1
Exhibit 13
M A S S B A N K C O R P.
1995 Annual Report
and principal subsidiary
MASSBANK for Savings
1986-1995
Celebrating
a Decade
of Performance
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FINANCIAL HIGHLIGHTS
MASSBANK CORP. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
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(IN THOUSANDS) AT DECEMBER 31, 1995 1994 1993 1992 1991
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Balance Sheet Data:
Total assets $854,542 $843,647 $855,881 $839,103 $425,428
Mortgage loans 220,603 220,269 219,347 219,932 78,064
Other loans 28,582 30,547 29,699 33,824 20,060
Investments(1) 586,768 568,635 589,666 564,422 315,588
Real estate acquired through foreclosure 255 129 699 905 1,158
Deposits 753,657 759,676 766,363 761,879 356,082
Stockholders' equity 90,817 74,504 80,075 71,062 66,563
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(In thousands) YEARS ENDED DECEMBER 31, 1995 1994 1993 1992 1991
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Operating Data:
Interest and dividend income $ 56,611 $ 51,451 $ 51,541 $ 51,317 $ 29,040
Interest expense 30,896 26,152 27,485 30,991 18,644
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Net interest income 25,715 25,299 24,056 20,326 10,396
Provision for possible loan losses 170 705 671 884 83
Gains (losses) on securities, net 92 (533) 198 122 1
Other non-interest income 1,856 3,070 2,307 2,429 996
Non-interest expense 13,178 14,213 14,243 13,421 7,093
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Income before income taxes 14,315 12,918 11,647 8,572 4,217
Income tax expense 5,556 4,733 4,711 3,895 1,967
Change in accounting principle -- -- (241) -- --
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Net income $ 8,759 $ 8,185 $ 6,695 $ 4,677 $ 2,250
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YEARS ENDED DECEMBER 31, 1995 1994 1993 1992 1991
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Other Data:
Yield on average interest-earning assets 6.90% 6.22% 6.25% 6.88% 8.06%
Cost of average interest-bearing liabilities 4.11 3.41 3.57 4.48 6.11
Interest rate spread 2.79 2.81 2.68 2.40 1.95
Net interest margin 3.15 3.07 2.93 2.73 2.89
Non-interest expense to average assets 1.57 1.67 1.68 1.75 1.90
Efficiency ratio(2) 47.4 50.8 53.3 58.3 61.8
Return on assets (net income/average assets) 1.04 0.96 0.79 0.61 0.60
Return on equity (net income/average
stockholders' equity) 10.65 10.62 8.98 6.79 3.39
Return on average realized equity(3) 10.81 10.62 8.98 6.79 3.39
Percent non-performing loans to total loans 0.97 0.84 0.51 0.59 1.06
Percent non-performing assets to total assets 0.31 0.26 0.23 0.29 0.52
Stockholders' equity to assets, at year-end 10.63 8.83 9.36 8.47 15.65
Book value per share, at year-end $ 33.13 $ 26.78 $ 27.28 $ 24.50 $ 23.38
Earnings per share:
Primary 3.15 2.84 2.23 1.59 0.78
Fully diluted 3.12 2.84 2.22 1.59 0.78
Cash dividends declared per share 0.73 0.60 0.4533 0.3533 0.3033
Dividend payout ratio 23% 21% 20% 22% 39%
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(1) Consists of securities held to maturity and available for sale, trading
securities, short-term investments, term federal funds sold and
interest-bearing deposits in banks.
(2) Determined by dividing non-interest expense by fully taxable equivalent net
interest income plus non-interest income.
(3) Excludes average unrealized gains or losses on securities available for
sale.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the consolidated
financial statements and related notes included in this report.
The financial condition and results of operations of MASSBANK Corp. (the
"Company") essentially reflect the operations of its subsidiary, MASSBANK for
Savings (the "Bank").
The Company's consolidated net income depends largely upon net interest
income, which is the difference between interest income from loans and
investments ("interest-earning assets") and interest expense on deposits and
borrowed funds ("interest-bearing liabilities"). Net interest income is
significantly affected by general economic conditions, policies established by
regulatory authorities and competition.
FINANCIAL CONDITION
The Company's total assets increased by $10.9 million from $843.6 million at
December 31, 1994 to $854.5 million at December 31, 1995. Total stockholders'
equity was $90.8 million at December 31, 1995, up $16.3 million or 21.9% from
$74.5 million at December 31, 1994. The increase in stockholders' equity
resulted primarily from the Company's net income of $8.8 million in 1995, the
net change in unrealized appreciation on investment securities available for
sale, net of tax effect, of $11.2 million and the issuance of common stock under
the stock option plan, partially offset by the payment of dividends to
stockholders and the cost of the additional shares of treasury stock repurchased
during the year. In recognition of the record net income and the Company's
strong capital position, the Board of Directors increased the dividend to
stockholders twice during 1995 and three times between the fourth quarter of
1994 and the first quarter of 1996. The Company's book value per share at
December 31, 1995 was $33.13, up $6.35 or 23.7% from $26.78 at December 31,
1994.
The Bank's total loan portfolio decreased by $1.6 million during the
year, from $250.8 million at December 31, 1994 to $249.2 million at year end
1995. The level of loan amortization and payoffs in the Bank's loan portfolio
this past year exceeded its loan originations. Loan originations totaled $39.7
million in 1995 compared to $47.7 million in 1994. Origination volumes have been
affected by the interest rate environment which saw interest rates rise during
1994 and decline throughout 1995. This recent decrease in rates helped fuel
higher levels of residential loan refinancings in the last quarter of 1995.
Total investments consisting of investment securities and other
short-term investments, including term federal funds sold and interest bearing
bank deposits, increased from $568.6 million at December 31, 1994 to $586.8
million at year end 1995. The majority of these investments are in federal funds
sold, shorter-term U.S. Treasury and government agency obligations, and fifteen
year mortgage-backed securities. Nearly all of the Bank's investment securities,
which totaled $463.3 million at December 31, 1995, have been classified as
either available for sale or trading securities. 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. Mortgage-backed
securities, at market value, increased by $53.6 million in 1995 to $216.5
million at December 31, 1995.
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 deposits declined by $6.0 million
during 1995, from $759.7 million to $753.7 million, a modest decline considering
the performance of the financial markets and mutual funds which were fierce
competitors for the savers' dollars. The composition of the bank's deposits
continued to shift in 1995, as it did in 1994, from savings to higher yielding
time certificates of deposit. Total savings deposits declined by $101.8 million,
in 1995, while time certificates of deposit increased by $96.6 million. See the
non-interest expense section of management's discussion and analysis for
additional information.
ASSET QUALITY
Net loans represented 28.9% of total assets at December 31, 1995 compared to
29.4% of total assets at December 31, 1994. The Bank's investment securities and
other short-term investments, representing 68.7% of total assets at December 31,
1995, consisted primarily of U.S. Treasury and government agency obligations,
high quality mortgage-backed securities, and federal funds sold. At December 31,
1995, the Bank's loan portfolio consisted of residential mortgages of $213.6
million, commercial mortgages of $7.0 million, consumer loans of $27.8 million
and commercial loans of $0.8 million. Non-performing assets were $2.7 million at
December 31, 1995, representing 0.31% of total assets. This compares to $2.2
million, or 0.26% of total assets, at December 31, 1994. At year end 1995, the
Bank's allowance for possible loan losses was approximately $2.5 million,
representing 104.2% of non-performing loans and 1.01% of total loans. The Bank
believes that its allowance for possible loan losses is adequate to cover the
risks inherent in the loan portfolio under current conditions.
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RESULTS OF OPERATIONS
COMPARISON OF THE YEARS 1995 AND 1994
MASSBANK Corp. reported record net income for the year ended December 31, 1995
of $8.8 million or $3.15 per share ($3.12 per share on a fully diluted basis)
compared to $8.2 million or $2.84 per share for the year ended December 31,
1994. Return on average assets and return on average realized equity improved to
1.04% and 10.81% in 1995, from 0.96% and 10.62% in 1994, respectively,
reflecting an improvement in net interest margin, a lower provision for possible
loan losses, and non-interest expense reductions resulting primarily from a
significant decrease in deposit insurance expense in 1995. The Company's net
interest margin in 1995 was 3.15%, 8 basis points higher than the 3.07% in 1994.
NET INTEREST INCOME
Net interest income on a fully taxable equivalent ("FTE") basis totaled $25.8
million for 1995, compared to $25.4 million for 1994. The modest increase of
$0.4 million was due principally to an improvement in net interest margin. The
impact of the wider margin in 1995 was partially offset by a decrease in the
Company's average earning assets from $829.7 million in 1994 to $822.0 million
in 1995. The Company's interest rate spread decreased slightly to 2.79% for 1995
from 2.81% for 1994.
The tables on pages 19 and 20 set forth, among other things, the extent
to which changes in interest rates and changes in the average balances of
interest-earning assets and interest-bearing liabilities have affected interest
income and expense during the years indicated. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes due to (1) changes in volume and (2) changes in interest
rates.
INTEREST AND DIVIDEND INCOME
Interest and dividend income on an FTE basis was $56.7 million for the year
ended December 31, 1995, compared to $51.6 million for the year ended December
31, 1994. The weighted average yield on earning assets for the year ended
December 31, 1995 increased to 6.90% from 6.22% for the year ended December 31,
1994. The average total earning assets of the Company decreased to $822.0
million during 1995, down $7.7 million from $829.7 million in 1994.
Interest on loans decreased $0.1 million to $19.5 million for the year
ended December 31, 1995. The decrease in interest income earned on loans was due
principally to a decrease of $6.0 million in average loan balances in 1995
compared to the prior year. The reduction in average loan volume was partially
offset by an increase in yield on loans. The yield on loans improved 15 basis
points to 7.93% for 1995 compared to 7.78% for 1994. This improvement is due
primarily to consumer loans in the Bank's loan portfolio which float either with
the prime interest rate or three month U.S. treasury bill rate. These interest
rates were significantly higher during 1995 than during 1994.
Interest and dividend income (on an FTE basis) from investments
consisting of investment securities, including mortgage-backed securities,
trading securities, federal funds sold and other short-term investments
increased by $5.2 million to $37.2 million in 1995 from $32.0 million in 1994.
This increase resulted primarily from an improvement in weighted average yield
on investments from 5.54% in 1994 to 6.47% in 1995, partially offset by a
decrease of $1.7 million in average investment balances.
INTEREST EXPENSE
Total interest expense increased 18.1% to $30.9 million for the year ended
December 31, 1995 from $26.2 million for the year ended December 31, 1994. This
increase was due principally to an increase of 70 basis points in the Company's
average cost of funds from 3.41% in 1994 to 4.11% in 1995, partially offset by
lower average deposit volume. Average deposits and borrowed funds declined to
$752.5 million in 1995, from $766.4 million a year earlier. The Bank has
maintained flat regular savings account deposit rates in 1995 and 1994 while
selectively increasing rates on certificates of deposit. This strategy has
helped to minimize the effect of rising interest rates on the Company's net
interest margin. The strategy has also helped to encourage a shift from savings
to time certificates of deposit during this period. During 1995, the Bank's
total savings deposits, including money market accounts, declined $101.8
million, from $458.4 million at December 31, 1994 to $356.6 million at December
31, 1995, while its certificates of deposit increased $96.6 million, from $235.4
million at year end 1994 to $332.0 million at year end 1995.
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PROVISION FOR POSSIBLE LOAN LOSSES
The provision for loan losses in 1995 was $170 thousand compared to $705
thousand in 1994. In determining the amount to provide for loan losses, the key
factor is the adequacy of the allowance for possible loan losses. In making its
decision, management considers a number of factors, including the risk
characteristics of the portfolio, underlying collateral, current and anticipated
economic conditions, and trends in loan delinquencies and charge-offs. At
December 31, 1995, the allowance for possible loan losses was $2.5 million
representing 104.2% of non-performing loans. The Bank's non-performing loans
totaled $2.4 million at December 31, 1995 compared to $2.1 million a year
earlier. Net charge-offs totaled $207 thousand in 1995 compared to $400 thousand
in 1994. Management believes that the allowance for possible loan losses is
adequate to cover the risks inherent in the loan portfolio under current
conditions.
NON-INTEREST INCOME
Non-interest income consists of gains or losses on securities, deposit account
service fees, interest on tax settlements and other non-interest income.
Non-interest income decreased to $1.9 million for the year ended
December 31, 1995, from $2.5 million for the year ended December 31, 1994. This
decrease was due to non-recurring income recorded in 1994. The Company, in 1994,
recorded interest on tax settlements which it had received from the IRS totaling
approximately $1.2 million. This compares to $51 thousand in interest on tax
settlements recorded in 1995. Partly offsetting this non-recurring income were
net gains on securities of $92 thousand versus net losses on securities of $533
thousand recorded in 1994. Deposit account service fees and all other
non-interest income decreased from $1.9 million in 1994 to $1.8 million in 1995.
NON-INTEREST EXPENSE
Non-interest expenses (i.e. operating expenses) decreased by $1.0 million or
7.3% to $13.2 million in 1995, from $14.2 million a year ago.
Salaries and employee benefits increased by $467 thousand or 6.9% to
$7.3 million in 1995 from $6.8 million in 1994. This increase was due primarily
to higher salaries and retirement benefit costs.
