1
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Financial Highlights
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Massbank Corp. and Subsidiaries
Selected Consolidated Financial Data
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(In thousands) At December 31, 1996 1995 1994 1993 1992
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BALANCE SHEET DATA:
Total assets $888,237 $854,542 $843,647 $855,881 $839,103
Mortgage loans 224,139 220,603 220,269 219,347 219,932
Other loans 25,522 28,582 30,547 29,699 33,824
Allowance for loan losses 2,237 2,529 2,566 2,261 2,056
Investments(1) 622,645 586,768 568,635 589,666 564,422
Real estate acquired through foreclosure 503 255 129 699 905
Deposits 788,350 753,657 759,676 766,363 761,879
Stockholders' equity 92,250 90,817 74,504 80,075 71,062
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(In thousands) Years ended December 31, 1996 1995 1994 1993 1992
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OPERATING DATA:
Interest and dividend income $58,109 $56,611 $51,451 $51,541 $51,317
Interest expense 33,062 30,896 26,152 27,485 30,991
Net interest income 25,047 25,715 25,299 24,056 20,326
Provision for loan losses 160 170 705 671 884
Gains (losses) on securities, net 868 92 (533) 198 122
Other non-interest income 1,797 1,856 3,070 2,307 2,429
Non-interest expense 12,124 13,178 14,213 14,243 13,421
Income before income taxes 15,428 14,315 12,918 11,647 8,572
Income tax expense 6,001 5,556 4,733 4,711 3,895
Change in accounting principle (241)
Net income $ 9,427 $ 8,759 $ 8,185 $ 6,695 $ 4,677
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Years ended December 31, 1996 1995 1994 1993 1992
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OTHER DATA:
Yield on average interest-earning assets 6.84% 6.90% 6.22% 6.25% 6.88%
Cost of average interest-bearing liabilities 4.27 4.11 3.41 3.57 4.48
Interest rate spread 2.57 2.79 2.81 2.68 2.40
Net interest margin 2.96 3.15 3.07 2.93 2.73
Non-interest expense to average assets 1.40 1.57 1.67 1.68 1.75
Efficiency ratio(2) 43.5 47.4 50.8 53.3 58.3
Return on assets (net income/average assets) 1.08 1.04 0.96 0.79 0.61
Return on equity (net income/average
stockholders' equity) 10.65 10.65 10.62 8.98 6.79
Return on average realized equity(3) 11.01 10.81 10.62 8.98 6.79
Percent non-performing loans to total loans 0.64 0.97 0.84 0.51 0.59
Percent non-performing assets to total assets 0.24 0.31 0.26 0.23 0.29
Stockholders' equity to assets, at year-end 10.39 10.63 8.83 9.36 8.47
Book value per share, at year-end(4) $34.34 $33.13 $26.78 $27.28 $24.50
Earnings per share:(4)
Primary 3.44 3.15 2.84 2.23 1.59
Fully diluted 3.43 3.12 2.84 2.22 1.59
Cash dividends declared per share(4) 0.92 0.73 0.60 0.4533 0.3533
Dividend payout ratio 26% 23% 21% 20% 22%
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<FN>
(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 net unrealized gains or losses on securities available for sale.
(4) All share information presented has been adjusted to reflect the 3-for-2 split of the Company's common stock
effective September 9, 1994.
2
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 (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 this past year increased by $33.7 million or
3.9% from $854.5 million at December 31, 1995 to $888.2 million at December 31,
1996. Most of this growth is attributable to an increase in deposits. Total
stockholders' equity was $92.2 million at December 31, 1996, up $1.4 million
from $90.8 million at December 31, 1995. The increase in stockholders' equity
resulted primarily from the Company's net income of $9.4 million in 1996 and the
issuance of common stock under the Company's stock option plan. These were
partially offset by a decrease in the net unrealized gains on investment
securities available for sale, net of tax effect, of $3.2 million, the payment
of $2.5 million in dividends to stockholders and the cost of the additional
shares of treasury stock repurchased during the year of $3.5 million. Record
earnings in 1996 and a strong capital position have permitted the Company to
continue to reward its shareholders through the payment of higher quarterly
dividends. The Company's Board of Directors has increased the quarterly cash
dividend paid to shareholders twice during 1996 and ten times during the last
five years. Cash dividends per share paid to shareholders during 1996 increased
26% over the prior year. The Company's book value per share at December 31, 1996
was $34.34, up from $33.13 at December 31, 1995.
