decisions
about resources to be allocated to the segment and also to evaluate the
segment's performance. SFAS No. 131 requires a company to disclose certain
balance sheet and income statement information by operating segment, as well
as provide a reconciliation of operating segment information to the company's
consolidated balances. This Statement is effective for 1998 annual financial
statements. Segment information need not be reported in financial statements
for interim periods in the initial year of application.
<PAGE>
Liquidity and Capital Resources
The Bank must maintain a sufficient amount of cash and assets which can
readily be converted into cash in order to meet cash outflows from normal
depositor requirements and loan demands. The Bank's primary sources of funds
are deposits, loan amortization and prepayments, sales or maturities of
investment securities and income on earning assets. In addition to loan
payments and maturing investment securities, which are relatively predictable
sources of funds, the Bank maintains a high percentage of its assets invested
in overnight federal funds sold, which can be immediately converted into cash
and United States Treasury and Government agency securities, which can be sold
or pledged to raise funds. At March 31, 1998 the Bank had $95.5 million or
10.3% of total assets and $134.2 million or 14.4% of total assets invested,
respectively, in overnight federal funds sold and United States obligations.
The Bank is a Federal Deposit Insurance Corporation ("FDIC") insured
institution subject to the FDIC regulatory capital requirements. The FDIC
regulations require all FDIC insured institutions to maintain minimum levels
of Tier 1 capital. Highly rated banks (i.e., those with a composite rating
of 1 under the CAMEL rating system) are required to maintain a minimum leverage
ratio of Tier 1 capital to total assets of at least 3.00%. An additional 100
to 200 basis points are required for all but these most highly rated
institutions. The Bank is also required to maintain a minimum level of
risk-based capital. Under the new risk-based capital standards, FDIC insured
institutions must maintain a Tier 1 capital to risk-weighted assets ratio of
4.00% and are generally expected to meet a minimum total qualifying capital to
risk-weighted assets ratio of 8.00%. The new risk-based capital guidelines
take into consideration risk factors, as defined by the regulators, associated
with various categories of assets, both on and off the balance sheet. Under
the guidelines, capital strength is measured in two tiers which are used in
conjunction with risk adjusted assets to determine the risk-based capital
ratios. Tier II components include supplemental capital components such as
qualifying allowance for loan losses and qualifying subordinated debt. Tier I
plus the Tier II capital components is referred to as total qualifying capital.
The capital ratios of the Bank and the Company currently exceed the
minimum regulatory requirements. At March 31, 1998, the Bank had a leverage
Tier I capital to total assets ratio of 9.90%, a Tier I capital to risk-
weighted assets ratio of 33.17% and a total capital to risk-weighted assets
ratio of 34.04%. The Company, on a consolidated basis, had ratios of leverage
Tier I capital to total assets of 10.39%, Tier I capital to risk-weighted assets
of 34.80% and total capital to risk-weighted assets of 35.67% at March 31, 1998.
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 March 31, 1998, 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 May 11, 1998 /s/Gerard H. Brandi
___________________________
(Signature)
Gerard H. Brandi
President and CEO
Date May 11, 1998 /s/Reginald E. Cormier
___________________________
(Signature)
Reginald E. Cormier
V.P., Treasurer and CFO
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11.1
MASSBANK CORP.
Earnings Per Share
The following is a calculation of earnings per share for the three months
ended March 31, 1998 and 1997.