Occupancy and equipment expense decreased by $50 thousand to
approximately $2.0 million in 1995 due mostly to a reduction in depreciation
expense.
Data processing and professional services expenses were reduced 9.6% to
$1.0 million in 1995, from approximately $1.1 million the previous year.
In 1995, the Federal Deposit Insurance Corporation ("FDIC") reduced
deposit insurance rates for well capitalized banks from $0.23 to $0.04 per
hundred dollars of deposits effective June 1, 1995. This significant reduction
in rates reduced the Bank's total deposit insurance expense by $874 thousand or
48.9% in 1995 to $0.9 million from $1.8 million a year ago. FDIC deposit
insurance rates have been further reduced to the annual minimum of $2 thousand
for 1996.
During 1994, the Bank recorded a non-recurring charge to earnings of
$282 thousand, the result of a write-down in loan valuation premium due to
significant prepayments of loans purchased from the FDIC in 1992. No such
write-down was required in 1995.
All other expenses decreased by $188 thousand to $2.0 million in 1995
from $2.2 million in 1994.
INCOME TAX EXPENSE
The Company recorded a tax expense of approximately $5.5 million in 1995
compared to $4.7 million in 1994. The effective income tax rate for the year
ended December 31, 1995 was 38.8%, an increase from 36.6% in 1994. The Company's
effective income tax rate for 1994 was reduced due largely to a federal income
tax refund of $462 thousand recorded during the year. For further information on
income taxes, see Note 12 of Notes to Consolidated Financial Statements.
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RESULTS OF OPERATIONS
COMPARISON OF THE YEARS 1994 AND 1993
Net income for the year ended December 31, 1994 increased 22.3% to $8.2 million
or $2.84 per share, from $6.7 million or $2.23 per share for the year ended
December 31, 1993. The earnings results for 1993 included a non-recurring after
tax charge of $241 thousand or $0.08 per share, resulting from the adoption of
the Financial Accounting Standards Board ("FASB") Statement 109 which changed
the method of accounting for income taxes. The current and prior year per share
amounts reflect the three-for-two stock split of the Company's common stock
which occurred on September 9, 1994.
The Company's favorable financial performance in 1994 can be attributed
primarily to an improvement in net interest margin. The net interest margin in
1994 was 3.07%, 14 basis points higher than the 2.93% in 1993. That increase
combined with an increase in average earning assets of $3.3 million resulted in
net interest income of $25.3 million, an increase of $1.2 million over 1993.
Provisions for possible loan losses were increased from $671 thousand in
1993 to $705 thousand in 1994 due to an increase in non-performing loans during
the year. Non-interest income was $2.5 million for 1994 and 1993. Total
non-interest expenses were $14.2 million in 1994, the same as in 1993.
NET INTEREST INCOME
Net interest income before provision for possible loan losses totaled $25.3
million in 1994 compared to $24.1 million in 1993. This increase of $1.2
million, 5.2% above 1993's level, was due to an increase of $3.3 million in
average earning assets and a net interest margin that was 14 basis points above
the previous year. The increase in the margin was the result of an improved
interest rate spread, as the Bank's securities and variable rate loans repriced
more quickly in the rising interest rate environment of 1994 than the Bank's
large base of core deposits.
For 1994, the Company's weighted average cost of funds decreased to
3.41% from 3.57% for 1993. The yield on the Company's average earning assets
during 1994 did not fall as quickly as its cost of funds and, as a result, the
Company's interest rate spread improved to 2.81% for 1994 from 2.68% for 1993.
The tables on pages 19 and 20 set forth, among other things, the extent
to which changes in interest rates and changes in the average balances of
interest-earning assets and interest-bearing liabilities have affected interest
income and expense during the years indicated. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes due to (1) changes in volume and (2) changes in interest
rates.
INTEREST AND DIVIDEND INCOME
Interest and dividend income was $51.4 million for the year ended December 31,
1994, compared to $51.5 million for the year ended December 31, 1993. The
weighted average yield on earning assets for the year ended December 31, 1994
declined to 6.22% from 6.25% for the year ended December 31, 1993. The average
total earning assets of the Company increased to $829.7 million during 1994, up
$3.3 million from $826.4 million in 1993.
Interest earned on loans decreased $1.1 million to $19.6 million for
1994 reflecting a decline in the weighted average loan yield, from 8.25% in 1993
to 7.78% in 1994. This decrease was partially offset by an increase of $0.9
million in average loan balances during the comparable periods. The decline in
average loan yield during 1994 results primarily from the volume of loans which
were either refinanced, repriced, or originated during the relatively low
interest rate environment which prevailed during 1993 and early 1994.
Interest and dividend income from investments consisting of investment
and mortgage-backed securities held to maturity, securities available for sale,
trading securities, short-term investments and federal funds sold increased by
$1 million to $31.8 million in 1994 from $30.8 million in 1993. This increase
resulted primarily from an improvement in weighted average yield on investments
from 5.38% in 1993 to 5.54% in 1994, coupled with a $2.4 million increase in
average balances outstanding.
INTEREST EXPENSE
Total interest expense decreased 4.8% to $26.2 million for the year ended
December 31, 1994 from $27.5 million for the year ended December 31, 1993. This
decrease was due to a reduction in the Company's average cost of funds from
3.57% in 1993 to 3.41% in 1994, coupled with a decrease of $2 million in the
Company's average deposits and borrowed funds, from $768.4 million in 1993 to
$766.4 million in 1994. Throughout 1993, as rates were falling, the Bank
rewarded its savings account customers with a slight premium. Throughout 1994,
as interest rates increased, most financial institutions and many of the bank's
competitors continued to pay savings account rates which were lower than
MASSBANK's, due in part to the lack of loan demand and less competition for
deposits. This negated the need for the bank to raise its savings account rates
during the year and helped to reduce its cost of funds for 1994. The lower
savings account rates in 1994 also enticed some bank customers to transfer some
of their deposits from savings into longer term certificates of deposit. During
1994, the Bank's savings deposits declined $78.4 million, from $536.8 million at
December 31, 1993 to $458.4 million at December 31, 1994, while its certificates
of deposits increased $68.6 million, from $166.8 million at year end 1993 to
$235.4 million at year end 1994.
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PROVISION FOR POSSIBLE LOAN LOSSES
The provision for loan losses in 1994 was $705 thousand compared to $671
thousand for 1993. In determining the amount to provide for loan losses, the key
factor is the adequacy of the allowance for possible loan losses. In making its
decision, management considers a number of factors, including the risk
characteristics of the portfolio, underlying collateral, current and anticipated
economic conditions, and trends in loan delinquencies and charge-offs. At
December 31, 1994, the allowance for possible loan losses was $2.6 million
representing 1.02% of total loans, an increase from 0.91% at December 31, 1993.
The Bank's nonaccrual loans totaled $2.1 million at December 31, 1994 compared
to $1.3 million at December 31, 1993. Net charge-offs in 1994 totaled $400
thousand compared to $466 thousand in 1993.
NON-INTEREST INCOME
Non-interest income consists of gains or losses on securities, deposit account
service fees, interest on tax settlements and other non-interest income.
Excluding securities gains (losses), non-interest income increased $763
thousand or 33.1% from 1993 to 1994. This increase was due to non-recurring
income. The Company in 1994 recorded interest on tax settlements which it had
received from the IRS totaling approximately $1.2 million. This income resulted
primarily from the resolution of certain protective claims of refund filed by
the Bank in prior years due to the disallowance of deductions originating from
losses on the sale and exchange of pools of mortgage loans (loan swaps). Partly
offsetting this non-recurring income were net securities losses for 1994
equalling $533 thousand. This compares to net gains of $198 thousand in 1993.
Deposit account service fees and all other non-interest income decreased from
$2.3 million in 1993 to $1.9 million in 1994.
NON-INTEREST EXPENSE
Non-interest expenses (i.e. operating expenses) stayed flat in 1994 despite
normal salary increases to employees. Non-interest expenses totaled $14.2
million in 1994, the same as the prior year.
Salaries and employee benefits stayed flat at approximately $6.8 million
this past year due primarily to a reduction in the total number of bank
employees.
Occupancy and equipment expense decreased from $2.1 million in 1993 to
$2 million in 1994, due in part, to a non-recurring expense totaling $75
thousand incurred in 1993. Another factor in the decrease from 1993 to 1994 was
a reduction in real estate taxes resulting from the receipt of real estate tax
abatements this past year.
Data processing and professional services expenses were reduced
approximately $90 thousand from 1993 to 1994. These expenses totaled
approximately $1.2 million in 1993 compared to approximately $1.1 million in
1994.
The Bank's deposit insurance expense increased by $24 thousand to
approximately $1.8 million in 1994.
During 1994, the Bank recorded a non-recurring charge to earnings of
$282 thousand, the result of a write-down in loan valuation premium due to the
significant prepayments of loans purchased from the Federal Deposit Insurance
Corporation ("FDIC") in 1992.
All other expenses decreased by $130 thousand to $2.2 million in 1994
from $2.3 million in 1993.
INCOME TAX EXPENSE
Total income tax expense in 1994 was $4.7 million, the same as the prior year
despite higher income before taxes. The Company's combined effective tax rate
for 1994 was reduced due largely to a tax refund of $462 thousand recorded
during the year in connection with the final resolution of the federal income
tax matter discussed in the non-interest income section above. The combined
effective tax rate for the Company was 36.6% in 1994 compared to 40.4% in 1993.
For further information on income taxes, see Note 12 of Notes to Consolidated
Financial Statements.
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 December 31, 1995, the Bank had $100.2 million or 11.7% of total
assets and $226.3 million or 26.5% of total assets invested respectively in
overnight federal funds sold and United States obligations.
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LIQUIDITY AND CAPITAL RESOURCES (continued)
The Bank is a Federal Deposit Insurance Corporation insured institution
subject to the FDIC regulatory capital requirements. The FDIC regulations
require all FDIC insured institutions to maintain minimum levels of Tier 1
capital. Highly rated banks (i.e., those with a composite rating of 1 under the
CAMEL rating system) are required to maintain Tier 1 capital of at least 3% of
their total assets. All other banks are required to have Tier 1 capital of 4% to
5%. The FDIC has authority to impose higher requirements for individual banks.
The Bank is also required to maintain a minimum level of risk-based capital.
Under the new risk-based capital standards, FDIC insured institutions generally
are expected to meet a minimum total qualifying capital to risk-weighted assets
ratio of 8.00%. At December 31, 1995, the Bank had a Tier 1 capital to total
assets ratio of 9.64% and a total qualifying capital to risk-weighted assets
ratio of 37.25%. The Company, on a consolidated basis, had ratios of Tier 1
capital to total assets of 9.75% and total qualifying capital to risk-weighted
assets of 37.67% at December 31, 1995.
ASSET AND LIABILITY MANAGEMENT
The Bank's asset/liability management objective is to attempt to insulate the
balance sheet, and therefore the income statement, from excessive risk due to
changes in market interest rates. The Company's asset/liability management
policy, which is reviewed by the Board of Directors on an annual basis,
establishes limits for interest rate risk assumption to prevent the erosion of
earnings and capital in an adverse interest rate environment. The Company's
asset/liability management policy also states that it is the responsibility of
the Bank's ALCO Committee to establish long-term strategies with respect to
interest rate risk and to monitor the exposure to interest rate risk in relation
to present and prospective market interest rates, economic conditions, and
balance sheet composition on an on-going basis.
The asset/liability management process at MASSBANK seeks to ensure that
the risk to earnings fluctuations from changes in market interest rates is
prudently managed.
The Bank uses three key measurements to monitor interest rate risk: (1)
the interest rate-sensitivity "gap" analysis; (2) a "rate shock" to measure
earnings volatility due to an immediate increase or decrease in market interest
rates of up to 200 basis points; (3) simulations of net interest income under
alternative balance sheet and interest rate scenarios.
The Bank occasionally enters into interest rate swap agreements as
hedges against its interest rate exposure.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN
AND ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN--INCOME RECOGNITION AND
DISCLOSURES
Effective January 1, 1995, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan"
and SFAS No. 118 "Accounting by Creditors for Impairment of a Loan--Income
Recognition and Disclosures." These statements establish accounting standards
for measuring impairment on loans for which it is probable that the creditor
will be unable to collect all amounts due according to the contractual terms of
the loan agreement. SFAS No. 114 requires impairment to be measured on a
discounted cash flow method, or at the loan's observable market price, or at the
fair value of the collateral if the loan is collateral dependent. However,
impairment must be measured based on the fair value of the collateral if it is
determined that foreclosure is probable. SFAS No. 114 also narrows the
definition of in-substance foreclosures to include only those loans for which
the Company has taken possession of the collateral, but has not completed legal
foreclosure proceedings. Accordingly, loans classified as in-substance
foreclosure are treated as impaired loans rather than real estate acquired
through foreclosure under these pronouncements.
Impaired loans consist of all nonaccrual commercial loans. When a loan
is placed on nonaccrual status and identified as impaired, interest previously
accrued, but not collected is reversed against current period income, and
further recognition of accrued interest is suspended. Subsequent cash receipts
on impaired loans are applied to the outstanding principal balance of the loan,
or recognized as interest income depending on management's assessment of the
ultimate collectibility of the loan.