The Bank's total loan portfolio experienced modest growth in 1996, up $0.5
million over the prior year to $249.7 million. Loan originations totaled $51.4
million in 1996, up $11.7 million or 29.5%, when compared to total loan
originations of $39.7 million in 1995. The level of loan amortization and
payoffs in the Bank's loan portfolio during 1996 almost equalled total loan
originations for the year allowing for very little growth in the portfolio. This
is due in part to the shorter term mortgages with relat ively high down payments
which the Bank originates. The normal principal amortization on these mortgages
far exceeds that of 30-year fixed rate mortgages.
Total investments consisting of investment securities and other short term
investments, including term federal funds sold and interest-bearing bank
deposits, increased from $586.8 million at December 31, 1995 to $622.6 million
at year end 1996. These investments are principally in federal funds sold,
short-term U.S. Treasury notes and government agency fifteen year
mortgage-backed securities. The majority of the Bank's investment securities,
$476.6 million at December 31, 1996, are 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 $90.1 million in 1996 to $306.6 million at December 31, 1996.
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 increased by $34.7 million
or 4.6% during the twelve months ended December 31, 1996, from $753.7 million at
year end 1995 to $788.4 million at the end of 1996. These were favorable results
considering the performance of the stock market and mutual funds which were both
fierce competitors for the savers' dollars in 1996. The growth in deposits is
primarily attributable to an increase in the Bank's time certificates of deposit
which increased by $37.1 million during the past year. The Bank's strategy, in
1996, was to attract more long term deposits from the general public. By
selectively increasing certain time certificate of deposit (CD) rates the Bank
was successful in increasing its CD deposits with maturities in excess of one
year by $29.8 million, representing approximately 86% of its total deposit
growth in 1996.
13
3
ASSET QUALITY
Net loans represented 27.9% of total assets at December 31, 1996 compared to
28.9% of total assets at December 31, 1995. The Bank's investment securities and
other short-term investments, representing 70.0% of total assets at December 31,
1996, consisted primarily of U.S. Treasury notes, government agency
mortgage-backed securities and federal funds sold. At December 31, 1996, the
Bank's loan portfolio consisted of residential mortgages of $220.0 million,
commercial mortgages of $4.1 million, consumer loans of $24.9 million and
commercial loans of $0.6 million. Non-performing assets were $2.1 million at
December 31, 1996, representing 0.24% of total assets. This compares to $2.7
million, or 0.31% of total assets, at December 31, 1995. At year end 1996, the
Bank's allowance for loan losses was approximately $2.2 million, representing
139.7% of non-performing loans and 0.90% of total loans. The Bank believes that
its allowance for loan losses is adequate to cover the risks inherent in the
loan portfolio under current conditions.
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS 1996 AND 1995
Massbank Corp. reported record net income for the year ended December 31, 1996
of $9.4 million or $3.44 per share compared to $8.8 million or $3.15 per share
for the year ended December 31, 1995. On a fully diluted basis, the Company
earned $3.43 per share in 1996, up 9.9% or $0.31 per share from the $3.12 in
fully diluted earnings per share reported in 1995.
This is the fourth consecutive year that the Company has achieved record
breaking results in net income, earnings per share and return on average
realized equity, and the sixth consecutive year of increase in the Company's
return on average assets. Return on average realized equity and return on
average assets improved to 11.01% and 1.08% in 1996 from 10.81% and 1.04% in
1995, respectively. The Company's improved financial performance in 1996 can be
attributed to several factors. Non-interest expenses were down again in 1996 due
to incremental improvements throughout the Bank and another substantial drop in
deposit insurance expense; securities gains increased significantly over 1995;
and the provision for loan losses decreased slightly. Offsetting these factors
were decreases in net interest income and other non-interest income.
