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, 2000
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 30, 2000: 3,255,693 shares.
<PAGE>
MASSBANK CORP. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Page
ITEM 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 2000 (unaudited) and December 31, 1999 3
Consolidated Statements of Income (unaudited)
for the three months ended March 31, 2000 and 1999 4
Consolidated Statements of Changes in Stockholders' Equity
for the three months ended March 31, 2000 (unaudited)
and the year ended December 31, 1999 5 - 6
Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 2000 and 1999 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 - 27
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 27
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 28
ITEM 2. Changes in Securities 28
ITEM 3. Defaults Upon Senior Securities 28
ITEM 4. Submission of Matters to a Vote of Security Holders 28
ITEM 5. Other Information 28
ITEM 6. Exhibits and Reports on Form 8-K 28
Signature Page 29
<PAGE>
<TABLE>
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
<CAPTION>
March 31, December 31,
2000 1999
(unaudited)
<S> <C> <C>
Assets:
Cash and due from banks $ 9,713 $ 10,476
Short-term investments (Note 3) 133,451 110,928
________________________________________________________________________________
Total cash and cash equivalents 143,164 121,404
Interest-bearing deposits in banks 3,290 3,841
Securities held to maturity, at amortized cost
(market value of $230 in 2000 and 1999) 230 230
Securities available for sale, at market value (amortized
cost of $445,223 in 2000 and $453,844 in 1999) 444,423 457,502
Trading securities, at market value 1,115 6,042
Loans: (Note 4)
Mortgage loans 285,712 288,580
Other loans 36,438 36,785
Less: allowance for loan losses (2,569) (2,555)
________________________________________________________________________________
Net loans 319,581 322,810
Premises and equipment 4,046 4,127
Real estate acquired through foreclosure -- 62
Accrued interest receivable 5,083 5,045
Goodwill 1,264 1,288
Deferred income tax asset, net 1,593 292
Other assets 1,890 2,073
________________________________________________________________________________
Total assets $925,679 $924,716
Liabilities and Stockholders' Equity:
Deposits $820,604 $818,057
Escrow deposits of borrowers 1,552 1,477
Employee stock ownership plan liability 468 468
Accrued income taxes payable 1,136 --
Deferred income taxes payable -- 199
Other liabilities 2,780 3,036
________________________________________________________________________________
Total liabilities 826,540 823,237
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, 7,408,382 and
7,407,432 shares issued, respectively 7,408 7,407
Additional paid-in capital 60,734 60,591
Retained earnings 87,769 85,873
________________________________________________________________________________
155,911 153,871
Accumulated other comprehensive income: (Note 5)
Net unrealized gains on securities
available for sale, net of tax effect (711) 1,966
Treasury stock at cost, 4,157,289 and
4,096,189 shares, respectively (55,593) (53,890)
Common stock acquired by ESOP (468) (468)
________________________________________________________________________________
Total stockholders' equity 99,139 101,479
________________________________________________________________________________
Total liabilities and stockholders' equity $925,679 $924,716
<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) 2000 1999
______________________________________________________________________________
<S> <C> <C>
Interest and dividend income:
Mortgage Loans $ 5,010 $ 5,125
Other loans 716 435
Securities available for sale:
Mortgage-backed securities 4,810 4,455
Other securities 2,405 2,107
Trading securities 41 270
Federal funds sold 1,500 1,663
Other investments 228 318
______________________________________________________________________________
Total interest and dividend income 14,710 14,373
______________________________________________________________________________
Interest expense:
Deposits 8,421 8,233
______________________________________________________________________________
Total interest expense 8,421 8,233
______________________________________________________________________________
Net interest income 6,289 6,140
Provision for loan losses 15 50
______________________________________________________________________________
Net interest income after provision for loan losses 6,274 6,090
______________________________________________________________________________
Non-interest income:
Deposit account service fees 174 178
Gains on securities, net 967 1,378
Other 171 185
______________________________________________________________________________
Total non-interest income 1,312 1,741
______________________________________________________________________________
Non-interest expense:
Salaries and employee benefits 1,820 1,869
Occupancy and equipment 572 547
Data processing 128 125
Professional services 168 114
Advertising and marketing 55 48
Amortization of intangibles 82 80
Other 355 385
______________________________________________________________________________
Total non-interest expense 3,180 3,168
______________________________________________________________________________
Income before income taxes 4,406 4,663
Income tax expense 1,578 1,750
______________________________________________________________________________
Net income $ 2,828 $ 2,913
______________________________________________________________________________
Weighted average common shares outstanding:
Basic 3,263,124 3,450,888
Diluted 3,337,359 3,567,313
Earnings per share (in dollars):
Basic $ 0.87 $ 0.84
Diluted 0.85 0.82
<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, 2000 (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, 1999 $7,407 $60,591 $85,873 $(53,890) $ 1,966 $(468) $101,479
Net Income -- -- 2 ,828 -- -- -- 2,828
Other comprehensive (loss),
net of tax:
Unrealized losses on securities,