18
9
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights," which was adopted on January 1, 1996. This Statement requires the
Company to recognize as separate assets rights to service mortgage loans for
others, however those servicing rights are acquired. A mortgage banking
enterprise that acquires mortgage servicing rights through either the purchase
or origination of mortgage loans and sells or securitizes those loans with
servicing rights retained should allocate the total cost of the mortgage loans
to the mortgage servicing rights and the loans (without the mortgage servicing
rights) based on their relative fair values. The Statement also requires the
assessment of capitalized servicing rights for impairment based on fair value of
the rights. The adoption of SFAS No. 122 did not have a material impact on the
Company's consolidated financial statements.
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which became effective on January 1, 1996. This Statement
establishes a fair value based method of accounting for stock-based compensation
plans under which compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period. However, the
statement allows a company to continue to measure compensation cost for such
plans under Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees." Under APB Opinion No. 25, no compensation cost is
recorded if, at the grant date, the exercise price of the options is equal to
the fair market value of the Company's common stock. The Company has elected to
continue to follow the accounting in APB Opinion No. 25. SFAS No. 123 requires
companies which elect to continue to follow the accounting in APB Opinion No. 25
to disclose in the notes to their financial statements pro forma net income and
earnings per share as if the fair value based method of accounting had been
applied. The Company will provide the additional required disclosures relating
to 1995 and 1996 stock options in its 1996 Annual Report.
RATE/VOLUME ANALYSIS
The following table presents, for the years indicated, the changes in interest
and dividend income and the changes in interest expense attributable to changes
in interest rates and changes in the volume of earning assets and
interest-bearing liabilities. A change attributable to both volume and rate has
been allocated proportionately to the change due to volume and the change due to
rate.
- ---------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1995 COMPARED TO 1994 1994 COMPARED TO 1993
(IN THOUSANDS) INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
- ---------------------------------------------------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
- ---------------------------------------------------------------------------------------------------------------------------
Interest and dividend income:
Federal funds sold $ 3,165 $ 908 $ 4,073 $(1,912) $ 656 $(1,256)
Short-term investments 273 19 292 (159) (4) (163)
Investment securities (50) 1,619 1,569 (2,476) 113 (2,363)
Trading securities (4,954) 1,867 (3,087) 2,955 525 3,480
Mortgage-backed securities 2,363 46 2,409 2,120 (802) 1,318
Mortgage loans (477) 44 (433) 252 (1,207) (955)
Other loans 8 329 337 (183) 32 (151)
- ---------------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 328 4,832 5,160 597 (687) (90)
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits:
Demand and NOW (10) (23) (33) (5) (132) (137)
Savings (4,206) 153 (4,053) (117) (1,685) (1,802)
Time certificates of deposit 6,163 2,668 8,831 75 532 607
Borrowed funds (1) -- (1) -- (1) (1)
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,946 2,798 4,744 (47) (1,286) (1,333)
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income $(1,618) $2,034 $ 416 $ 644 $ 599 $ 1,243
- ---------------------------------------------------------------------------------------------------------------------------
19
10
AVERAGE BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) YEARS ENDED DECEMBER 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance(4) Expense Rate(4) Balance(4) Expense Rate(4) Balance(4) Expense Rate(4)
- ------------------------------------------------------------------------------------------------------------------------------
Assets:
Earning assets:
Federal funds sold $ 90,589 $ 5,356 5.91% $ 32,724 $ 1,283 3.92% $ 86,067 $ 2,539 2.95%
Short-term investments(2) 5,168 303 5.86 362 11 3.07 5,526 174 3.15
Investment securities 250,318 15,710 6.28 251,209 14,139 5.63 295,577 16,509 5.59
Mortgage-backed securities 184,976 13,246 7.16 152,026 10,837 7.13 122,883 9,519 7.75
Trading securities 45,012 2,633 5.85 141,479 5,720 4.04 65,271 2,240 3.43
Mortgage loans(1) 216,060 16,678 7.72 222,144 17,111 7.70 219,090 18,066 8.25
Other loans(1) 29,848 2,820 9.45 29,749 2,483 8.35 31,945 2,634 8.25
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets 821,971 56,746 6.90% 829,693 51,584 6.22% 826,359 51,681 6.25%
- ------------------------------------------------------------------------------------------------------------------------------
Allowance for possible
loan losses 2,587 2,343 2,090
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets
less allowance for
possible loan losses 819,384 827,350 824,269
Other assets 20,765 22,442 23,350
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $840,149 $849,792 $847,619
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Deposits:
Demand and NOW $ 64,946 652 1.00% $ 66,050 685 1.04% $ 66,431 822 1.23%
Savings 387,449 12,898 3.33 514,015 16,951 3.30 517,291 18,753 3.63
Time certificates of deposit 300,141 17,346 5.78 186,222 8,515 4.57 184,526 7,908 4.29
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits 752,536 30,896 4.11 766,287 26,151 3.41 768,248 27,483 3.58
Borrowed funds -- -- -- 159 1 0.69 167 2 1.25
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits and
borrowed funds 752,536 30,896 4.11% 766,446 26,152 3.41% 768,415 27,485 3.57%
- ------------------------------------------------------------------------------------------------------------------------------
Other liabilities 5,365 6,245 4,631
Total liabilities 757,901 772,691 773,046
- ------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity: 82,248 77,101 74,573
Total liabilities and
stockholders' equity $840,149 $849,792 $847,619
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income (tax-
equivalent basis) 25,850 25,432 24,196
Less adjustment of tax-
exempt interest income 135 133 140
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income $25,715 $25,299 $24,056
- ------------------------------------------------------------------------------------------------------------------------------
Interest rate spread 2.79% 2.81% 2.68%
- ------------------------------------------------------------------------------------------------------------------------------
Net interest margin(3) 3.15% 3.07% 2.93%
- ------------------------------------------------------------------------------------------------------------------------------
(1) Loans on nonaccrual 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 possible
loan losses divided by average interest-earning assets.
(4) Includes the effects of SFAS No. 115.
20
11
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
MASSBANK Corp.:
We have audited the accompanying consolidated balance sheets of MASSBANK
Corp. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MASSBANK
Corp. and subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in note 1, the Company changed its method of accounting for
investments in accordance with Statement of Financial Accounting Standards No.
115, effective December 31, 1993. Also, as discussed in notes 1 and 12, the
Company changed its method of accounting for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, effective January 1, 1993.
Boston, Massachusetts
January 12, 1996
21
12
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT SHARE DATA) AT DECEMBER 31, 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
Assets:
Cash and due from banks $ 8,150 $ 9,610
Short-term investments (Note 2) 117,505 22,551
- ---------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 125,655 32,161
- ---------------------------------------------------------------------------------------------------------------------------
Term federal funds sold 5,000 --
Interest-bearing deposits in banks 941 --
Securities held to maturity, at amortized cost
(market value of $402 in 1995 and $163,429 in 1994) (Note 3) 402 172,830
Securities available for sale, at market value
(cost of $443,638 in 1995 and $264,530 in 1994) (Note 3) 456,101 257,644
Trading securities, at market value (Note 4) 6,819 115,610
Loans (Notes 5, 7 and 11):
Mortgage loans 220,603 220,269
Other loans 28,582 30,547
- ---------------------------------------------------------------------------------------------------------------------------
Total loans 249,185 250,816
Less: allowance for possible loan losses (Note 6) 2,529 2,566
- ---------------------------------------------------------------------------------------------------------------------------
Net loans 246,656 248,250
- ---------------------------------------------------------------------------------------------------------------------------
Premises and equipment (Note 9) 4,226 4,328
Real estate acquired through foreclosure (Note 7) 255 129
Accrued interest receivable 7,280 6,870
Deferred income tax asset, net (Note 12) -- 4,590
Other assets 1,207 1,235
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $854,542 $843,647
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Deposits (Notes 10 and 11):
Demand and NOW $ 66,413 $ 67,496
Savings 356,598 458,401
Time certificates of deposit 332,057 235,421
Deposit acquisition premium, net of amortization (1,411) (1,642)
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits 753,657 759,676
Escrow deposits of borrowers 992 966
Employee stock ownership plan liability (Note 14) 1,093 1,249
Accrued and deferred income taxes payable (Note 12) 4,760 1,243
Other liabilities 3,223 6,009
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 763,725 769,143
- ---------------------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (Notes 8 and 9)
Stockholders' equity (Notes 12, 13 and 15):
Preferred stock, par value $1.00 per share; 2,000,000 shares authorized, none issued -- --
Common stock, par value $1.00 per share; 10,000,000 shares
authorized, 5,424,671 and 5,352,138 shares issued, respectively 5,425 5,352
Additional paid-in capital 56,842 55,609
Retained earnings 58,773 51,995
- ---------------------------------------------------------------------------------------------------------------------------
121,040 112,956
Treasury stock at cost, 2,683,065 and 2,570,411 shares, respectively (36,370) (33,288)
Net unrealized gains (losses) on securities available for sale, net of tax effect (Note 3) 7,240 (3,915)
Common stock acquired by ESOP (Note 14) (1,093) (1,249)
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 90,817 74,504
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $854,542 $843,647
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
22
13
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT SHARE DATA) YEARS ENDED DECEMBER 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
Interest and dividend income:
Mortgage loans $ 16,678 $ 17,111 $ 18,066
Other loans 2,820 2,483 2,634
Mortgage-backed securities 13,246 10,837 9,519
Securities available for sale 15,553 13,975 16,311
Trading securities 2,633 5,720 2,240
Federal funds sold 5,356 1,283 2,539
Other investments 325 42 232
- -------------------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 56,611 51,451 51,541
- -------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits:
NOW 652 685 822
Savings 12,898 16,951 18,753
Time certificates of deposit 17,346 8,515 7,908
- -------------------------------------------------------------------------------------------------------------------------------
Total interest expense on deposits 30,896 26,151 27,483
Borrowed funds -- 1 2
- -------------------------------------------------------------------------------------------------------------------------------
Total interest expense 30,896 26,152 27,485
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income 25,715 25,299 24,056
Provision for possible loan losses (Note 6) 170 705 671
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 25,545 24,594 23,385
- -------------------------------------------------------------------------------------------------------------------------------
Non-interest income:
Deposit account service fees 923 974 1,104
Gains (losses) on securities, net 92 (533) 198
Interest on tax settlements 51 1,188 35
Other 882 908 1,168
- -------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 1,948 2,537 2,505
- -------------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and employee benefits 7,260 6,793 6,804
Occupancy and equipment 1,991 2,041 2,146
Data processing 608 640 711
Professional services 414 490 509
Deposit insurance 914 1,788 1,764
Write-down in loan valuation premium -- 282 --
Other 1,991 2,179 2,309
- -------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 13,178 14,213 14,243
- -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of change
in accounting principle 14,315 12,918 11,647
Income tax expense (Note 12) 5,556 4,733 4,711
- -------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of change in accounting principle 8,759 8,185 6,936
Cumulative effect of change in method of accounting for income taxes (Note 12) -- -- (241)
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 8,759 $ 8,185 $ 6,695
- -------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding:
Primary 2,783,933 2,883,314 3,007,812
Fully diluted 2,806,095 2,885,358 3,011,387
Earnings per share (in dollars):
Primary:
Income before cumulative effect of change in accounting principle $ 3.15 $ 2.84 $ 2.31
Cumulative effect of change in method of accounting for income taxes -- -- (0.08)
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 3.15 $ 2.84 $ 2.23
- -------------------------------------------------------------------------------------------------------------------------------
Fully diluted:
Income before cumulative effect of change in accounting principle $ 3.12 $ 2.84 $ 2.30
Cumulative effect of change in method of accounting for income taxes -- -- (0.08)
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 3.12 $ 2.84 $ 2.22
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
23
14
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) YEARS ENDED DECEMBER 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 8,759 $ 8,185 $ 6,695
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 462 520 494
Write down of carrying value of bank premises -- -- 75
Amortization of deposit acquisition premium 231 230 292
Amortization of loan valuation premium 64 361 100
Amortization of ESOP shares committed to be released 51 -- --
(Increase) decrease in accrued interest receivable (410) 36 431
Increase (decrease) in other liabilities (2,786) 3,183 (356)
Increase (decrease) in current income taxes payable (363) (1,379) (175)
Accretion of discounts on securities, net of
amortization of premiums (1,137) (729) (912)
Net trading securities activity 109,289 26,718 (132,782)
(Gains) losses on securities available for sale 407 (308) (276)
(Gains) losses on trading securities (499) 841 78
Increase in deferred mortgage loan origination fees, net of
amortization 57 15 326
Deferred income tax expense (benefit) 276 (183) --
(Increase) decrease in other assets (186) 270 30
Loans originated for sale (455) (1,034) (1,430)
Loans sold 455 1,285 1,287
Provision for possible loan losses 170 705 671
Provisions for losses and writedowns on real estate acquired
through foreclosure 25 49 162
(Gains) on sales of real estate acquired through foreclosure -- (30) (119)
(Gains) on sales of premises and equipment -- -- (23)
Increase (decrease) in escrow deposits of borrowers 26 (64) (127)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 114,436 38,671 (125,559)
- ---------------------------------------------------------------------------------------------------------------------------
24
15