NET INTEREST INCOME
Net interest income on a fully taxable equivalent ("FTE") basis totaled $25.2
million for 1996, compared to $25.8 million for 1995. The decrease of $0.6
million was due principally to a decrease in net interest margin. The impact of
the lower net interest margin in 1996 was partially offset by an increase in the
Company's average earning assets from $822.0 million in 1995 to $852.3 million
in 1996. The Company's net interest margin in 1996 was 2.96%, 19 basis points
lower than the 3.15% of the prior year.
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 $58.3 million for the year
ended December 31, 1996, compared to $56.7 million for the year ended
December 31, 1995. The weighted average yield on earning assets for the year
ended December 31, 1996 decreased to 6.84% from 6.90% for the year ended
December 31, 1995. The average total earning assets of the Company increased
to $852.3 million in 1996, up $30.3 million from $822.0 million in 1995.
Interest on loans decreased $0.1 million to $19.4 million for the year
ended December 31, 1996. The decrease in interest income earned on loans was due
principally to a decrease in yield. The yield on the Bank's loans declined 23
basis points to 7.70% for the year ended December 31, 1996 compared to 7.93% for
the year ended December 31, 1995. The reduction in yield was partially offset by
an increase of $6.1 million in average loan volume. The decline in market
interest rates in the first half of 1996 compared to 1995 generated more
residential loan growth for the Bank, but at lower yields. This, along with
floating rate loans and adjustable rate mortgage loans which repriced downward,
had the greatest impact on the Bank's loan yields over the past year.
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
$1.6 million to $38.8 million in 1996 from $37.2 million in 1995. This increase
resulted primarily from an increase of $24.2 million in average volume. Average
total investments were $600.3 million in 1996 compared to $576.1 million in
1995. The weighted average yield on investments was 6.47% in 1996 and 1995.
14
4
INTEREST EXPENSE
Total interest expense increased 7.0% to $33.1 million for the year ended
December 31, 1996 from $30.9 million for the year ended December 31, 1995. This
increase is due to an increase in the Company's average cost of funds from 4.11%
in 1995 to 4.27% in 1996, coupled with an increase of $21.9 million in the
Company's average deposits, from $752.5 million in 1995 to $774.4 million in
1996. The growth in average deposits is attributable to an increase in time
certificates of deposit (CD). The average CD volume increased by $52.3 million
to $352.4 million in 1996, from $300.1 million in 1995. Partially offsetting
this increase was a reduction of $30.4 million in the average savings, and
demand and NOW deposit volume, from $452.4 in 1995 to $422.0 million in 1996.
The migration from lower cost savings deposits to higher cost (longer term) CDs,
combined with the growth in CDs in 1996, contributed significantly to the
Company's increased cost of funds in 1996.
PROVISION FOR LOAN LOSSES
The provision for loan losses in 1996 was $160 thousand compared to $170
thousand in 1995. In determining the amount to provide for loan losses, the key
factor is the adequacy of the allowance for loan losses. In making its decision,
management considers a number of factors, including the risk characteristics of
the portfolio, underlying collateral, current and anticipated economic
conditions, and trends in loan delinquencies and charge-offs. At December 31,
1996, the allowance for loan losses was $2.2 million representing 139.7% of
non-performing loans. The Bank's non-performing loans totaled $1.6 million at
December 31, 1996 compared to $2.4 million a year earlier. Net charge-offs
totaled $452 thousand in 1996 compared to $207 thousand in 1995. Management
believes that the allowance for 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 increased to $2.7 million for the year ended December
31, 1996, from $1.9 million for the year ended December 31, 1995. This
improvement is due to a significant increase in securities gains, the results of
a strong stock market in 1996, partially offset by a slight decrease in all
other non-interest income.
Net gains on securities totaled $868 thousand in 1996 compared to $92
thousand in 1995. All other non-interest income decreased from $1.9 million in
1995 to $1.8 million in 1996 due primarily to non-recurring income recorded in
1995. In 1995, the Company recorded interest on tax settlements which it had
received from the IRS totaling $51 thousand.
NON-INTEREST EXPENSE
Non-interest expenses (i.e., operating expenses) decreased by $1.1 million or
8.0% to $12.1 million in 1996, from $13.2 million a year ago.