net of reclassification adjustment (Note 5) -- -- -- -- (2,677) -- (2,677)
_____
Comprehensive income 151
Cash dividends declared and paid
($0.285 per share) -- -- (934) -- -- -- (934)
Tax benefit resulting from dividends
paid on unallocated shares held by the ESOP -- -- 2 -- -- -- 2
Amortization of ESOP shares
committed to be released -- 22 -- -- -- -- 22
Purchase of Company stock for
deferred compensation plan -- 112 -- (112) -- -- --
Purchase of treasury stock -- -- -- (1,591) -- -- (1,591)
Exercise of stock options
and related tax benefits 1 9 -- -- -- -- 10
___________________________________________________________________________________________________________________________
Balance at March 31, 2000 $7,408 $60,734 $87,769 $(55,593) $ (711) $(468) $ 99,139
<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, 1999 (unaudited)
(In thousands except share data)
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, 1998 $7,384 $60,003 $78,308 $(46,272) $11,691 $(625) $110,489
Net income -- -- 11,311 -- -- -- 11,311
Other comprehensive (loss), net of tax:
Unrealized (losses) on securities,
net of reclassification adjustment (Note 5) -- -- -- -- (9,725) -- (9,725)
______
Comprehensive income 1,586
Cash dividends declared and paid
($1.11 per share) -- -- (3,759) -- -- -- (3,759)
Tax benefit resulting from dividends
paid on unallocated shares held by the ESOP -- -- 13 -- -- -- 13
Net decrease in liability to ESOP -- -- -- -- -- 157 157
Amortization of ESOP shares
committed to be released -- 163 -- -- -- -- 163
Purchase of treasury stock -- -- -- (7,618) -- -- (7,618)
Exercise of stock options
and related tax benefits 23 425 -- -- -- -- 448
__________________________________________________________________________________________________________________________
Balance at December 31, 1999 $7,407 $60,591 $85,873 $(53,890) $ 1,966 $(468) $101,479
<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,
2000 1999
____ ____
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,828 $ 2,913
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 233 230
Loan interest capitalized (9) (16)
Amortization of ESOP shares committed to be released 22 45
(Increase) decrease in accrued interest receivable (38) 482
(Decrease) increase in other liabilities (307) 349
Increase in current income taxes payable 1,428 809
Accretion of discounts on securities, net of amortization
of premiums (194) (333)
Net trading securities activity 5,111 15,250
Gains on securities available for sale, net (749) (1,320)
Gains on trading securities, net (218) (58)
(Decrease) increase in deferred mortgage loan
origination fees, net of amortization (32) 24
Deferred income tax benefit (12) (36)
Decrease (increase) in other assets 98 (203)
Provision for loan losses 15 50
Gains on sales of real estate acquired through foreclosure (8) --
Increase in escrow deposits of borrowers 75 108
__________________________________________________________________________________________
Net cash provided by operating activities 8,243 18,294
__________________________________________________________________________________________
Cash flows from investing activities:
Proceeds from maturities of term federal funds -- 25,000
Net decrease in interest bearing bank deposits 551 522
Proceeds from sales of investment securities available for sale 11,662 18,112
Proceeds from maturities of investment securities
available for sale 15,000 22,800
Purchases of investment securities
available for sale (24,173) (61,391)
Purchases of mortgage-backed securities (3,904) (12,297)
Principal repayments of mortgage-backed securities 11,148 23,069
Principal repayments of securities held to maturity -- 5
Principal repayments of securities available for sale 1 40
Loans originated (7,038) (24,637)
Loan principal payments received 10,281 17,797
Loans purchased -- (345)
Purchases of premises & equipment (58) (65)
Proceeds from sales of real estate acquired through foreclosure 70 86
__________________________________________________________________________________________
Net cash provided by investing activities 13,540 8,696
__________________________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
<CAPTION>
Three Months Ended
March 31,
2000 1999
____ ____
(In thousands)
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits 2,489 (2,085)
Payments to acquire treasury stock (1,703) (2,067)
Purchase of Company stock for deferred compensation plan 112 --
Issuance of common stock under stock option plan 10 18
Dividends paid on common stock (934) (936)
Tax benefit resulting from dividends paid on
unallocated shares held by the ESOP 3 3
__________________________________________________________________________________________
Net cash used in financing activities (23) (5,067)
__________________________________________________________________________________________
Net increase in cash and cash equivalents 21,760 21,923
Cash and cash equivalents at beginning of period 121,404 154,814
__________________________________________________________________________________________
Cash and cash equivalents at end of period $143,164 $176,737
__________________________________________________________________________________________
Supplemental cash flow disclosures:
Cash transactions:
Cash paid during the period for interest $ 8,455 $ 8,238
Cash paid during the period for taxes, net of refunds 160 974
Purchases of securities executed but not settled at
beginning of period which settled during the period 117 129
Sales of securities executed but not settled at
beginning of period which settled during the period 202 583
Non-cash transactions:
SFAS 115:
Decrease in accumulated other comprehensive income (2,677) (2,198)
Decrease in deferred tax liabilities (1,780) (1,744)
Purchases of securities executed but not settled at end of period 797 --
Sales of securities executed but not settled at end of period 747 --
__________________________________________________________________________________________
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
<PAGE>
MASSBANK CORP.