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
- -----------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) YEARS ENDED DECEMBER 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of term federal funds (50,000) -- --
Proceeds from maturities of term federal funds 45,000 -- --
Purchases of bank certificates of deposit (941) -- --
Proceeds from sales of investment securities available for sale 46,035 28,329 30,017
Proceeds from maturities of investment securities held to maturity
and available for sale 45,147 129,227 119,316
Purchases of investment securities available for sale (57,927) (127,192) (94,641)
Purchases of mortgage-backed securities (61,092) (85,886) (22,782)
Principal repayments of mortgage-backed securities 22,084 29,130 47,476
Principal repayments of tax-exempt bonds 18 17 15
Loans originated (39,222) (46,672) (62,881)
Loan principal payments received 40,116 43,656 65,917
Purchases of premises and equipment (360) (459) (354)
Proceeds from sale of premises and equipment -- -- 28
Proceeds from sale of real estate acquired through foreclosure 265 791 1,088
Net advances on real estate acquired through foreclosure (7) (22) --
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (10,884) (29,081) 83,199
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits (6,250) (6,917) 4,192
Net decrease in borrowed funds -- (73) (56)
Payments to acquire treasury stock (3,082) (5,063) (445)
Issuance of common stock under stock option plan 891 840 608
Tax benefit resulting from stock options exercised 364 299 176
Cash dividends paid on common stock (1,981) (1,692) (1,330)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (10,058) (12,606) 3,145
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 93,494 (3,016) (39,215)
Cash and cash equivalents at beginning of year 32,161 35,177 74,392
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $125,655 $ 32,161 $ 35,177
- -----------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow disclosures:
Cash transactions:
Cash paid during the year for interest $ 30,984 $ 26,153 $ 27,483
Cash paid during the year for taxes 5,230 4,828 6,000
Non-cash transactions:
Securities reclassified from available for sale to trading -- -- 10,465
SFAS 115:
Securities reclassified from held for sale to available for sale -- -- 300,831
Increase (decrease) in stockholders' equity 11,155 (8,067) 4,152
Increase (decrease) in deferred tax (assets) liabilities 8,194 (6,123) 3,152
Securities reclassified from held to maturity to available for sale 202,800 -- --
Transfers from loans to real estate acquired through foreclosure 409 219 925
Transfers from other assets to securities available for sale 214 -- --
- -----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
25
16
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT SHARE DATA) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized
gains (losses)
on securities Common
Additional available for stock
Common paid-in Retained Treasury sale, net of acquired
stock capital earnings stock tax effect by ESOP Total
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 $3,486 $55,552 $40,137 $(27,780) $ -- $ (333) $71,062
Net Income -- -- 6,695 -- -- -- 6,695
Cash dividends declared
($0.45 1/3 per share) -- -- (1,330) -- -- -- (1,330)
Net increase in liability to ESOP -- -- -- -- -- (843) (843)
Purchase of treasury stock -- -- -- (445) -- -- (445)
Exercise of stock options and
related tax benefits 36 748 -- -- -- -- 784
Net unrealized gains on
securities available for sale,
net of tax effect upon
adoption of SFAS 115 -- -- -- -- 4,152 -- 4,152
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 3,522 56,300 45,502 (28,225) 4,152 (1,176) 80,075
Net Income -- -- 8,185 -- -- -- 8,185
Cash dividends declared
($0.60 per share) -- -- (1,692) -- -- -- (1,692)
Net increase in liability to ESOP -- -- -- -- -- (73) (73)
Purchase of treasury stock -- -- -- (5,063) -- -- (5,063)
Exercise of stock options and
related tax benefits 54 1,085 -- -- -- -- 1,139
Transfer resulting from
three-for-two stock split 1,776 (1,776) -- -- -- -- --
Change in net unrealized
gains (losses) on securities
available for sale,
net of tax effect -- -- -- -- (8,067) -- (8,067)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 5,352 55,609 51,995 (33,288) (3,915) (1,249) 74,504
Net Income -- -- 8,759 -- -- -- 8,759
Cash dividends declared
($0.73 per share) -- -- (1,981) -- -- -- (1,981)
Net decrease in liability to ESOP -- -- -- -- -- 156 156
Amortization of ESOP shares
committed to be released -- 51 -- -- -- -- 51
Purchase of treasury stock -- -- -- (3,082) -- -- (3,082)
Exercise of stock options and
related tax benefits 73 1,182 -- -- -- -- 1,255
Change in net unrealized
gains (losses) on securities
available for sale,
net of tax effect -- -- -- -- 11,155 -- 11,155
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $5,425 $56,842 $58,773 $(36,370) $ 7,240 $(1,093) $90,817
- -----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
26
17
MASSBANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MASSBANK Corp. the ("Company") is a Delaware chartered holding company
whose principal subsidiary is MASSBANK for Savings (the "Bank"). The Bank
operates fourteen full service banking offices in Reading, Melrose,
Stoneham, Wilmington, Medford, Chelmsford, Tewksbury, Westford, Dracut and
Lowell providing a variety of deposit, lending and trust services. As a
Massachusetts chartered savings bank whose deposits are insured by the
Federal Deposit Insurance Corporation ("FDIC") and the Depositors
Insurance Fund ("DIF"), the activities of the Bank are subject to
regulation, supervision and examination by federal and state regulatory
authorities, including, but not limited to the FDIC, the Massachusetts
Commissioner of Banks and the DIF. In addition, as a bank holding company,
the Company is subject to supervision, examination and regulation by the
Board of Governors of the Federal Reserve System.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries: MASSBANK for Savings, Readibank
Properties, Inc., Readibank Equipment Corporation, Readibank Investment
Corporation and Melbank Investment Corporation. All significant
intercompany balances and transactions have been eliminated in
consolidation. The accounting and reporting policies of the Company
conform to generally accepted accounting principles and to general
practices within the banking industry. In preparing the consolidated
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the balance sheet date and income and expenses for the period. Material
estimates that are particularly susceptible to change in the near term
relate to the determination of the allowance for loan losses.
Certain amounts in the prior years' consolidated financial
statements were reclassified to permit comparison with the current fiscal
year. The Company's reported per share amounts and average common and
common equivalent shares outstanding for the prior years have been
restated to reflect the Company's three-for-two stock split of September
9, 1994.
INVESTMENT AND TRADING SECURITIES
At December 31, 1993, the Company adopted the provisions of Financial
Accounting Standards Board ("FASB") Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Under this method, the
Company records investment securities available for sale at aggregate
market value with the net unrealized holding gains or losses reported, net
of tax effect, as a separate component of stockholders' equity until
realized. As of December 31, 1995, stockholders' equity included
approximately $7.2 million, representing the net unrealized gains on
securities available for sale, less applicable income tax benefits. Prior
to December 31, 1993, the Company recorded its investment securities
available for sale at the lower of aggregate cost or market value with the
net unrealized losses reported in non-interest income as a component of
"gains (losses) on securities."
In the fourth quarter of 1995, the Company adopted the Financial
Accounting Standards Board guidelines, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities," issued on November 15, 1995. Under these guidelines, the
Company was allowed a one-time opportunity to reassess the appropriateness
of its FASB 115 investment classifications and reclassify securities from
the held to maturity category to the available for sale category, or vice
versa. As a result of this reassessment and after thoughtful
consideration, the Company reclassified all of its mortgage-backed
securities from the held to maturity category to the available for sale
category in accordance with the FASB guidelines. The total amortized cost
of the securities reclassified was $202.8 million. These securities had
total unrealized gains of $3.7 million on the date they were reclassified.
Under its investment policy, management determines the appropriate
classification of securities at the time of purchase. Those debt
securities that the Company has the intent and the ability to hold to
maturity are classified as securities held to maturity and are carried at
amortized historical cost adjusted for any premiums or discounts.
Those securities held for indefinite periods of time and not
intended to be held to maturity are classified as available for sale.
Securities held for indefinite periods of time include securities that
management intends to use as part of its asset/liability management
strategy and that may be sold in response to changes in interest rates,
changes in prepayment risk, the need to increase regulatory capital and
other similar factors. Income on debt securities available for sale is
accrued and included in interest and dividend income. The specific
identification method is used to determine realized gains and losses on
sales of securities available for sale which are also reported in
non-interest income under the caption "gains (losses) on securities." When
a security suffers a loss in value which is considered other than
temporary, such loss is recognized by a charge to earnings.
Investments classified as trading securities are stated at market
value with unrealized gains and losses included in earnings. Income on
debt trading securities is accrued and included in interest and dividend
income. All of the Company's mortgage-backed securities are currently
classified as available for sale. Prior to the fourth quarter of 1995,
mortgage-backed securities were classified as securities held to maturity
and stated at cost, which was adjusted for amortization of premiums and
accretion of discounts by crediting or charging interest and dividend
income over the life of the related securities using a method which
approximated the level yield method.
27
18
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
LOANS
Loans are reported at the principal amount outstanding, net of unearned
fees. Loan origination fees and related direct incremental loan
origination costs are offset and the resulting net amount is deferred and
amortized over the life of the loan using the level-yield method.
The Bank does not accrue interest on loans which are 90 days or
more past due. When a loan is placed on nonaccrual status, all interest
previously accrued but not collected is reversed from income and all
amortization of deferred loan fees is discontinued. Interest received on
nonaccrual loans is either applied against principal or reported as income
according to management's judgment as to the collectibility of principal.
Interest accruals are resumed on such loans only when they are brought
current with respect to interest and principal and when, in the judgment
of management, the loans are estimated to be fully collectible as to both
principal and interest.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
Possible losses on loans are provided for under the allowance method of
accounting. The allowance is increased by provisions charged to operations
based on management's assessment of many factors including the risk
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 losses,
future adjustments to the allowance may be necessary if economic
conditions differ substantially from the assumptions used in making the
evaluation. In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the Bank's allowance for
possible loan losses. Such agencies may require the Bank to recognize
additions to the allowance based on judgments different from those of
management.
PREMISES AND EQUIPMENT
Land is carried at cost. Premises, equipment and leasehold improvements
are stated at cost, less accumulated depreciation and amortization
computed primarily by use of the straight-line method over the estimated
useful lives of the related assets or terms of the related leases.
REAL ESTATE ACQUIRED THROUGH FORECLOSURE
Real estate acquired through foreclosure is comprised of foreclosed
properties where the Bank has actually received title and real estate
substantially repossessed. Loan losses arising from the acquisition of
such properties are charged against the allowance for loan losses. 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
constructively or actually received, less estimated costs to sell the
property following foreclosure. Operating expenses and any subsequent
provisions to reduce the carrying value to fair value are charged to
current period earnings. Gains and losses upon disposition are reflected
in earnings as realized.
DEPOSIT ACQUISITION PREMIUM
The deposit acquisition premium arising from acquisitions is reported net
of accumulated amortization. Such premium is being amortized on a
straight-line basis over 10 years.
PENSION PLAN
The Bank accounts for pension benefits on the net periodic pension cost
method for financial reporting purposes. This method recognizes the
compensation cost of an employee's pension benefit over that employee's
approximate service period. Pension costs are funded in the year of
accrual using the aggregate cost method.
EARNINGS PER COMMON SHARE
The computation of earnings per common share is based on the weighted
average number of shares of common stock and common stock equivalents
outstanding during the year. Stock options, when dilutive, are included as
common stock equivalents using the treasury stock method.
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.
As a nonmember of the Federal Reserve System, the Bank is required
to maintain certain reserve requirements of vault cash and/or deposits
with the Federal Reserve Bank of Boston. The amount of this reserve
requirement, included in "Cash and Due from Banks," was $2.1 million and
$1.7 million at December 31, 1995 and 1994, respectively.
28
19
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES
The Company and its subsidiaries file state and consolidated federal
income tax returns on an October 31 year-end.
The Bank recognizes income taxes under the asset and liability
method. Under this method, deferred tax assets and liabilities are
established for the temporary differences between the accounting basis and
the tax basis of the Bank's assets and liabilities at enacted tax rates
expected to be in effect when the amounts related to such temporary
differences are realized or settled. The Bank's deferred tax asset is
reviewed and adjustments to such asset are recognized as deferred income
tax expense or benefit based upon management's judgment relating to the
realizability of such asset.
2. SHORT-TERM INVESTMENTS
Short-term investments consist of the following:
---------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1995 1994
---------------------------------------------------------------------------------------------------------------------------
Federal funds sold (overnight) $100,245 $22,551
Term federal funds sold (with original maturities of 90 days or less) 10,000 --
Money market funds 7,260 --
---------------------------------------------------------------------------------------------------------------------------
Total short-term investments $117,505 $22,551
---------------------------------------------------------------------------------------------------------------------------
The investments above are stated at cost which approximates market
value and have original maturities of 90 days or less.