Three Months Ended
Calculation of Basic March 31,
Earnings Per Share 1998 1997
______________________________ __________ __________
<S> <C> <C>
Net Income $2,834,000 $2,473,000
_________ _________
Average common shares outstanding 3,578,654 3,582,581
Less: Unallocated Employee Stock Ownership
Plan (ESOP) shares not committed
to be released (44,000) (52,800)
__________ _________
Weighted average shares outstanding 3,534,654 3,529,781
__________ _________
Earnings per share (in dollars) $ 0.80 $ 0.70
__________ __________
</TABLE>
[CAPTION]
<TABLE>
Three Months Ended
Calculation of Diluted March 31,
Earnings Per Share 1998 1997
______________________________ __________ __________
<S> <C> <C>
Net Income $2,834,000 $2,473,000
__________ __________
Average common shares outstanding 3,578,654 3,582,581
Less: Unallocated Employee Stock Ownership
Plan (ESOP) shares not committed
to be released (44,000) (52,800)
Diluted stsock options 161,930 117,082
__________ __________
Weighted average shares outstanding 3,696,584 3,646,863
__________ __________
Earnings per share (in dollars) $ 0.77 $ 0.68
__________ __________
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<CIK> 0000799166
<NAME> MASSBANK CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,347
<INT-BEARING-DEPOSITS> 2,552
<FED-FUNDS-SOLD> 115,518
<TRADING-ASSETS> 23,728
<INVESTMENTS-HELD-FOR-SALE> 468,611
<INVESTMENTS-CARRYING> 367
<INVESTMENTS-MARKET> 367
<LOANS> 276,956
<ALLOWANCE> (2,377)
<TOTAL-ASSETS> 929,450
<DEPOSITS> 809,757
<SHORT-TERM> 1,548
<LIABILITIES-OTHER> 10,303
<LONG-TERM> 781
0
0
<COMMON> 7,353
<OTHER-SE> 99,708
<TOTAL-LIABILITIES-AND-EQUITY> 929,450
<INTEREST-LOAN> 5,175
<INTEREST-INVEST> 8,045
<INTEREST-OTHER> 1,873
<INTEREST-TOTAL> 15,093
<INTEREST-DEPOSIT> 8,521
<INTEREST-EXPENSE> 8,521
<INTEREST-INCOME-NET> 6,572
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 812
<EXPENSE-OTHER> 3,256
<INCOME-PRETAX> 4,517
<INCOME-PRE-EXTRAORDINARY> 4,517
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,834
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.77
<YIELD-ACTUAL> 2.91
<LOANS-NON> 1,561
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,561
<ALLOWANCE-OPEN> 2,334
<CHARGE-OFFS> (8)
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 2,377
<ALLOWANCE-DOMESTIC> 1,645
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 732
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<CIK> 0000799166
<NAME> MASSBANK CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,656
<INT-BEARING-DEPOSITS> 1,780
<FED-FUNDS-SOLD> 100,707
<TRADING-ASSETS> 13,229
<INVESTMENTS-HELD-FOR-SALE> 495,702
<INVESTMENTS-CARRYING> 155
<INVESTMENTS-MARKET> 155
<LOANS> 251,608
<ALLOWANCE> (2,210)
<TOTAL-ASSETS> 901,117
<DEPOSITS> 794,973
<SHORT-TERM> 1,406
<LIABILITIES-OTHER> 13,856
<LONG-TERM> 937
<COMMON> 5,480
0
0
<OTHER-SE> 84,465
<TOTAL-LIABILITIES-AND-EQUITY> 901,117
<INTEREST-LOAN> 4,797
<INTEREST-INVEST> 8,142
<INTEREST-OTHER> 1,821
<INTEREST-TOTAL> 14,760
<INTEREST-DEPOSIT> 8,349
<INTEREST-EXPENSE> 8,349
<INTEREST-INCOME-NET> 6,411
<LOAN-LOSSES> 68
<SECURITIES-GAINS> 468
<EXPENSE-OTHER> 3,195
<INCOME-PRETAX> 4,042
<INCOME-PRE-EXTRAORDINARY> 4,042
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,473
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.68
<YIELD-ACTUAL> 2.95
<LOANS-NON> 1,275
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,275
<ALLOWANCE-OPEN> 2,237
<CHARGE-OFFS> (130)
<RECOVERIES> 35
<ALLOWANCE-CLOSE> 2,210
<ALLOWANCE-DOMESTIC> 1,913
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 197
</TABLE>