CONDENSED 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, 2000 and
December 31, 1999, and its operating results for the three months ended
March 31, 2000 and 1999. 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, 1999.
(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:
________________________________________________________________________________
At At
(In thousands) March 31, 2000 December 31, 1999
________________________________________________________________________________
Federal funds sold (overnight) $103,555 $ 86,211
Term federal funds sold (with
original maturities of 90 days
or less) 20,000 --
Money market funds 9,896 24,717
________________________________________________________________________________
Total short-term investments $133,451 $110,928
________________________________________________________________________________
The investments above are stated at cost which approximates market value and
have original maturities of 90 days or less.
(4) Commitments
At March 31, 2000, the Company had outstanding commitments to originate
mortgage loans and to advance funds for construction loans amounting to
$1,324,000 and commitments under existing home equity lines of credit and other
loans of approximately $31,652,000 which are not reflected on the consolidated
balance sheet. In addition, as of March 31, 2000, the Company had a performance
standby letter of credit conveyed to others in the amount of $468,000 which is
also not reflected on the consolidated balance sheet.
<PAGE>
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(5) Comprehensive Income
Comprehensive income is defined as "the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources." It includes all changes in equity during a period
except those resulting from investments by and distributions to shareholders.
The term "comprehensive income" describes the total of all components of
comprehensive income including net income.
The Company's other comprehensive income and related tax effect for the
three months ended March 31, 2000 and the year ended December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 2000
____________________________________________________________________________________
Tax
Before-Tax (Expense) Net-of-Tax
(In thousands) Amount or Benefit Amount
______ __________ ______
<S> <C> <C> <C>
Unrealized losses on securities:
Unrealized holding losses arising during period $ (3,708) $1,458 $(2,250)
Less: reclassification adjustment for
gains realized in net income (749) 322 (427)
______ ________ ______
Net unrealized losses (4,457) 1,780 (2,677)
______ ________ ______
Other comprehensive loss $ (4,457) $1,780 $(2,677)
______ ________ _____
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1999
____________________________________________________________________________________
Tax
Before-Tax (Expense) Net-of-Tax
(In thousands) Amount or Benefit Amount
______ __________ ______
<S> <C> <C> <C>
Unrealized losses on securities:
Unrealized holding losses arising during period $(12,171) $ 4,716 $(7,455)
Less: reclassification adjustment for
gains realized in net income (3,954) 1,684 (2,270)
______ ________ ______
Net unrealized losses (16,125) 6,400 (9,725)
______ ________ ______
Other comprehensive loss $(16,125) $ 6,400 $(9,725)
______ ________ ______
</TABLE>
<PAGE>
MASSBANK CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2000
Cautionary Statement.
Certain statements contained in this report or incorporated herein by
reference are "forward-looking statements." We may also make written or oral
forward-looking statements in other documents we file with the Securities and
Exchange Commission, in our annual reports to stockholders, in press releases
and other written materials, and in oral statements made by our officers,
directors or employees. You can identify forward-looking statements by the use
of the words "believe," "expect," "anticipate," "intend," "estimate," "assume"
and other similar expressions which predict or indicate future events and trends
and which do not relate to historical matters. You should not rely on forward-
looking statements, because they involve known and unknown risks, uncertainties
and other factors, some of which are beyond the control of the Company. These
risks, uncertainties and other factors may cause the actual results, performance
or achievements of the Company to be materially different from the anticipated
future results, performance or achievements expressed or implied by the forward-
looking statements.
Some of the factors that might cause these differences include the
following: fluctuations in interest rates, price volatility in the stock and
bond markets, inflation, government regulations and economic conditions and
competition in the geographic and business areas in which the Company conducts
its operations; and increases in loan defaults. You should carefully review all
of these factors, and you should be aware that there may be other factors that
could cause these differences. These forward-looking statements were based on
information, plans and estimates at the date of this report, and we do not
promise to update any forward-looking statements to reflect changes in
underlying assumptions or factors, new information, future events or other
changes.
Results of Operations for the three months ended March 31, 2000
GENERAL
For the quarter ended March 31, 2000, MASSBANK Corp. reported consolidated
net income of $2,828,000 or $0.87 in basic earnings per share compared to net
income of $2,913,000, or $0.84 in basic earnings per share in the first quarter
of 1999. Diluted earnings per share in the recent quarter increased to $0.85
from $0.82 per share in last year's comparable period.