3. INVESTMENT SECURITIES
The amortized cost and estimated market value of investment
securities follows:
---------------------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
(IN THOUSANDS) AT DECEMBER 31, 1995 Cost Gains Losses Value
---------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
Other bonds and obligations $ 402 $ -- $ -- $ 402
---------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity 402 -- -- 402
---------------------------------------------------------------------------------------------------------------------------
Securities available for sale:
Debt securities:
U.S. Treasury obligations 207,771 4,387 (43) 212,115
U.S. Government agency obligations 13,994 178 -- 14,172
Other bonds and obligations 1,996 10 (2) 2,004
---------------------------------------------------------------------------------------------------------------------------
Total 223,761 4,575 (45) 228,291
---------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities:
Government National Mortgage Association 81,411 2,160 (19) 83,552
Federal Home Loan Mortgage Corporation 116,500 2,339 (100) 118,739
Federal National Mortgage Association 12,886 574 -- 13,460
Other 726 43 -- 769
---------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 211,523 5,116 (119) 216,520
---------------------------------------------------------------------------------------------------------------------------
Total debt securities 435,284 9,691 (164) 444,811
---------------------------------------------------------------------------------------------------------------------------
Equity securities 8,354 2,961 (25) 11,290
---------------------------------------------------------------------------------------------------------------------------
Total securities available for sale 443,638 $12,652 $(189) $456,101
---------------------------------------------------------------------------------------------------------------------------
Net unrealized gains on securities
available for sale 12,463
---------------------------------------------------------------------------------------------------------------------------
Total securities available for sale, net 456,101
---------------------------------------------------------------------------------------------------------------------------
Total investment securities, net $456,503
---------------------------------------------------------------------------------------------------------------------------
29
20
3. INVESTMENT SECURITIES (continued)
---------------------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
(IN THOUSANDS) AT DECEMBER 31, 1994 Cost Gains Losses Value
---------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
Debt securities:
Other bonds and obligations $ 567 $ -- $ (4) $ 563
Mortgage-backed securities:
Government National Mortgage Association 90,153 4 (5,700) 84,457
Federal Home Loan Mortgage Corporation 64,921 43 (3,790) 61,174
Federal National Mortgage Association 16,220 153 (136) 16,237
Other 969 29 -- 998
---------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 172,263 229 (9,626) 162,866
---------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity 172,830 229 (9,630) 163,429
---------------------------------------------------------------------------------------------------------------------------
Securities available for sale:
Debt securities:
U.S. Treasury obligations 250,354 146 (7,713) 242,787
U.S. Government agency obligations 5,987 56 -- 6,043
Other bonds and obligations 1,992 -- (78) 1,914
---------------------------------------------------------------------------------------------------------------------------
Total debt securities 258,333 202 (7,791) 250,744
---------------------------------------------------------------------------------------------------------------------------
Equity securities 6,197 792 (89) 6,900
---------------------------------------------------------------------------------------------------------------------------
Total securities available for sale 264,530 $994 $(7,880) $257,644
---------------------------------------------------------------------------------------------------------------------------
Net unrealized losses on securities
available for sale (6,886)
---------------------------------------------------------------------------------------------------------------------------
Total securities available for sale, net 257,644
---------------------------------------------------------------------------------------------------------------------------
Total investment securities, net $430,474
---------------------------------------------------------------------------------------------------------------------------
During the years ended December 31, 1995, 1994 and 1993, the Company
realized gains and losses on sales of securities available for sale as
follows:
---------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1995 1994 1993
---------------------------------------------------------------------------------------------------------------------------
Realized Realized Realized
Gains Losses Gains Losses Gains Losses
---------------------------------------------------------------------------------------------------------------------------
U.S. Treasury obligations $ 4 $(889) $ -- $(382) $176 $ --
Other bonds and obligations -- -- 1 --
Investments in mutual funds -- -- -- -- 117 --
Marketable equity securities 574 (96) 724 (34) 144 (162)
---------------------------------------------------------------------------------------------------------------------------
Total realized gains (loss) $578 $(985) $724 $(416) $438 $(162)
---------------------------------------------------------------------------------------------------------------------------
Proceeds from sales of debt securities available for sale during 1995,
1994 and 1993 were $41.9 million, $25.6 million and $23.0 million,
respectively. Proceeds from sales of marketable equity securities
available for sale during 1995, 1994 and 1993, were $4.1 million, $2.7
million and $7.0 million, respectively.
There were no sales of investment securities held-to-maturity
during 1995 and 1994.
30
21
3. 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
are as follows:
---------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1995 1994
---------------------------------------------------------------------------------------------------------------------------
Amortized Market Amortized Market
Cost Value Cost Value
---------------------------------------------------------------------------------------------------------------------------
Investment securities held to maturity:
Other bonds and obligations:
Maturing within 1 year $ 225 $ 225 $ 147 $ 147
Maturing after 1 year but within 5 years -- -- 225 221
Maturing after 5 years but within 10 years 124 124 -- --
Maturing after 10 years but within 15 years 53 53 195 195
---------------------------------------------------------------------------------------------------------------------------
Total 402 402 567 563
---------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities:
Maturing after 1 year but within 5 years -- -- 164 167
Maturing after 5 years but within 10 years -- -- 23,525 23,348
Maturing after 10 years but within 15 years -- -- 148,574 139,351
---------------------------------------------------------------------------------------------------------------------------
Total -- -- 172,263 162,866
---------------------------------------------------------------------------------------------------------------------------
Total debt securities held to maturity $ 402 $ 402 $172,830 $163,429
---------------------------------------------------------------------------------------------------------------------------
Investment securities available for sale:
U.S. Treasury obligations:
Maturing within 1 year $ 75,948 $ 76,251 $ 52,821 $ 52,371
Maturing after 1 year but within 5 years 128,838 132,716 192,553 185,838
Maturing after 5 years but within 10 years 2,985 3,148 4,980 4,578
---------------------------------------------------------------------------------------------------------------------------
Total 207,771 212,115 250,354 242,787
---------------------------------------------------------------------------------------------------------------------------
U.S. Government agency obligations:
Maturing within 1 year 6,995 7,103 999 1,011
Maturing after 1 year but within 5 years 6,999 7,069 4,988 5,032
---------------------------------------------------------------------------------------------------------------------------
Total 13,994 14,172 5,987 6,043
---------------------------------------------------------------------------------------------------------------------------
Other bonds and obligations:
Maturing within 1 year 999 997 -- --
Maturing after 1 year but within 5 years 997 1,007 1,992 1,914
---------------------------------------------------------------------------------------------------------------------------
Total 1,996 2,004 1,992 1,914
---------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities:
Maturing after 1 year but within 5 years 38 38 -- --
Maturing after 5 years but within 10 years 21,967 22,846 -- --
Maturing after 10 years but within 15 years 189,518 193,636 -- --
---------------------------------------------------------------------------------------------------------------------------
Total 211,523 216,520 -- --
---------------------------------------------------------------------------------------------------------------------------
Total debt securities available for sale 435,284 444,811 258,333 250,744
---------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) on debt securities
available for sale 9,527 -- (7,589) --
---------------------------------------------------------------------------------------------------------------------------
Total debt securities available for sale,
net carrying value $444,811 $444,811 $250,744 $250,744
---------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities are shown at their contractual maturity but are
expected to have shorter average lives.
31
22
4. TRADING SECURITIES
The amortized cost and approximate market values of trading securities are
as follows:
-------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1995 1994
-------------------------------------------------------------------------------------------------------------------------
Amortized Market Amortized Market
Cost Value Cost Value
--------------------------------------------------------------------------------------------------------------------------
U.S. Treasury obligations:
Maturing within 1 year $ -- $ -- $112,486 $112,166
Investments in mutual funds 6,834 6,819 3,747 3,444
--------------------------------------------------------------------------------------------------------------------------
Total trading securities $6,834 $6,819 $116,233 $115,610
--------------------------------------------------------------------------------------------------------------------------
During the years ended December 31, 1995, 1994 and 1993, the Company
realized gains and losses on sales of trading securities as follows:
--------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) YEARS ENDED DECEMBER 31, 1995 1994 1993
--------------------------------------------------------------------------------------------------------------------------
Realized Realized Realized
Gains Losses Gains Losses Gains Losses
--------------------------------------------------------------------------------------------------------------------------
U.S. Treasury obligations $20 $-- $3 $ (52) $13 $--
Investments in mutual funds -- (133) 6 (271) -- --
Marketable equity securities 4 -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) $24 $(133) $9 $(323) $13 $--
--------------------------------------------------------------------------------------------------------------------------
Proceeds from sales of trading securities during 1995, 1994 and 1993 were
$26.5 million, $81.1 million and $9.7 million, respectively. Unrealized
gains or (losses) included in income in 1995, 1994 and 1993 were $608
thousand, $(532) thousand and $(91) thousand, respectively.
5. LOANS
The Bank's lending activities are conducted principally in the local
communities in which it operates banking offices, and to a lesser extent,
in selected areas of Massachusetts and southern New Hampshire.
The Bank offers single family and multi-family residential loans,
mortgage loans secured by commercial or investment property such as
apartment buildings and commercial or corporate facilities, and a variety
of consumer loans. The Bank also offers loans for the construction of
residential homes, multi-family properties and for land development. Most
loans granted by the Bank are either collateralized by real estate or
guaranteed by federal or local governmental authorities. The ability of
single family residential and consumer borrowers to honor their repayment
commitments is generally dependent on the level of overall economic
activity within the borrowers' geographic areas. The ability of commercial
real estate and construction loan borrowers to honor their repayment
commitments is generally dependent on the economic health of the real
estate sector in the borrowers' geographic areas and the overall economy.
32
23
5. LOANS (continued)
The composition of the Bank's loan portfolio is summarized as follows:
--------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1995 1994
--------------------------------------------------------------------------------------------------------------------------
Mortgage loans:
Residential:
Conventional:
Fixed rate $163,691 $162,413
Variable rate 45,717 45,359
FHA and VA 3,244 4,158
Commercial 6,975 8,155
Construction 1,516 603
--------------------------------------------------------------------------------------------------------------------------
Total mortgage loans 221,143 220,688
Add: premium on loans 388 452
Less: deferred mortgage loan origination fees (928) (871)
--------------------------------------------------------------------------------------------------------------------------
Mortgage loans, net 220,603 220,269
--------------------------------------------------------------------------------------------------------------------------
Other loans:
Consumer:
Installment 1,988 1,972
Guaranteed education 10,420 10,152
Other secured 2,012 2,598
Home equity lines of credit 13,144 14,674
Unsecured 265 269
--------------------------------------------------------------------------------------------------------------------------
Total consumer loans 27,829 29,665
Commercial 753 882
--------------------------------------------------------------------------------------------------------------------------
Total other loans 28,582 30,547
--------------------------------------------------------------------------------------------------------------------------
Total loans $249,185 $250,816
--------------------------------------------------------------------------------------------------------------------------
Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting
by Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting by
Creditors for Impairment of a Loan--Income Recognition and Disclosures."
These statements establish accounting standards for measuring impairment
on loans for which it is probable that the creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. SFAS No. 114 requires impairment to be measured on a discounted
cash flow method, or at the loan's observable market price, or at the fair
value of the collateral if the loan is collateral dependent. However,
impairment must be measured based on the fair value of the collateral if
it is determined that foreclosure is probable. Impaired loans consist of
all nonaccrual commercial loans. As of year end 1995, the Company had no
impaired loans as defined in SFAS No. 114. Additionally, the Company's
average recorded investment in impaired loans during the period ended
December 31, 1995 was negligible.
In the ordinary course of business, the Bank makes loans to its
directors, officers and their associates and affiliated companies
("related parties") at substantially the same terms as those prevailing at
the time of origination for comparable transactions with unrelated
borrowers. An analysis of total related party loans for the year ended
December 31, 1995 follows:
--------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $2,879
Additions 114
Repayments (183)
--------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $2,810
--------------------------------------------------------------------------------------------------------------------------
33
24
6. ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the activity in the allowance for possible loan
losses is as follows:
---------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) YEARS ENDED DECEMBER 31, 1995 1994 1993
---------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year $2,566 $2,261 $2,056
Provision for loan losses 170 705 671
Recoveries of loans previously charged-off 42 26 22
---------------------------------------------------------------------------------------------------------------------------
Total 2,778 2,992 2,749
---------------------------------------------------------------------------------------------------------------------------
Less charge-offs:
Mortgage loans (124) (339) (440)
Other loans (125) (87) (48)
---------------------------------------------------------------------------------------------------------------------------
Balance at end of year $2,529 $2,566 $2,261
---------------------------------------------------------------------------------------------------------------------------
The following table shows the allocation of the allowance for loan losses
by category of loans at December 31, 1995, 1994 and 1993.
---------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1995 1994 1993
---------------------------------------------------------------------------------------------------------------------------
Percentage Percentage Percentage
of Loans of Loans of Loans
Amount to Total Amount to Total Amount to Total
---------------------------------------------------------------------------------------------------------------------------
Mortgage loans:
Residential $2,101 86% $1,908 84% $1,936 84%
Commercial 104 3 67 3 69 4
Consumer loans 237 11 134 12 74 12
Other loans 61 -- 56 1 6 --
Unallocated 26 -- 401 -- 176 --
---------------------------------------------------------------------------------------------------------------------------
Total $2,529 100% $2,566 100% $2,261 100%
---------------------------------------------------------------------------------------------------------------------------
7. NON-PERFORMING ASSETS
The following schedule summarizes non-performing assets at the dates
shown:
---------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1995 1994 1993
---------------------------------------------------------------------------------------------------------------------------
Total loans delinquent for 90 or more days $2,428 $2,098 $1,269
---------------------------------------------------------------------------------------------------------------------------
Total real estate acquired through foreclosure 255 129 699
---------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $2,683 $2,227 $1,968
---------------------------------------------------------------------------------------------------------------------------
Percent non-performing loans to total loans 0.97% 0.84% 0.51%
Percent non-performing assets to total assets 0.31% 0.26% 0.23%
---------------------------------------------------------------------------------------------------------------------------
Interest income of approximately $204 thousand would have been recorded in
1995 on the non-accrual loans (loans delinquent for 90 or more days) if
they had been on a current basis in accordance with their original terms.