Salaries and employee benefits decreased by $45 thousand to $7.2 million in
1996 from $7.3 million in 1995. This improvement was due to a decrease in the
costs of employee retirement benefits partially offset by a modest increase in
salaries due to normal salary increases granted to employees.
Occupancy and equipment expense decreased by $14 thousand to approximately
$2.0 million in 1996 due mostly to a reduction in depreciation expense.
Data processing and professional services expenses were reduced by $74
thousand to $948 thousand in 1996, from approximately $1.0 million the previous
year.
Deposit insurance expense in 1996 took another substantial drop due to a
further reduction in Federal Deposit Insurance Corporation ("FDIC") deposit
insurance rates. FDIC deposit insurance rates were reduced to an annual minimum
of $2 thousand for 1996. As a result, total deposit insurance expense decreased
from $914 thousand in 1995 to $13 thousand in 1996. Deposit insurance expense
also includes an assessment from the Depositors Insurance Fund ("DIF") to insure
customer deposits in excess of the FDIC insurance limits.
All other expenses essentially stayed flat in 1996.
INCOME TAX EXPENSE
The Company recorded a tax expense of $6.0 million in 1996 compared to
approximately $5.5 million in 1995. The effective income tax rate for the year
ended December 31, 1996 was 38.9%, a modest increase from 38.8% in 1995. For
further information on income taxes, see Note 12 of Notes to Consolidated
Financial Statements.
15
5
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 loan
losses, and non-interest expense reductions resulting prima rily 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 portfol io 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 maintained
flat regular savings account deposit rates in 1995 and 1994 while selectively
increasing rates on certificates of deposit. The strategy 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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6
PROVISION FOR 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 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 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 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 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.
17
7
LIQUIDITY AND CAPITAL RESOURCES
The Bank must maintain a sufficient level 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, 1996, the Bank had $109.9 million or 12.4% of total
assets and $148.6 million or 16.7% of total assets invested, respectively, in
overnight federal funds sold and United States obligations.
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 I
capital. Highly rated banks (i.e., those with a composite rating of 1 under the
CAMEL rating system) are required to maintain a minimum leverage ratio of Tier I
capital to total average assets of at least 3.00%. An additional 100 to 200
basis points are required for all but these most highly rated institutions. The
Bank is also required to maintain a minimum level of risk-based capital. Under
the new risk-based capital standards, FDIC insured institutions must maintain a
Tier I capital to risk-weighted assets ratio of 4.00% and are gener ally
expected to meet a minimum total qualifying capital to risk-weighted assets
ratio of 8.00%. The new risk-based capital guidelines take into consideration
risk factors, as defined by the regulators, associated with various categories
of assets, both on and off the balance sheet. Under the guidelines, capital
strength is measured in two tiers which are used in conjunction with risk
adjusted assets to determine the risk-based capital ratios. Tier II capital
components include supplemental capital components such as qualifying allowance
for loan losses and qualifying subordinated debt. Tier I capital plus the Tier
II capital components is referred to as total qualifying capital.
The capital ratios of the Bank and the Company currently exceed the minimum
regulatory requirements. At December 31, 1996, the Bank had a leverage Tier I
capital to average assets ratio of 9.93%, a Tier I capital to risk-weighted
assets ratio of 32.88% and a total capital to risk-weighted assets ratio of
33.74%. The Company, on a consolidated basis, had ratios of leverage Tier I
capital to average assets of 10.09%, Tier I capital to risk-weighted assets of
33.41% and total capital to risk-weighted assets of 34.27% at December 31, 1996.
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 Asset and Liability 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 ongoing 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.
18
8
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 FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES
In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities". This
Statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities occuring after December 31, 1996 and is to be
applied prospectively. However, SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of SFAS No. 125," requires the deferral of implementation as
it relates to repurchase agreements, dollar-rolls, securities lending and
similar transactions until years beginning after December 31, 1997. Earlier or
retrospective applications of this Statement is not permitted. SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. Those standards are based
on an approach that focuses on control, whereby after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when control has
been surrendered, and derecognizes liabilities when extinguished. This Statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. The adoption of this
pronouncement is not expected to have a significant effect on the Company's
financial position or results of operations.