The Company's earnings results for the recent quarter compared to the same
quarter of 1999 reflect an increase in net interest income of $149,000, a
decrease in the provision for loan losses of $35,000, and a decrease in the
Company's effective income tax rate. These improvements were offset by a
decrease in non-interest income of $429,000 and an increase of $12,000 in non-
interest expense. Additionally, the earnings per share increase in the recent
quarter was positively affected by the reduced number of average common shares
outstanding as a result of the Company's purchase of 213,482 shares of its
common stock, in the last twelve months, pursuant to its stock repurchase
program.
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS
Three Months Ended
March 31,
2000 1999
______________ ______________
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 $105,390 $ 1,500 5.72% $143,004 $ 1,663 4.72%
Short-term investments (2) 16,262 226 5.56 26,252 313 4.84
Investment securities 177,022 2,439 5.51 158,759 2,145 5.40
Mortgage-backed securities 276,576 4,810 6.96 262,408 4,455 6.79
Trading securities 3,279 41 5.04 25,280 270 4.33
Mortgage loans (1) 286,909 5,010 6.98 288,215 5,125 7.11
Other loans (1) 36,658 716 7.79 21,327 435 8.26
__________________________________________________ ________________
Total earning assets 902,096 $14,742 6.53% 925,245 $14,406 6.23%
Allowance for loan losses (2,559) (2,456)
__________________________________________________________________________________________
Total earning assets
less allowance for
loan losses 899,537 922,789
Other assets 20,572 19,689
__________________________________________________________________________________________
Total assets $920,109 $942,478
__________________________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS - (continued)
Three Months Ended
March 31,
2000 1999
______________ ______________
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 $ 73,050 $ 118 0.65% $ 73,507 $ 137 0.76%
Savings 350,417 2,977 3.42 347,663 2,914 3.40
Time certificates of deposit 394,011 5,326 5.44 400,339 5,182 5.25
__________________________________________________ ________________
Total deposits 817,478 8,421 4.14 821,509 8,233 4.06
Other liabilities 3,302 10,397
__________________________________________________________________________________________
Total liabilities 820,780 831,906
Stockholders' equity 99,329 110,572
__________________________________________________________________________________________
Total liabilities and
stockholders' equity $920,109 $942,478
__________________________________________________________________________________________
Net interest income
(tax-equivalent basis) 6,321 6,173
Less adjustment of tax-exempt
interest income 32 33
__________________________________________________________________________________________
Net interest income $ 6,289 $ 6,140
__________________________________________________________________________________________
Interest rate spread 2.39% 2.17%
__________________________________________________________________________________________
Net interest margin (3) 2.80% 2.67%
__________________________________________________________________________________________
(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
The Company's net interest income was $6,289,000 for the first quarter
of 2000, an increase of $149,000 over the same quarter a year ago. The recent
quarter's increase in net interest income reflects an improvement in the
Company's net interest margin. The Company's net interest margin increased to
2.80% in the first quarter of 2000 from 2.67% in the first quarter of the prior
year. This improvement was partially offset by a decrease in the Company's
average earning assets. Average earning assets in the recent quarter were
$902.1 million, down from $925.2 million in the first quarter of 1999.
Interest and Dividend Income
Interest and dividend income on a fully taxable equivalent basis for the
three months ended March 31, 2000, increased to $14,742,000 from $14,406,000
for the three months ended March 31, 1999. The increase in interest income
resulted from an improvement in yield on the Company's average earning assets
partially offset by a decrease in average earning assets, as noted above. As
reflected in the table on page 12 of this report, the yield on average earning
assets in the first quarter of 2000 improved 30 basis points to 6.53% from 6.23%
in the same quarter of 1999. The Federal Reserve Bank has raised the Federal
Funds rate by 0.25% five times in the last twelve months, raising the rate from
4.75% to 6.00%. This increase, because of the Bank's high volume of Federal
Funds sold, has helped to improve the overall yield on MASSBANK's earning
assets.
Interest Expense
Total interest expense for the three months ended March 31, 2000 was
$8,421,000, up from $8,233,000 for the same quarter last year. The Company's
average deposits, as shown in the table on page 13, decreased $4.0 million or
less than 1/2 of 1% to $817.5 million in the first quarter of 2000, from $821.5
million in the first quarter of 1999. The increase in interest expense
resulted from an increase in average cost of funds partially offset by the
decrease in interest expense resulting from the lower deposit volume. The
Company's average cost of funds for the three months ended March 31, 2000 was
4.14%, up from 4.06% for the comparable period in 1999.