Interest income actually recorded in 1995 amounted to approximately $60
thousand.
34
25
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit and involve, to
varying degrees, elements of credit risk in excess of the amount
recognized in the consolidated balance sheet. The contract or notional
amounts reflect the extent of involvement the Bank has in particular
classes of these instruments. The Bank's exposure to credit loss in the
event of nonperformance by the other party to the financial instrument is
represented by the contractual or notional amount of those instruments.
The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
--------------------------------------------------------------------------------------------------------------------------
CONTRACT OR NOTIONAL AMOUNT
(IN THOUSANDS) AT DECEMBER 31, 1995 1994
--------------------------------------------------------------------------------------------------------------------------
Financial instruments whose contract amounts represent credit risk:
Commitments to originate residential mortgage loans $ 3,466 $ 767
Unadvanced portions of construction loans 444 326
Unused credit lines, including unused portions of equity lines of credit 20,714 20,180
--------------------------------------------------------------------------------------------------------------------------
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee by the customer. Since many of
the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
The Bank evaluates each customer's credit-worthiness on a case-by-case
basis. The amount of collateral obtained, if any, is based on management's
credit evaluation of the borrower.
9. PREMISES AND EQUIPMENT
A summary of premises and equipment and their estimated useful lives used
for depreciation purposes is as follows:
----------------------------------------------------------------------------------------------------------------------------
ESTIMATED
USEFUL LIFE
(IN THOUSANDS) AT DECEMBER 31, 1995 1994 IN YEARS
----------------------------------------------------------------------------------------------------------------------------
Premises:
Land $1,168 $1,168 --
Buildings 3,395 3,395 15-45
Building and leasehold improvements 1,449 1,208 3-30
Equipment 2,921 2,802 3-20
--------------------------------------------------------------------------------------------------------------------------------
8,933 8,573
Less: accumulated depreciation and amortization 4,707 4,245
--------------------------------------------------------------------------------------------------------------------------
Total premises and equipment, net $4,226 $4,328
--------------------------------------------------------------------------------------------------------------------------
The Bank is obligated under a number of noncancelable operating leases for
various banking offices. These operating leases expire at various dates
through 2004 with options for renewal. Rental expenses for the years ended
December 31, 1995, 1994 and 1993 amounted to $494 thousand, $484 thousand
and $446 thousand, respectively.
The minimum rental commitments, with initial or remaining terms of
one year or more exclusive of
operating costs and real estate taxes to be paid by the Bank under these
leases as of December 31, 1995, are as follows:
--------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) YEARS ENDING DECEMBER 31, PAYMENTS
--------------------------------------------------------------------------------------------------------------------------
1996 $ 487
1997 407
1998 355
1999 290
2000 95
Later years 179
--------------------------------------------------------------------------------------------------------------------------
Total $1,813
--------------------------------------------------------------------------------------------------------------------------
35
26
10. DEPOSITS
Deposits are summarized as follows:
---------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1995 1994
---------------------------------------------------------------------------------------------------------------------------
Amount Rate Amount Rate
---------------------------------------------------------------------------------------------------------------------------
Demand and NOW:
NOW accounts $ 51,197 1.23% $ 53,428 1.29%
Demand accounts 15,216 -- 14,068 --
---------------------------------------------------------------------------------------------------------------------------
Total demand and NOW 66,413 0.95 67,496 1.02
---------------------------------------------------------------------------------------------------------------------------
Savings:
Regular savings and special notice accounts 330,230 3.39 430,143 3.34
Money market accounts 26,368 3.28 28,258 3.08
---------------------------------------------------------------------------------------------------------------------------
Total savings 356,598 3.38 458,401 3.32
---------------------------------------------------------------------------------------------------------------------------
Time certificates:
Fixed rate certificates 274,684 5.80 187,319 4.88
Variable rate certificates 57,373 6.65 48,102 6.76
---------------------------------------------------------------------------------------------------------------------------
Total time certificates 332,057 5.95 235,421 5.26
---------------------------------------------------------------------------------------------------------------------------
Deposit acquisition premium, net of amortization (1,411) -- (1,642) --
---------------------------------------------------------------------------------------------------------------------------
Total deposits and weighted average rate $753,657 4.30% $759,676 3.72%
---------------------------------------------------------------------------------------------------------------------------
The maturity distribution and related rate structure of the Bank's
time certificates at December 31, 1995 follows:
---------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1995
---------------------------------------------------------------------------------------------------------------------------
Average
Amount Interest Rate
---------------------------------------------------------------------------------------------------------------------------
Due within 3 months $ 67,341 5.74%
Due within 3-6 months 60,507 5.52
Due within 6-12 months 106,385 5.99
Thereafter 97,824 6.30
---------------------------------------------------------------------------------------------------------------------------
Total $332,057 5.95%
---------------------------------------------------------------------------------------------------------------------------
At December 31, the Bank had individual time certificates of deposit
over $100 thousand maturing as follows:
--------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1995 1994
--------------------------------------------------------------------------------------------------------------------------
Due within 3 months $ 8,969 $ 2,545
Due within 3-6 months 6,206 3,062
Due within 6-12 months 14,311 6,839
Thereafter 16,863 12,628
--------------------------------------------------------------------------------------------------------------------------
Total $ 46,349 $25,074
--------------------------------------------------------------------------------------------------------------------------
36
27
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires that the Bank disclose
estimated fair values for its financial instruments. Fair value estimates,
methods, and assumptions are set forth below for the Bank's financial
instruments.
CASH AND DUE FROM BANKS, SHORT-TERM INVESTMENTS AND ACCRUED INTEREST
RECEIVABLE
The carrying amounts for these financial instruments approximate fair
value because they mature in 90 days or less.
INTEREST-BEARING DEPOSITS IN BANKS AND TERM FEDERAL FUNDS SOLD
The interest-bearing deposits in banks at December 31, 1995 consisted of
bank certificates of deposit with a carrying amount of $941 thousand and
an estimated fair value of $957 thousand.
The carrying amounts of the term federal funds sold reported in
the balance sheet at December 31, 1995 approximate fair value.
SECURITIES
The fair value of longer-term investments and mortgage-backed securities
is estimated based on bid prices published in financial newspapers or bid
quotations received from securities dealers. Refer to Notes 3 and 4 for
the carrying value and estimated fair value of investment and
mortgage-backed securities at December 31, 1995 and 1994.
Statement 107 specifies that fair values should be calculated
based on the value of one unit without regard to any premium or discount
that may result from concentrations of ownership of a financial
instrument, possible tax ramifications, or estimated transaction costs.
LOANS
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as residential
mortgage, commercial real estate, consumer and other.
The fair values of residential, commercial, and certain consumer
and other loans are calculated by discounting scheduled cash flows through
the estimated maturity using estimated market discount rates that reflect
the credit and interest rate risk inherent in the loan. The estimate of
maturity is based on the Bank's historical experience with repayments for
each loan classification, modified, as required, by an estimate of the
effect of current economic and lending conditions. For certain variable
rate consumer loans, including home equity lines of credit, carrying value
approximates fair value. Assumptions regarding credit risk, cash flows,
and discount rates are judgmentally determined using available market
information.
The following table presents information for loans:
--------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1995 1994
--------------------------------------------------------------------------------------------------------------------------
Carrying Calculated Carrying Calculated
Amount Fair Value Amount Fair Value
--------------------------------------------------------------------------------------------------------------------------
Real estate:
Residential:
Adjustable $ 46,101 $ 46,632 $ 45,469 $ 44,841
Fixed 167,539 171,096 166,657 159,856
Commercial:
Adjustable 6,569 6,410 7,309 6,693
Fixed 394 400 834 779
Consumer and other 28,582 28,393 30,547 30,579
--------------------------------------------------------------------------------------------------------------------------
Total loans 249,185 252,931 250,816 242,748
Less: allowance for possible loan losses 2,529 -- 2,566 --
--------------------------------------------------------------------------------------------------------------------------
Net loans $246,656 $252,931 $248,250 $242,748
--------------------------------------------------------------------------------------------------------------------------
37
28
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
DEPOSIT LIABILITIES
Under Statement 107, the fair value of deposits with no stated maturity,
such as demand deposits, NOW accounts, regular savings and special notice
accounts, and money market accounts, is equal to the amount payable on
demand as of December 31, 1995 and 1994. The fair value of certificates of
deposit is based on the discounted value of contractual cash flows. The
discount rate is estimated using the rates currently offered for deposits
of similar remaining maturities.
--------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1995 1994
--------------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------------------------------------------------------------------------------------------------------------------------
Demand accounts $ 15,216 $ 15,216 $ 14,068 $ 14,068
NOW accounts 51,197 51,197 53,428 53,428
Regular savings and special notice accounts 330,230 330,230 430,143 430,143
Money market accounts 26,368 26,368 28,258 28,258
Time certificates 332,057 334,641 235,421 234,891
Deposit acquisition premium, net of amortization (1,411) -- (1,642) --
--------------------------------------------------------------------------------------------------------------------------
Total deposits 753,657 757,652 759,676 760,788
Escrow deposits of borrowers 992 992 966 966
--------------------------------------------------------------------------------------------------------------------------
Total $754,649 $758,644 $760,642 $761,754
--------------------------------------------------------------------------------------------------------------------------
The fair value estimates and the carrying amounts above do not include the
benefit that results from the low-cost funding provided by the deposit
liabilities compared to the cost of borrowing funds in the market.
COMMITMENTS TO EXTEND CREDIT
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the present creditworthiness of
the counterparties. For fixed rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates.
The Bank estimates the fair value of the cost to terminate
commitments to advance funds on construction loans and for residential
mortgage loans in the pipeline at December 31, 1995 and 1994 to be
immaterial. Unused credit lines, including unused portions of equity lines
of credit, are at floating interest rates and therefore there is no fair
value adjustment.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Bank's entire holdings
of a particular financial instrument. Because no market exists for a
significant portion of the Bank's financial instruments, fair value
estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions
could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance
sheet financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. For example, the Bank has a
trust department that contributes net fee income annually. The trust
department is not considered a financial instrument, and its value has not
been incorporated into the fair value estimates. Other significant assets
and liabilities that are not considered financial assets or liabilities
include deferred tax liabilities, premises and equipment and goodwill. In
addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in many of the estimates.
38
29
12. INCOME TAXES
As discussed in Note 1, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," as of January
1, 1993. The cumulative effect of this change in accounting for income
taxes of $241 thousand was determined as of January 1, 1993, and is
reported separately in the Consolidated Statement of Income for the year
ended December 31, 1993. Prior years' consolidated financial statements
have not been restated to apply the provisions of Statement No. 109.