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.
1996 COMPARED TO 1995 1995 COMPARED TO 1994
(IN THOUSANDS) INCREASE (DECREASE) INCREASE (DECREASE)
YEARS ENDED DECEMBER 31, DUE TO DUE TO
- -------------------------------------------------------------------------------------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
- -------------------------------------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME:
Federal funds sold $ 265 $ (537) $ (272) $ 3,165 $ 908 $ 4,073
Short-term investments 986 (30) 956 273 19 292
Investment securities (3,580) 441 (3,139) (50) 1,619 1,569
Trading securities (2,043) (27) (2,070) (4,954) 1,867 (3,087)
Mortgage-backed securities 6,449 (342) 6,107 2,363 46 2,409
Mortgage loans 675 (420) 255 (477) 44 (433)
Other loans (263) (76) (339) 8 329 337
- -------------------------------------------------------------------------------------------------------------
Total interest and dividend income 2,489 (991) 1,498 328 4,832 5,160
- -------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits:
Demand and NOW (10) (68) (78) (10) (23) (33)
Savings (1,006) 376 (630) (4,206) 153 (4,053)
Time certificates of deposit 2,995 (121) 2,874 6,163 2,668 8,831
Borrowed funds -- -- -- (1) -- (1)
- -------------------------------------------------------------------------------------------------------------
Total interest expense 1,979 187 2,166 1,946 2,798 4,744
- -------------------------------------------------------------------------------------------------------------
Net interest income $ 510 $(1,178) $ (668) $(1,618) $2,034 $ 416
=============================================================================================================
19
9
AVERAGE BALANCE SHEETS
====================================================================================================================================
(In thousands) Years ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
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 $ 95,253 $ 5,084 5.34% $ 90,589 $ 5,356 5.91% $ 32,724 $ 1,283 3.92%
Short-term investments(2) 23,656 1,259 5.32 5,168 303 5.86 362 11 3.07
Investment securities 194,229 12,586 6.48 250,318 15,710 6.28 251,209 14,139 5.63
Mortgage-backed securities 277,409 19,353 6.98 184,976 13,246 7.16 152,026 10,837 7.13
Trading securities 9,719 563 5.79 45,012 2,633 5.85 141,479 5,720 4.04
Mortgage loans(1) 225,005 16,933 7.53 216,060 16,678 7.72 222,144 17,111 7.70
Other loans(1) 26,993 2,481 9.19 29,848 2,820 9.45 29,749 2,483 8.35
- ------------------------------------------------------ ------------------- -------------------
Total earning assets 852,264 58,259 6.84% 821,971 56,746 6.90% 829,693 51,584 6.22%
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses 2,414 2,587 2,343
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets
less allowance for
loan losses 849,850 819,384 827,350
Other assets 19,194 20,765 22,442
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $869,044 $840,149 $849,792
====================================================================================================================================
LIABILITIES:
Deposits:
Demand and NOW $ 63,969 574 0.90% $ 64,946 652 1.00% $ 66,050 685 1.04%
Savings 358,056 12,268 3.43 387,449 12,898 3.33 514,015 16,951 3.30
Time certificates of deposit 352,385 20,220 5.74 300,141 17,346 5.78 186,222 8,515 4.57
- ------------------------------------------------------ ------------------- -------------------
Total deposits 774,410 33,062 4.27 752,536 30,896 4.11 766,287 26,151 3.41
Borrowed funds -- -- -- -- -- -- 159 1 0.69
- ------------------------------------------------------ ------------------- -------------------
Total deposits and
borrowed funds 774,410 33,062 4.27% 752,536 30,896 4.11% 766,446 26,152 3.41%
- ------------------------------------------------------------------------------------------------------------------------------------
Other liabilities 6,106 5,365 6,245
Total liabilities 780,516 757,901 772,691
- ------------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY: 88,528 82,248 77,101
Total liabilities and
stockholders' equity $869,044 $840,149 $849,792
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (tax-
equivalent basis) 25,197 25,850 25,432
Less adjustment of tax-
exempt interest income 150 135 133
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income $25,047 $ 25,715 $ 25,299
- ------------------------------------------------------------------------------------------------------------------------------------
Interest rate spread 2.57% 2.79% 2.81%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin(3) 2.96% 3.15% 3.07%
====================================================================================================================================
<FN>
(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 loan losses divided by average interest-earning assets.