Provision for Loan Losses
The provision for loan losses represents a charge against current earnings
and an addition to the allowance for loan losses. The provision for loan losses
in the first quarter of 2000 was $15,000 compared to $50,000 in the first
quarter of 1999. In determining the amount to provide for loan losses, the key
factor is the adequacy of the allowance for loan losses. In making its
decision, management considers a number of factors, including the risk
characteristics of the loan portfolio, underlying collateral, current and
anticipated economic conditions, and trends in loan delinquencies and charge-
offs. At March 31, 2000, the allowance for loan losses was $2,569,000
representing 348.1% of nonaccrual loans. The Bank's nonaccrual loans totaled
$738,000 at March 31, 2000 compared to $732,000 a year earlier. Net charge-offs
for the recent quarter were $1,000 compared to zero net-charge-offs for the same
quarter last year. Management believes that the allowance for loan losses as
of March 31, 2000 is adequate to cover the risks inherent in the loan portfolio
under current conditions.
<PAGE>
Non-Interest Income
Non-interest income consists of deposit account service fees, net gains
on securities and other non-interest income.
Non-interest income decreased by $429,000 to $1,312,000 for the recent
quarter, from $1,741,000 for the comparable quarter of the prior year. This
decrease is due essentially to lower net securities gains in the first quarter
of 2000.
Net gains on securities totaled $967,000 in the first quarter of this year
compared to $1,378,000 in the first quarter of last year. Realized gains on the
sale of equity securities totaled $1,144,000 for the three months ended
March 31, 2000. These gains, however, were partially offset by net losses
realized on the sale of debt securities of $180,000. The Bank also recorded a
mark-to-market gain of $3,000 on its trading account during this same period.
The Bank's deposit account service fees and other non-interest income
totaled $174,000 and $171,000, respectively, in the first quarter of 2000
compared to $178,000 and $185,000, respectively, in the first quarter of 1999.
Non-Interest Expense
Non-interest expense increased $12,000 to $3,180,000 in the first quarter
of 2000, from $3,168,000 in the same quarter of the prior year. This increase
is due largely to an increase in professional services expense.
Salaries and employee benefits, the largest component of non-interest
expense, decreased by $49,000 or 2.6% in the first quarter of 2000 to $1,820,000
from $1,869,000 in the first quarter of the prior year. This decrease is due
essentially to a reduction of $50,000 in the Company's net periodic pension
cost for the recent quarter.
Occupancy and equipment expense increased by 4.6% or $25,000 to $572,000 in
the first quarter of 2000. This increase reflects an increase in the cost of
utilities and higher building maintenance and repair expenses.
Professional services expense increased by $54,000 or 47.4% to $168,000 in
the recent quarter, from $114,000 for the same quarter last year. This increase
is due to higher legal fees.
All other expenses combined, consisting of data processing, advertising and
marketing, amortization of intangibles and other expenses, decreased by $18,000
from $638,000 for the three months ended March 31, 1999 to $620,000 for the
three months ended March 31, 2000.
<PAGE>
Income Tax Expense
The Company, the Bank and its subsidiaries file a consolidated federal
income tax return. 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 Company recorded income tax expense of $1,578,000 in the first quarter
of 2000, a decrease of $172,000 when compared to the same quarter last year.
The decrease in income tax expense is due primarily to a decrease in income
before income taxes and a reduction in the Company's effective income tax
rate. The Company's income before income taxes was $4,406,000 in the recent
quarter compared to $4,663,000 for the same quarter a year ago. The
effective income tax rate for the three months ended March 31, 2000 was 35.8%
down from 37.5% for the three months ended March 31, 1999. The decrease in
effective income tax rate is due in part to the increased investment income
generated by the Bank's two security corporation subsidiaries which are taxed
at a lower rate than the Bank for state income tax purposes.
<PAGE>
Financial Condition
The Company's total assets increased by $1.0 million to $925.7 million at
March 31, 2000 from $924.7 million at December 31, 1999. The increase in total
assets reflects an increase in total investments and other assets of $4.0
million and $0.2 million, respectively, partially offset by a decrease in total
loans of $3.2 million.
Total investments consisting of investment securities, interest-bearing
bank deposits and other short-term investments increased from $578.5 million at
December 31, 1999 to $582.5 million at March 31, 2000. The mix of the Company's
investments also changed during the recent quarter. Short-term investments
increased by $22.5 million, while the Company's securities available for sale,
trading account and interest bearing bank deposits declined by $13.1 million,
$4.9 million and $0.5 million, respectively.
The Bank's total loan portfolio at March 31, 2000, prior to the allowance
for loan losses, amounted to $322.2 million compared to $325.4 million at
December 31, 1999. The decrease in the loan portfolio reflects a decline in the
Bank's loan originations this past quarter. Higher market interest rates during
the recent quarter compared to the first quarter of 1999 significantly reduced
the demand for mortgage refinancings resulting in lower loan originations for
the bank. Loan originations were $7.0 million in the first quarter of 2000
compared to $24.6 million in the first quarter of last year.
Total deposits were $820.6 million at March 31, 2000 reflecting an increase
of $2.5 million from $818.1 million at year-end 1999.