Income tax payable (receivable) was allocated as follows:
--------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1995 1994
--------------------------------------------------------------------------------------------------------------------------
Current income tax payable (receivable):
Federal $ 894 $ 939
State (14) 304
--------------------------------------------------------------------------------------------------------------------------
Total current income tax payable 880 1,243
--------------------------------------------------------------------------------------------------------------------------
Deferred income tax payable (receivable):
Federal 2,878 (3,311)
State 1,002 (1,279)
--------------------------------------------------------------------------------------------------------------------------
Total deferred income tax payable (receivable) 3,880 (4,590)
--------------------------------------------------------------------------------------------------------------------------
Total income tax payable (receivable) $4,760 $(3,347)
--------------------------------------------------------------------------------------------------------------------------
Income tax expense (benefit) was allocated as follows:
--------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) YEARS ENDED DECEMBER 31, 1995 1994 1993
--------------------------------------------------------------------------------------------------------------------------
Current income tax expense:
Federal $4,209 $3,635 $ 3,579
State 1,071 1,265 1,372
--------------------------------------------------------------------------------------------------------------------------
Total current tax expense 5,280 4,900 4,951
--------------------------------------------------------------------------------------------------------------------------
Deferred income tax expense (benefit):
Federal 183 (164) (197)
State 115 (28) (57)
Change in valuation reserve (22) 25 14
--------------------------------------------------------------------------------------------------------------------------
Total deferred tax expense (benefit) 276 (167) (240)
--------------------------------------------------------------------------------------------------------------------------
Total income tax expense $5,556 $4,733 $ 4,711
--------------------------------------------------------------------------------------------------------------------------
Income tax expense attributable to income from operations for the years
ended December 31, differed from the amounts computed by applying the
federal income tax rate of 35 percent in 1995 and 1994, and 34 percent in
1993, as a result of the following:
--------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) YEARS ENDED DECEMBER 31, 1995 1994 1993
--------------------------------------------------------------------------------------------------------------------------
Computed "expected" income tax expense at statutory rate $5,010 $4,521 $ 3,960
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal benefit 771 804 868
Recognition of previously unrecognized tax benefits -- (462) --
Dividends received deduction (72) (71) (69)
Other (131) (84) (62)
Change in valuation reserve (22) 25 14
--------------------------------------------------------------------------------------------------------------------------
Income tax expense $5,556 $4,733 $ 4,711
--------------------------------------------------------------------------------------------------------------------------
Effective income tax rate 38.8% 36.6% 40.4%
--------------------------------------------------------------------------------------------------------------------------
39
30
12. INCOME TAXES (continued)
At December 31, 1995 and 1994, the Bank had gross deferred tax assets and
gross deferred tax liabilities as follows:
--------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1995 1994
--------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Deferred income $ -- $ 22
Loan losses 455 612
Deferred loan fees, net 405 377
Deferred compensation and pension cost 485 433
Valuation of securities -- 2,971
Other unrealized securities losses -- 160
Depreciation 39 --
Purchase accounting 70 --
Other 37 95
--------------------------------------------------------------------------------------------------------------------------
Gross deferred tax asset 1,491 4,670
Valuation reserve (18) (40)
--------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset 1,473 4,630
--------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation -- 4
Valuation of securities 5,223 --
Other unrealized securities gains 100 --
Other 30 36
--------------------------------------------------------------------------------------------------------------------------
Gross deferred tax liability 5,353 40
--------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $(3,880) $4,590
--------------------------------------------------------------------------------------------------------------------------
Based on the Company's historical and current pretax earnings, management
believes it is more likely than not that the Company will realize the
gross deferred tax asset existing at December 31, 1995. The primary
sources of recovery of the gross federal deferred tax asset are federal
income taxes paid of $11.1 million in 1995, 1994 and 1993 that are
available for carryback and the expectation that the existing net
deductible temporary differences will reverse during periods in which the
Company generates net taxable income. Since there is no carryback
provision for state income tax purposes, management believes the existing
net deductible temporary differences which give rise to the gross deferred
state income tax asset will reverse during periods in which the Company
generates net taxable income. There can be no assurance, however, that the
Company will generate any earnings or any specific level of continuing
earnings.
Included in retained earnings at December 31, 1995 is
approximately $7,300,000 which is classified for federal income tax
purposes as an allowance for possible loan losses. If this amount, or any
portion thereof, is used for purposes other than to absorb loan losses,
the amount so used must be included in gross income for federal income tax
purposes. Further, the Tax Reform Act of 1986 specifies that if the Bank's
"qualifying assets" (as defined by such Act) fall below 60% of total
assets, this tax-basis allowance for loan losses will become subject to
taxation and the resultant tax will be payable over four years. At the end
of the Bank's most recent tax year, qualifying assets exceeded 60% of
total assets.
13. STOCKHOLDERS' EQUITY
The Company may not declare or pay cash dividends on its shares of common
stock if the effect thereof would cause its stockholders' equity to be
reduced below or otherwise violate legal or regulatory requirements.
Substantially all of the Company's retained earnings are unrestricted at
December 31, 1995. The Company and the Bank exceed all of their regulatory
capital requirements.
40
31
14. EMPLOYEE BENEFITS
PENSION PLAN
The Bank sponsors a non contributory defined benefit pension plan that
covers all employees who meet specified age and length of service
requirements, which is administered by the Savings Banks Employees
Retirement Association ("SBERA"). The plan provides for benefits to be
paid to eligible employees at retirement based primarily upon their years
of service with the Bank and compensation levels near retirement.
Contributions to the plan reflect benefits attributed to employees'
service to date, as well as services expected to be earned in the future.
Pension plan assets consist principally of government and agency
securities, equity securities (primarily common stocks) and short-term
investments.
The following table sets forth the plan's funded status and
amounts recognized in the Company's consolidated financial statements for
the plan years ended October 31, 1995, 1994 and 1993, the plan's latest
valuation dates:
--------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994 1993
--------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested $3,845 $3,436 $3,345
Non vested 55 79 60
--------------------------------------------------------------------------------------------------------------------------
Total accumulated benefit obligation $3,900 $3,515 $3,405
--------------------------------------------------------------------------------------------------------------------------
Actuarial present value of projected benefit obligation for
service rendered to date $4,622 $4,036 $3,860
Plan assets at fair value 4,181 3,648 4,050
--------------------------------------------------------------------------------------------------------------------------
Excess (deficiency) of plan assets over projected benefit obligation $ (441) $ (388) $ 190
--------------------------------------------------------------------------------------------------------------------------
Assumptions used in determining the actuarial present value of the
projected benefit obligation were as follows:
Discount rate 7.00% 7.50% 7.50%
Rate of increase in compensation levels 4.00% 5.50% 5.50%
Certain changes in the items shown are not recognized as they occur, but
are amortized systematically over subsequent periods. Unrecognized amounts
to be amortized and the amounts included in the consolidated balance
sheets are shown below:
Unrecognized net asset at October 31, being recognized over 21 years $ 254 $ 275 $ 295
Unrecognized net losses (412) (538) (124)
(Accrued) prepaid pension cost (283) (125) 19
--------------------------------------------------------------------------------------------------------------------------
Excess (deficiency) of plan assets over projected benefit obligation $ (441) $ (388) $ 190
--------------------------------------------------------------------------------------------------------------------------
Net pension expense for the year ended December 31, included the following
components:
Service cost--benefits earned during the period $ 319 $ 228 $ 162
Accrual of discount 303 270 218
Actual return on plan assets (686) (219) (486)
Net amortization and deferral 412 (80) 227
--------------------------------------------------------------------------------------------------------------------------
Net pension expense $ 348 $ 199 $ 121
--------------------------------------------------------------------------------------------------------------------------
Assumptions used to develop the net pension expense data were:
Discount rate 7.50% 7.50% 7.00%
Expected long-term rate of return on assets 7.50% 7.50% 7.00%
Rate of increase in compensation levels 5.50% 5.50% 6.00%
The foregoing accrued benefits and related asset values do not include
those pertaining to retired employees, who are accounted for separately in
a state-wide pool.
41
32
14. EMPLOYEE BENEFITS (continued)
PROFIT SHARING AND INCENTIVE COMPENSATION BONUS PLAN
The Bank's Profit Sharing and Incentive Compensation Bonus Plan provides
for the payment of bonuses to employees under certain circumstances based
upon a year-end measurement of the Company's net income and attainment of
individual goals and objectives by certain key officers. Bonuses of $413
thousand, $433 thousand and $413 thousand were awarded under the plan in
1995, 1994 and 1993, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
Effective May 28, 1986, the Bank established an Employee Stock Ownership
Plan ("ESOP"). Under the plan, the ESOP has borrowed funds from a third
party bank to invest in the Company's common stock. As this obligation
will be liquidated primarily through future contributions to the ESOP by
the Bank, the obligation is reflected as a liability of the Company and a
reduction of stockholders' equity on the consolidated balance sheet. As of
December 31, 1995 and 1994, such outstanding liabilities totaled $1,093
thousand and $1,249 thousand, respectively. Total compensation and
interest expense applicable to the ESOP amounted to $303 thousand, $206
thousand and $250 thousand for the years ended December 31, 1995, 1994 and
1993, respectively.
STOCK OPTION PLAN
Effective May 28, 1986, the Board of Directors of the Bank adopted a stock
option plan for the benefit of its officers and other employees. In
January, 1991, the plan was amended to authorize the grant of options to
non-employee Directors of the Company. The maximum number of shares issued
or currently reserved for issuance under the plan, when adjusted for the
three-for-two stock split of the Company's common stock of September 9,
1994, is 517,500. However, only 751.5 shares remain available for issuance
under the 1986 plan as of December 31, 1995. On April 19, 1994,
shareholders approved and the Bank adopted the Company's 1994 Stock
Incentive Plan. The total number of shares of common stock that can be
issued under this plan is 142,500 shares. Both incentive stock options and
non-qualified stock options may be granted under the plans. As of December
31, 1995, there were 131,679 non-qualified stock options and 145,653
incentive stock options granted and outstanding to purchase shares under
the plans at exercise prices ranging from $9.17 to $26.50. The maximum
option term is ten years. Further stock options may be granted pursuant to
the plans and will generally have an exercise price equal to, or in excess
of, the fair market value of a share of common stock of the Company on the
date the option is granted.
Changes in total options outstanding during 1995, 1994 and 1993
are as follows:
--------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
--------------------------------------------------------------------------------------------------------------------------
Shares Average Shares Average Shares Average
Under Option Under Option Under Option
Option Price Option Price Option Price
--------------------------------------------------------------------------------------------------------------------------
Outstanding at
beginning of year 317,366 $16.33 339,961.5 $14.47 290,514 $11.46
Granted during year 33,250 23.38 49,500 22.95 103,500 21.41
Exercised during year (72,533) 12.28 (69,470.5) 12.15 (53,302.5) 11.40
Forfeited during year (751) 22.98 (2,625) 22.05 (750) 21.33
--------------------------------------------------------------------------------------------------------------------------
Outstanding at end
of year 277,332 $18.21 317,366 $16.33 339,961.5 $14.47
--------------------------------------------------------------------------------------------------------------------------
Options exercisable at
end of year under
stock option plan 277,332 $18.21 317,366 $16.33 339,586.5 $14.47
--------------------------------------------------------------------------------------------------------------------------
The Company will adopt SFAS No. 123, "Accounting for Stock-Based
Compensation" in 1996. The Company intends to continue to account for
stock-based compensation costs under APB Opinion No. 25, and will provide
the additional required disclosures relating to 1995 and 1996 stock
options in its 1996 Annual Report.
EMPLOYMENT AGREEMENTS
The Bank has entered into employment agreements with certain executive
officers which provide that the officer will receive a minimum amount of
annual compensation from the Bank for a specified period. The agreements
also provide for the continued payment of compensation to the officer for
a specified period after termination under certain circumstances,
including if the officer's termination follows a "change of control,"
generally defined to mean a person or group attaining ownership of 25% or
more of the shares of the Company.
42
33
14. EMPLOYEE BENEFITS (continued)
EXECUTIVE SUPPLEMENTAL RETIREMENT AGREEMENTS
The Bank maintains executive supplemental retirement agreements for
certain executive officers. These agreements provide retirement benefits
designed to supplement benefits available through the Bank's retirement
plan for employees. Total expenses for benefits payable under the
agreements amounted to $94 thousand, $87 thousand and $85 thousand in
1995, 1994 and 1993, respectively.
15. SHAREHOLDER RIGHTS AGREEMENT
In January, 1990, the Board of Directors adopted a Shareholders Rights
Plan. Under the Plan, the Rights automatically become part of and trade
with the Company's shares of common stock. Although the Rights are not
exercisable initially, they become exercisable upon the occurrence of one
of three triggering events as specified in the Plan. In the event they
become exercisable, each holder of a Right would then be entitled to buy a
unit consisting of one one-hundredth of a share of the Company's preferred
stock at an exercise price of $70. The provisions of the Rights Plan,
including the time periods set forth therein, generally may be extended or
amended by the Board of Directors. The Rights will expire January 16,
2000, but they may be redeemed at the option of the Board of Directors for
$0.011/3 per Right until ten days after a person becomes a 15% shareholder
of MASSBANK Corp. or until certain other triggering events have occurred.
16. PARENT COMPANY FINANCIAL STATEMENTS
The following are the condensed financial statements for MASSBANK Corp.
(the "Parent Company") only:
BALANCE SHEETS
--------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT SHARE DATA) AT DECEMBER 31, 1995 1994
--------------------------------------------------------------------------------------------------------------------------
Assets:
Cash $ 11 $ 16
Interest-bearing deposits in banks 1,018 694
Investment in subsidiaries 90,998 75,134
Other assets 25 --
--------------------------------------------------------------------------------------------------------------------------
Total assets $ 92,052 $ 75,844
--------------------------------------------------------------------------------------------------------------------------
Liabilities:
Accrued income taxes payable $ 9 $ 89
Employee stock ownership plan liability (Note 14) 1,093 1,249
Due to subsidiaries 123 2
Other liabilities 10 --
--------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,235 1,340
--------------------------------------------------------------------------------------------------------------------------
Stockholders' equity (Notes 12, 13 and 15):
Preferred stock, par value $1.00 per share; 2,000,000 shares
authorized, none issued -- --
Common stock, par value $1.00 per share; 10,000,000 shares
authorized, 5,424,671 and 5,352,138 shares issued, respectively 5,425 5,352
Additional paid-in capital 56,842 55,609
Retained earnings 58,773 51,995
--------------------------------------------------------------------------------------------------------------------------
121,040 112,956
Treasury stock at cost, 2,683,065 and 2,570,411 shares, respectively (36,370) (33,288)
Net unrealized gains (losses) on securities available for sale, net of tax effect (Note 3) 7,240 (3,915)
Common stock acquired by ESOP (Note 14) (1,093) (1,249)
--------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 90,817 74,504
--------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 92,052 $ 75,844
--------------------------------------------------------------------------------------------------------------------------
43
34
16. PARENT COMPANY FINANCIAL STATEMENTS (continued)
STATEMENTS OF INCOME
--------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) YEARS ENDED DECEMBER 31, 1995 1994 1993
--------------------------------------------------------------------------------------------------------------------------
Income:
Dividends received from subsidiaries $4,400 $4,000 $3,310
Interest and dividend income 22 34 34
--------------------------------------------------------------------------------------------------------------------------
4,422 4,034 3,344
Non-interest expense 95 102 104
--------------------------------------------------------------------------------------------------------------------------
Income before income taxes, cumulative effect of
change in accounting principle, and equity in
undistributed earnings of subsidiaries 4,327 3,932 3,240
Income tax benefit 130 13 16
Cumulative effect of change in method of accounting
for income taxes -- -- (28)
--------------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed earnings of
subsidiaries 4,457 3,945 3,228
Equity in undistributed earnings of subsidiaries 4,302 4,240 3,467
--------------------------------------------------------------------------------------------------------------------------
Net income $8,759 $8,185 $6,695
--------------------------------------------------------------------------------------------------------------------------
The Parent Company only Statements of Changes in Stockholders' Equity are
identical to the consolidated statements and therefore are not presented
here.