(4) Includes the effects of SFAS No. 115.
20
10
Independent Auditors' Report
[LOGO KPMG] Peat Marwick LLP
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, 1996 and
1995, 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, 1996. 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, 1996 and
1995, and the results of their operations and their cash flows for each of the
years in the three year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
January 17, 1997
21
11
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands except share data) AT DECEMBER 31, 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Cash and due from banks $ 6,612 $ 8,150
Short-term investments (Note 2) 134,310 117,505
- ---------------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 140,922 125,655
- ---------------------------------------------------------------------------------------------------------------------------------
Term federal funds sold 10,000 5,000
Interest-bearing deposits in banks 1,751 941
Securities held to maturity, at amortized cost
(market value of $160 in 1996 and $402 in 1995) (Note 3) 160 402
Securities available for sale, at market value
(amortized cost of $464,857 in 1996 and $443,638 in 1995) (Note 3) 471,752 456,101
Trading securities, at market value (Note 4) 4,672 6,819
Loans (Notes 5, 7 and 11):
Mortgage loans 224,139 220,603
Other loans 25,522 28,582
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans 249,661 249,185
Less: allowance for loan losses (Note 6) 2,237 2,529
- ---------------------------------------------------------------------------------------------------------------------------------
Net loans 247,424 246,656
- ---------------------------------------------------------------------------------------------------------------------------------
Premises and equipment (Note 9) 4,095 4,226
Real estate acquired through foreclosure (Note 7) 503 255
Accrued interest receivable 5,647 7,280
Other assets 1,311 1,207
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $888,237 $854,542
=================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits (Notes 10 and 11):
Demand and NOW $ 62,734 $ 66,413
Savings 357,658 356,598
Time certificates of deposit 369,139 332,057
Deposit acquisition premium, net of amortization (1,181) (1,411)
- ---------------------------------------------------------------------------------------------------------------------------------
Total deposits 788,350 753,657
Escrow deposits of borrowers 1,271 992
Employee stock ownership plan liability (Note 14) 937 1,093
Accrued and deferred income taxes payable (Note 12) 2,594 4,760
Other liabilities 2,835 3,223
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 795,987 763,725
- ---------------------------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (Notes 8 and 9)
Stockholders' equity (Notes 12, 13, 14 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, 5,476,125 and 5,424,671 shares issued, respectively 5,476 5,425
Additional paid-in capital 57,858 56,842
Retained earnings 65,756 58,773
- ---------------------------------------------------------------------------------------------------------------------------------
129,090 121,040
Treasury stock at cost, 2,789,411 and 2,683,065 shares, respectively (39,904) (36,370)
Net unrealized gains on securities available for sale, net of tax effect (Note 3) 4,001 7,240
Common stock acquired by ESOP (Note 14) (937) (1,093)
- ---------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 92,250 90,817
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $888,237 $854,542
=================================================================================================================================
See accompanying notes to consolidated financial statements.