Total stockholders' equity declined to $99.1 million at March 31, 2000 from
$101.5 million at December 31, 1999. The decrease results primarily from a
reduction in net unrealized gains, net of tax effect, on the Company's available
for sale securities in the amount of $2.7 million, and the cost of the treasury
stock that the Company repurchased during the first quarter of 2000 in the
amount of $1.7 million. These decreases were partially offset by an increase in
retained earnings and additional paid-in capital of $1.9 million and $0.1
million, respectively. As a result, the Company's book value per share at
March 31, 2000 decreased to $30.46, from $30.65 at year-end 1999.
<PAGE>
Investments
As previously noted, total investments consisting of investment securities,
short-term investments, and interest-bearing bank deposits equalled $582.5
million at March 31, 2000, up $4.0 million from $578.5 million at year-end 1999.
These investments are principally in federal funds sold, short-term U.S.
Treasury and government agency obligations and government agency fifteen year
mortgage-backed securities. The Bank also maintains an equity securities
portfolio, valued at $21.2 million as of March 31, 2000, 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
totaled $272.7 million at March 31, 2000 versus $282.3 million at year-end 1999.
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) 2000 1999
_____________ ____________
U.S. Treasury obligations $ -- $ 4,956
Investments in mutual funds 1,084 1,086
Equity securities 31 --
_______ _______
Total $ 1,115 $ 6,042
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL CONDITION
INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities
at March 31, 2000 with gross unrealized gains and losses, follows:
__________________________________________________________________________________________
Gross Gross
Amortized Unrealized Unrealized Market
(In thousands) At March 31, 2000 Cost Gains Losses Value
__________________________________________________________________________________________
<S> <C> <C> <C> <C>
Securities held to maturity:
Other bonds and obligations $ 230 $ -- $ -- $ 230
__________________________________________________________________________________________
Total securities held to maturity $ 230 $ -- $ -- $ 230
__________________________________________________________________________________________
Securities available for sale:
Debt securities:
U.S. Treasury obligations $139,539 $ 37 $ (1,070) $138,506
U.S. Government agency obligations 12,147 -- (114) 12,033
__________________________________________________________________________________________
Total 151,686 37 (1,184) 150,539
__________________________________________________________________________________________
Mortgage-backed securities:
Government National Mortgage
Association 35,958 95 (715) 35,338
Federal Home Loan Mortgage
Corporation 235,342 108 (5,928) 229,522
Federal National Mortgage
Association 3,504 48 (43) 3,509
Collateralized mortgage
obligations 4,329 14 (41) 4,302
__________________________________________________________________________________________
Total mortgage-backed securities 279,133 265 (6,727) 272,671
__________________________________________________________________________________________
Total debt securities 430,819 302 (7,911) 423,210
__________________________________________________________________________________________
Equity securities 14,404 7,600 (791) 21,213
__________________________________________________________________________________________
Total securities available for sale 445,223 $ 7,902 $ (8,702) $444,423
__________________________________________________________________________________________
Net unrealized gains on securities
available for sale (800)
__________________________________________________________________________________________
Total securities available
for sale, net 444,423
__________________________________________________________________________________________
Total investment securities, net $444,653
__________________________________________________________________________________________
Trading securities $ 1,142 $ 1,115
__________________________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL CONDITION
INVESTMENT SECURITIES (continued)
The amortized cost and estimated market value of investment securities
at December 31, 1999 with gross unrealized gains and losses, follows:
__________________________________________________________________________________________
Gross Gross
Amortized Unrealized Unrealized Market
(In thousands) At December 31, 1999 Cost Gains Losses Value
__________________________________________________________________________________________
<S> <C> <C> <C> <C>
Securities held to maturity:
Other bonds and obligations $ 230 $ -- $ -- $ 230
__________________________________________________________________________________________
Total securities held to maturity $ 230 $ -- $ -- $ 230
__________________________________________________________________________________________
Securities available for sale:
Debt securities:
U.S. Treasury obligations $138,518 $ 122 $ (1,025) $137,615
U.S. Government agency obligations 16,143 -- (128) 16,015
__________________________________________________________________________________________
Total 154,661 122 (1,153) 153,630
__________________________________________________________________________________________
Mortgage-backed securities:
Government National Mortgage
Association 38,061 251 (490) 37,822
Federal Home Loan Mortgage
Corporation 239,607 311 (4,028) 235,890
Federal National Mortgage
Association 3,951 74 (45) 3,980
Collateralized mortgage
obligations 4,649 16 (22) 4,643
__________________________________________________________________________________________
Total mortgage-backed securities 286,268 652 (4,585) 282,335
__________________________________________________________________________________________
Total debt securities 440,929 774 (5,738) 435,965