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) YEARS ENDED DECEMBER 31, 1995 1994 1993
--------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 8,759 $ 8,185 $ 6,695
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed earnings of subsidiaries (4,302) (4,240) (3,467)
Increase in other assets (25) -- --
(Decrease) increase in accrued income taxes payable (80) 4 6
(Decrease) increase in other liabilities 10 (10) 1
(Decrease) increase in amount due to subsidiaries 121 (1) (7)
--------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,483 3,938 3,228
--------------------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Payments to acquire treasury stock (3,082) (5,063) (445)
Issuance of common stock under stock option plan 891 841 608
Tax benefit resulting from stock options exercised 8 7 16
Dividends paid on common stock (1,981) (1,692) (1,330)
--------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (4,164) (5,907) (1,151)
--------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 319 (1,969) 2,077
Cash and cash equivalents at beginning of year 710 2,679 602
--------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,029 $ 710 $ 2,679
--------------------------------------------------------------------------------------------------------------------------
During the years ended December 31, 1995, 1994 and 1993, the Company made
cash payments for income taxes of $13 thousand, $17 thousand and $8
thousand, respectively, and no payments for interest.
In addition, the Company made cash payments to the state of
Delaware for franchise taxes in the amount of $28 thousand, $49 thousand
and $50 thousand during the years ended December 31, 1995, 1994 and 1993,
respectively.
44
35
17. TEN-YEAR STATISTICAL SUMMARY (UNAUDITED)
-----------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, 1995 1994 1993 1992 1991
-----------------------------------------------------------------------------------------------
Net income $8,759 $8,185 $6,695 $4,677 $2,250
Primary earnings per share 3.15 2.84 2.23 1.59 0.78
Cash dividends declared per share 0.73 0.60 0.45 1/3 0.35 1/3 0.30 1/3
Book value per share, at year end 33.13 26.78 27.28 24.50 23.38
Return on average assets 1.04% 0.96% 0.79% 0.61% 0.60%
Return on average realized equity(1) 10.81% 10.62% 8.98% 6.79% 3.39%
-----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, 1990 1989 1988 1987 1986
----------------------------------------------------------------------------------------------
Net income $725 $2,668 $4,917 $5,521 $4,509
Primary earnings per share 0.22 0.66 1.14 1.14 --
Cash dividends declared per share 0.29 1/3 0.28 0.25 1/3 0.22 0.05 1/3
Book value per share, at year end 21.60 20.21 18.95 17.65 16.03
Return on average assets 0.23% 0.86% 1.56% 1.69% 1.52%
Return on average realized equity(1) 1.03% 3.38% 6.20% 6.79% 7.88%
----------------------------------------------------------------------------------------------
(1) Excludes average unrealized gains or losses on securities available for
sale.
18. QUARTERLY DATA (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1995 1994
--------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT 4th 3rd 2nd 1st 4th 3rd 2nd 1st
PER SHARE DATA) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
--------------------------------------------------------------------------------------------------------------------------
Interest and dividend income $14,299 $14,244 $14,220 $13,848 $13,589 $13,047 $12,627 $12,188
Interest expense 8,095 7,933 7,680 7,188 6,940 6,638 6,385 6,189
--------------------------------------------------------------------------------------------------------------------------
Net interest income 6,204 6,311 6,540 6,660 6,649 6,409 6,242 5,999
Provision for possible
loan losses 30 30 40 70 185 150 250 120
--------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for possible
loan losses 6,174 6,281 6,500 6,590 6,464 6,259 5,992 5,879
Non-interest income 535 376 609 428 356 523 1,163 495
Non-interest expense 3,060 3,040 3,557 3,521 3,387 3,423 3,837 3,566
--------------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,649 3,617 3,552 3,497 3,433 3,359 3,318 2,808
Income tax expense 1,402 1,400 1,383 1,371 1,270 1,216 1,224 1,023
--------------------------------------------------------------------------------------------------------------------------
Net income $ 2,247 $ 2,217 $ 2,169 $ 2,126 $ 2,163 $ 2,143 $ 2,094 $ 1,785
--------------------------------------------------------------------------------------------------------------------------
Earnings per share (in dollars):(1)(2)
Primary $ 0.81 $ 0.80 $ 0.78 $ 0.76 $ 0.76 $ 0.74 $ 0.73 $ 0.61
Fully diluted 0.81 0.80 0.78 0.76 0.76 0.74 0.73 0.61
--------------------------------------------------------------------------------------------------------------------------
Weighted average common
shares outstanding:(2)
Primary 2,776 2,774 2,789 2,797 2,856 2,878 2,856 2,945
Fully diluted 2,778 2,781 2,794 2,798 2,859 2,878 2,868 2,946
--------------------------------------------------------------------------------------------------------------------------
(1) Share amounts for 1994 have been restated to reflect the three-for-two
stock split of the Company's common stock which occurred on September
9, 1994.
(2) Computation of earnings per share is further described in Note 1.
45
36
MASSBANK CORP. AND SUBSIDIARIES STOCKHOLDER DATA
YEARS ENDED DECEMBER 31, 1995 AND 1994
MASSBANK Corp.'s common stock is currently traded on the Nasdaq Stock
Market under the symbol "MASB." At December 31, 1995 there were 2,741,606
shares outstanding and 1,033 shareholders of record. Shareholders of
record do not reflect the number of persons or entities who hold their
stock in nominee or "street" name.
The following table includes the quarterly ranges of high and low
sales prices for the common stock, as reported by Nasdaq, and dividends
declared per share for the periods indicated.
--------------------------------------------------------------------------------------------------------------------------
Price per Share
-------------------------------------- Cash
Dividends
High Low Declared
--------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------------------------------------------------------------------
Fourth Quarter 32 1/2 30 3/4 $0.19
Third Quarter 32 1/4 26 1/4 0.19
Second Quarter 27 1/2 23 1/2 0.17 1/2
First Quarter 25 22 1/4 0.17 1/2
--------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------------------------------------------------------------------------------
Fourth Quarter 26 20 1/8 $0.16
Third Quarter 28 2/3 24 0.16
Second Quarter 26 22 0.14
First Quarter 24 1/3 22 2/3 0.14
--------------------------------------------------------------------------------------------------------------------------
CORPORATE INFORMATION
MASSBANK Corp.
123 Haven Street
Reading, MA 01867
(617) 662-0100
FAX (617) 942-1022
24 Hour Rate Line
Savings
(617) 662-0154
Mortgages
(617) 662-0144
(508) 452-1256
Notice of Shareholders' Meeting
The Annual Meeting of the Shareholders of MASSBANK Corp. will be held at
10:00 a.m. on Tuesday, April 16, 1996 at
The Crowne Plaza
Two Forbes Road
Woburn, MA 01801
Form 10-K
Shareholders may obtain without charge a copy of the Company's 1995 Form
10-K. Written requests should be addressed to:
Shareholder Services
MASSBANK Corp.
159 Haven Street
Reading, MA 01867
Dividend Reinvestment and Stock Purchase Plan
Shareholders may obtain a brochure containing a detailed description of
the plan by writing to:
Shareholder Services
MASSBANK Corp.
159 Haven Street
Reading, MA 01867
Transfer Agent
Boston EquiServe
Shareholder Services
P.O. Box 644
Boston, MA 02102-0644
Independent Auditors
KPMG Peat Marwick LLP
99 High Street
Boston, MA 02110
Legal Counsel
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109
Reports on Effectiveness
of Internal Control Structure
Over Financial Reporting
Shareholders may obtain without charge a copy of Management's and the
Independent Auditors' 1995 Reports on the Effectiveness of the Company's
Internal Control Structure Over Financial Reporting.
Written requests should be addressed to:
Shareholder Services
MASSBANK Corp.
159 Haven Street
Reading, MA 01867
46
37
OFFICERS AND DIRECTORS
MASSBANK CORP.
OFFICERS
Gerard H. Brandi
Chairman, President and
Chief Executive Officer
Reginald E. Cormier
Vice President, Treasurer and
Chief Financial Officer
Robert S. Cummings
Secretary
Donna H. West
Assistant Secretary
BOARD OF DIRECTORS
Samuel Altschuler
President, Altron Incorporated
*Mathias B. Bedell
Retired, Bedell Brothers Insurance
Agency, Inc.
*Gerard H. Brandi
Chairman, President and
Chief Executive Officer,
MASSBANK Corp.
Allan S. Bufferd
Deputy Treasurer and
Director of Investments
Massachusetts Institute of Technology
+Peter W. Carr
Retired, Guilford Transportation
Industries
Alexander S. Costello
President, Lowell Sun Publishing Co., Inc.
*Robert S. Cummings
Partner, Peabody and Brown
Robert E. Dyson
Partner, Dick, Dyson and Bolton
Louise A. Hickey
Retired, Melrose-Wakefield Hospital
Leonard Lapidus
Retired, Depositors Insurance Fund
*Stephen E. Marshall
President, C.H. Cleaves Insurance
Agency, Inc.
+Arthur W. McPherson
Certified Financial Planner
+*Herbert G. Schurian
Certified Public Accountant
*Dr. Donald B. Stackhouse
Dentist
*Member, Executive Committee
+Member, Audit Committee
OFFICERS AND DIRECTORS
MASSBANK FOR SAVINGS
OFFICERS
Gerard H. Brandi
Chairman, President and
Chief Executive Officer
Donald R. Washburn
Senior Vice President, Lending
Donna H. West
Senior Vice President, Retail Banking
Raymond A. Brearey
Vice President, Administration
Senior Trust Officer
David F. Carroll
Vice President, Operations
Reginald E. Cormier
Vice President, Treasurer
and Chief Financial Officer
Marilyn H. Abbott
Assistant Treasurer
Andrea S. Bradford
Assistant Vice President
Gregory W. Bowe
Assistant Vice President
Ernest G. Campbell, Jr.
Collections Officer
Charles F. Coupe
Information Officer
Janet L. Daniels
Loan Officer
Aunali Dohadwala
Auditor
Karen L. Flammia
Assistant Vice President
Melissa J. Flanagan
Assistant Treasurer
Ana M. Foster
Compliance and
Security Officer
Rachael E. Garneau
Assistant Treasurer
Margo E. Higgins
Assistant Vice President and Human Resources Officer
Brian W. Hurley
Assistant Vice President
Kenneth A. Masson
Assistant Vice President
Robyn L. Nadeau
Assistant Treasurer
Mindy S. Peloquin
Assistant Treasurer
Thomas J. Queeney
Assistant Treasurer
Alice B. Sweeney
Assistant Comptroller
Richard A. Tatarczuk
Assistant Vice President and Comptroller
Evangeline C. Westgate
Assistant Treasurer
Michael J. Woods
Assistant Vice President
BOARD OF DIRECTORS AND
EXECUTIVE COMMITTEE
Mathias B. Bedell
Gerard H. Brandi, Chairman
Robert S. Cummings, Clerk
Stephen E. Marshall
Herbert G. Schurian
Dr. Donald B. Stackhouse
47
38
MASSBANK FOR SAVINGS
BRANCH OFFICES
Main Office
123 Haven Street
Reading, MA 01867
(617) 942-8187
Melrose
476 Main Street
Melrose, MA 02176
(617) 662-0100
27 Melrose Street
Towers Plaza
Melrose, MA 02176
(617) 662-0165
Stoneham
240 Main Street
Stoneham, MA 02180
(617) 662-0177
Wilmington
370 Main Street
Wilmington, MA 01887
(508) 658-4000
219 Lowell Street
Lucci's Plaza
Wilmington, MA 01887
(508) 658-5775
Medford
4110 Mystic Valley Parkway
Wellington Circle Plaza
Medford, MA 02155
(617) 395-4899
Tewksbury
1800 Main Street
Tewksbury, MA 01876
(508) 851-0300
Chelmsford
17 North Road
Chelmsford, MA 01824
(508) 256-3733
296 Chelmsford Street
Eastgate Plaza
Chelmsford, MA 01824
(508) 256-3751
Dracut
45 Broadway Road
Dracut, MA 01826
(508) 441-0040
Lowell
50 Central Street
Lowell, MA 01852
(508) 458-3400
755 Lakeview Avenue
Lowell, MA 01853
(508) 458-3437
Westford
203 Littleton Road
Westford, MA 01886
(508) 692-3467
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