22
12
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands except share data) YEARS ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME:
Mortgage loans $16,933 $16,678 $17,111
Other loans 2,481 2,820 2,483
Securities available for sale:
Mortgage-backed securities 19,353 13,246 10,837
Other securities 12,425 15,553 13,975
Trading securities 563 2,633 5,720
Federal funds sold 5,084 5,356 1,283
Other investments 1,270 325 42
- --------------------------------------------------------------------------------------------------------------------------------
Total interest and dividend income 58,109 56,611 51,451
- --------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits:
NOW 574 652 685
Savings 12,268 12,898 16,951
Time certificates of deposit 20,220 17,346 8,515
- --------------------------------------------------------------------------------------------------------------------------------
Total interest expense on deposits 33,062 30,896 26,151
Borrowed funds -- -- 1
- --------------------------------------------------------------------------------------------------------------------------------
Total interest expense 33,062 30,896 26,152
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income 25,047 25,715 25,299
PROVISION FOR LOAN LOSSES (Note 6) 160 170 705
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 24,887 25,545 24,594
- --------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Deposit account service fees 932 923 974
Gains (losses) on securities, net 868 92 (533)
Interest on tax settlements -- 51 1,188
Other 865 882 908
- --------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 2,665 1,948 2,537
- --------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Salaries and employee benefits 7,215 7,260 6,793
Occupancy and equipment 1,977 1,991 2,041
Data processing 608 608 640
Professional services 340 414 490
Deposit insurance 13 914 1,788
Write-down in loan valuation premium -- -- 282
Other 1,971 1,991 2,179
- --------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 12,124 13,178 14,213
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 15,428 14,315 12,918
INCOME TAX EXPENSE (Note 12) 6,001 5,556 4,733
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 9,427 $ 8,759 $ 8,185
================================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Primary 2,743,880 2,783,933 2,883,314
Fully diluted 2,746,016 2,806,095 2,885,358
EARNINGS PER SHARE (in dollars):
Primary $ 3.44 $ 3.15 $ 2.84
Fully diluted 3.43 3.12 2.84
================================================================================================================================
See accompanying notes to consolidated financial statements.
23
13
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------------
(In thousands) YEARS ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,427 $ 8,759 $ 8,185
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 441 462 520
Amortization of deposit acquisition premium 230 231 230
Amortization of loan valuation premium 64 64 361
Amortization of ESOP shares committed to be released 63 51 --
Charitable contribution of appreciated securities 5 -- --
(Increase) decrease in accrued interest receivable 1,633 (410) 36
Increase (decrease) in other liabilities (388) (2,924) 191
Decrease in current income taxes payable (75) (363) (1,379)
Accretion of discounts on securities, net of
amortization of premiums (1,052) (1,137) (729)
Net trading securities activity 2,065 109,289 26,718
(Gains) losses on securities available for sale (950) 407 (308)
(Gains) losses on trading securities 82 (499) 841
Increase in deferred mortgage loan origination fees, net of
amortization 114 57 15
Deferred income tax expense (benefit) 238 276 (183)
(Increase) decrease in other assets (74) (186) 270
Loans originated for sale (215) (455) (1,034)
Loans sold 378 455 1,285
Provision for loan losses 160 170 705
Provisions for losses and writedowns on real estate acquired
through foreclosure 32 25 49
(Gains) on sales of real estate acquired through foreclosure (26) -- (30)
(Gains) on sales of premises and equipment (2) -- --
Increase (decrease) in escrow deposits of borrowers 279 26 (64)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 12,429 114,298 35,679
- --------------------------------------------------------------------------------------------------------------------------
(Continued)
24
14
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
- ----------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) YEARS ENDED DECEMBER 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of term federal funds (10,000) (50,000) --
Proceeds from maturities of term federal funds 5,000 45,000 --
Purchases of bank certificates of deposit (810) (941) --
Proceeds from sales of investment securities available for sale 49,940 6,035 28,329
Proceeds from maturities of investment securities held to maturity
and available for sale 86,225 45,147 129,227
Purchases of investment securities available for sale (56,196) (57,789) (124,200)
Purchases of mortgage-backed securities (135,854) (61,092) (85,886)
Principal repayments of mortgage-backed securities 36,858 22,084 29,130
Principal repayments of tax-exempt bonds 17 18 17
Loans originated (51,152) (39,222) (46,672)
Loan principal payments received 49,118 40,116 43,656
Purchases of premises and equipment (310) (360) (459)
Proceeds from sale of premises and equipment 2 -- --
Proceeds from sale of real estate acquired through foreclosure 511 265 791
Net advances on real estate acquired through foreclosure -- (7) (22)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (26,651) (10,746) (26,089)
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 34,463 (6,250) (6,917)
Net decrease in borrowed funds -- -- (73)
Payments to acquire treasury stock (3,534) (3,082) (5,063)
Issuance of common stock under stock option plan 738 891 840
Tax benefit resulting from stock options exercised 266 364 299
Cash dividends paid on common stock (2,459) (1,981) (1,692)
Tax benefit resulting from dividends paid on unallocated shares
held by the ESOP 15 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 29,489 (10,058) (12,606)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 15,267 93,494 (3,016)
Cash and cash equivalents at beginning of year 125,655 32,161 35,177
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 140,922 $125,655 $ 32,161
==================================================================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
CASH TRANSACTIONS:
Cash paid during the year for interest $ 33,026 $ 30,984 $ 26,153
Cash paid during the year for taxes 5,557 5,230 4,828
NON-CASH TRANSACTIONS:
SFAS 115:
Increase (decrease) in stockholders' equity (3,239) 11,155 (8,067)
Increase (decrease) in deferred tax liabilities (2,329) 8,194 (6,123)
Securities reclassified from held to maturity to available for sale -- 202,800 --
Transfers from loans to real estate acquired through foreclosure 765 409 219
Transfers from other assets to securities available for sale -- 214 --
Purchase of securities incomplete (not settled) as of year end -- 138 2,992
Sales of securities incomplete (not settled) as of year end 30 -- --
==================================================================================================================================
See accompanying notes to consolidated financial statements.