__________________________________________________________________________________________
Equity securities 12,915 8,985 (363) 21,537
__________________________________________________________________________________________
Total securities available for sale 453,844 $ 9,759 $ (6,101) $457,502
__________________________________________________________________________________________
Net unrealized gains on securities
available for sale 3,658
__________________________________________________________________________________________
Total securities available
for sale, net 457,502
__________________________________________________________________________________________
Total investment securities, net $457,732
__________________________________________________________________________________________
Trading securities $ 6,072 $ 6,042
__________________________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investments (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, 2000 and December 31, 1999 are as follows:
March 31, 2000
____________________________________________
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 $ 53,878 $ 53,729 $ -- $ --
After 1 year but within 5 years 94,691 93,768 230 230
After 5 years but within 10 years 2,967 2,898 -- --
After 15 years 150 144 -- --
________ _______ ______ ______
151,686 150,539 230 230
Mortgage-backed securities 279,133 272,671 -- --
________ _______ ______ ______
$430,819 $423,210 $ 230 $ 230
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
____________________________________________
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 $ 59,837 $ 59,796 $ -- $ --
After 1 year but within 5 years 91,707 90,818 230 230
After 5 years but within 10 years 2,966 2,871 -- --
After 15 years 151 145 -- --
________ _______ ______ ______
154,661 153,630 230 230
Mortgage-backed securities 286,268 282,335 -- --
________ _______ ______ ______
$440,929 $435,965 $ 230 $ 230
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOANS
The composition of the Bank's loan portfolio is summarized as follows:
_______________________________________________________________________________________
At At
(In thousands) March 31, 2000 December 31, 1999
_______________________________________________________________________________________
<S> <C> <C>
Mortgage loans:
Residential $283,298 $287,169
Commercial 3,380 2,471
Construction 308 232
_______________________________________________________________________________________
286,986 289,872
Add: Premium on loans 145 159
Less: Deferred mortgage loan origination fees (1,419) (1,451)
_______________________________________________________________________________________
Total mortgage loans 285,712 288,580
Other loans:
Consumer:
Installment 1,417 1,418
Guaranteed education 6,888 7,037
Other secured 1,263 1,318
Home equity lines of credit 11,601 11,737
Unsecured 219 225
_______________________________________________________________________________________
Total consumer loans 21,388 21,735
Commercial 15,050 15,050
_______________________________________________________________________________________
Total other loans 36,438 36,785
_______________________________________________________________________________________
Total loans $322,150 $325,365
_______________________________________________________________________________________
The Bank's loan portfolio decreased $3.2 million during the first three
months of 2000, from $325.4 million at December 31, 1999 to $322.2 million at
March 31, 2000. The decrease was primarily in the residential 1-4 family
mortgage loan category.
Loan originations decreased by $17.6 million to $7.0 million in the first
three months of 2000 compared to $24.6 million in the first three months of
last year.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
The following table shows the composition of the Bank's non-performing
assets at March 31, 2000 and 1999, and December 31, 1999:
At At At
March 31, December 31, March 31,
(In thousands) 2000 1999 1999
____________________________________________________________________________________
<S> <C> <C> <C>
Non-Performing Assets:
Non-accrual loans $ 738 $ 795 $ 732
Real estate acquired through foreclosure -- 62 --
____________________________________________________________________________________
Total non-performing assets $ 738 $ 857 $ 732
____________________________________________________________________________________
Allowance for loan losses $ 2,569 $ 2,555 $ 2,500
Allowance as a percent of
non-accrual loans 348.1 % 321.4 % 341.5 %
Allowance as a percent of
non-performing assets 348.1 % 298.1 % 341.5 %
Non-accrual loans as a percent
of total loans 0.23% 0.24% 0.23%
Non-performing assets as a percent
of total assets 0.08% 0.09% 0.08%
____________________________________________________________________________________
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, 1999 to March 31, 2000 as
noted in the table above. The principal balance of non-accrual loans was down
to $738,000, or approximately one-quarter of 1% of total loans at March 31,
2000.
The Bank did not have any impaired loans as of March 31, 2000.
</TABLE>
<PAGE>
ALLOWANCE FOR LOAN LOSSES
An analysis of the activity in the allowance for loan losses is as follows:
Three Months Ended
March 31,
2000 1999
________________________________________________________________________________
(In thousands)
Balance at beginning of period $ 2,555 $ 2,450
Provision for loan losses 15 50
Recoveries of loans previously charged-off 1 1
Less: Charge-offs (2) (1)
________________________________________________________________________________
Balance at end of period $ 2,569 $ 2,500
________________________________________________________________________________
The allowance for loan losses is established through a provision for loan
losses 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, 2000 the balance of the allowance for loan losses was
$2,569,000 representing 348.1% 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 increased by $2.5 million to $820.6 million at
March 31, 2000 from $818.1 million at December 31, 1999.
The composition of the Bank's total deposits as of the dates shown are
summarized as follows:
March 31, December 31,
2000 1999
______________________________________________________________________________
(In thousands)
Demand and NOW $ 76,162 $ 72,938
Savings and money market accounts 350,571 353,090
Time certificates of deposit 394,300 392,516
Deposit acquisition premium,
net of amortization (429) (487)
______________________________________________________________________________
Total deposits $820,604 $818,057
______________________________________________________________________________
Recent Accounting Developments
"Accounting for Derivative Instruments and Hedging Activities"
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes comprehensive
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in its balance sheet and measure
those instruments at fair market value. Under this Statement, an entity that
elects to apply hedge accounting is required to establish at the inception of
the hedge the method it will use for assessing the effectiveness of the hedging
derivative and the measurement approach for determining the ineffective aspect
of the hedge. In June 1999, FASB issued Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of Statement No. 133." SFAS No. 137 deferred the effective date of SFAS No. 133
to fiscal years beginning after June 15, 2000. The Company intends to adopt
SFAS No. 133 as of January 1, 2001. The Statements are not expected to have a
material effect on the Company's consolidated financial statements.
<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, 2000 the Bank had $103.6 million
or 11.2% of total assets and $150.5 million or 16.3% 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 and up to
45 percent of the pre-tax net unrealized holding gains on certain available for
sale equity securities. 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, 2000, the Bank had a leverage
Tier I capital to total assets ratio of 10.59%, a Tier I capital to risk-
weighted assets ratio of 32.09% and a total capital to risk-weighted assets
ratio of 33.94%. The Company, on a consolidated basis, had ratios of leverage
Tier I capital to total assets of 10.60%, Tier I capital to risk-weighted assets
of 32.13% and total capital to risk-weighted assets of 33.98% at March 31, 2000.
<PAGE>
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.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity and Liquidity
See discussion and analysis of interest rate sensitivity and liquidity
provided in the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1999. There have been no material changes in reported market
risks faced by the Corporation since the filing of the Corporation's 1999
Annual Report on Form 10-K.
<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, 2000, 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:
1. Exhibit No. 11.1: Statement regarding computation of per
share earnings.
2. Exhibit No. 27: Financial Data Schedule.
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, 2000 /s/Gerard H. Brandi
___________________________
(Signature)
Gerard H. Brandi
President and CEO
Date: May 11, 2000 /s/Reginald E. Cormier
___________________________
(Signature)
Reginald E. Cormier
Sr. 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, 2000 and 1999.
Three Months Ended
Calculation of Basic March 31,
Earnings Per Share 2000 1999
______________________________ __________ __________
<S> <C> <C>
Income $2,828,000 $2,913,000
_________ _________
Average common shares outstanding 3,289,524 3,486,088
Less: Unallocated Employee Stock Ownership
Plan (ESOP) shares not committed
to be released (26,400) (35,200)
__________ _________
Weighted average shares outstanding 3,263,124 3,450,888
__________ _________
Earnings per share (in dollars) $ 0.87 $ 0.84
__________ __________
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
Calculation of Diluted March 31,
Earnings Per Share 2000 1999
______________________________ __________ __________
<S> <C> <C>
Net Income $2,828,000 $2,913,000
__________ __________
Average common shares outstanding 3,289,524 3,486,088
Less: Unallocated Employee Stock Ownership
Plan (ESOP) shares not committed
to be released (26,400) (35,200)
Diluted stock options 74,235 116,425
__________ __________
Weighted average shares outstanding 3,337,359 3,567,313
__________ __________
Earnings per share (in dollars) $ 0.85 $ 0.82
__________ __________
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000799166
<NAME> MASSBANK CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,713
<INT-BEARING-DEPOSITS> 3,290
<FED-FUNDS-SOLD> 123,555
<TRADING-ASSETS> 1,115
<INVESTMENTS-HELD-FOR-SALE> 444,423
<INVESTMENTS-CARRYING> 230
<INVESTMENTS-MARKET> 230
<LOANS> 322,150
<ALLOWANCE> 2,569
<TOTAL-ASSETS> 925,679
<DEPOSITS> 820,604
<SHORT-TERM> 1,552
<LIABILITIES-OTHER> 3,916
<LONG-TERM> 468
0
0
<COMMON> 7,408
<OTHER-SE> 91,731
<TOTAL-LIABILITIES-AND-EQUITY> 925,679
<INTEREST-LOAN> 5,726
<INTEREST-INVEST> 7,256
<INTEREST-OTHER> 1,728
<INTEREST-TOTAL> 14,710
<INTEREST-DEPOSIT> 8,421
<INTEREST-EXPENSE> 8,421
<INTEREST-INCOME-NET> 6,289
<LOAN-LOSSES> 15
<SECURITIES-GAINS> 967
<EXPENSE-OTHER> 3,180
<INCOME-PRETAX> 4,406
<INCOME-PRE-EXTRAORDINARY> 4,406
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,828
<EPS-BASIC> 0.87
<EPS-DILUTED> 0.85
<YIELD-ACTUAL> 2.80
<LOANS-NON> 738
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 738
<ALLOWANCE-OPEN> 2,555
<CHARGE-OFFS> 2
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 2,569
<ALLOWANCE-DOMESTIC> 1,999
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 570
</TABLE>