25
15
MASSBANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT SHARE DATA) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ---------------------------------------------------------------------------------------------------------------------------------
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, 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
Net Income -- -- 9,427 -- -- -- 9,427
Cash dividends declared
($0.92 per share) -- -- (2,459) -- -- -- (2,459)
Tax benefit resulting from dividends paid
on unallocated shares held by the ESOP -- -- 15 -- -- -- 15
Net decrease in liability to ESOP -- -- -- -- -- 156 156
Amortization of ESOP shares
committed to be released -- 63 -- -- -- -- 63
Purchase of treasury stock -- -- -- (3,534) -- -- (3,534)
Exercise of stock options and
related tax benefits 51 953 -- -- -- -- 1,004
Change in net unrealized
gains (losses) on securities
available for sale,
net of tax effect -- -- -- -- (3,239) -- (3,239)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $5,476 $57,858 $65,756 $(39,904) $ 4,001 $ (937) $92,250
=================================================================================================================================
See accompanying notes to consolidated financial statements.
26
16
MASSBANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Massbank Corp. (the "Company") is a Delaware chartered holding company whose
principal subsidiary is Massbank (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, 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 nancial 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 1994 and prior years have been restated to reflect the
Company's three-for-two stock split of September 9, 1994.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
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. 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. 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, 1996, stockholders' equity included
approximately $4.0 million, representing the net unrealized gains on
securities available for sale, less applicable income taxes. Investment s
classified as trading securities are stated at market value with unrealized
gains and losses included in earnings.
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.
In the fourth quarter of 1995, the Company adopted the Financial
Accounting Standards Board ("FASB") 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
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 net unrealized gains of $3.7
million on the date they were reclassified.
Income on debt securities 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.
27
17
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 generally 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 d iscontinued. 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.
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 LoanIncome 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.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions
charged to operations based on management's assessment of many factors
including the risk characteristics of the portfolio, underlying
collateral, current and anticipated economic conditions that may
affect the borrower's ability to pay, and trends in loan delinquencies
and charge-offs. Realized losses, net of recoveries, are charged
directly to the allowance. While management uses the information
available in establishing the allowance for loan losses, future
adjustments to the allowance may be necessary if economic conditions
differ substantially from the assumptions used in making the
evaluation. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to
recognize additions to the allowance based on judgments different from
those of management.
PREMISES AND EQUIPMENT
Land is carried at cost. Premises, equipment and leasehold impro vements 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 loans determined to
be substantially repossessed. Real estate loans that are substantially
repossessed include only those loans for which the Bank has taken possession
of the collateral but has not completed legal foreclosure proceedings. Loan
losses arising from the acquisition of such properties are charged against
the allowance for loan losses. Real estate acquired through foreclosure 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.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF
LIABILITIES
Effective January 1, 1997, the Company will adopt SFASNo. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." This Statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December
31, 1996 and is to be applied prospectively. However, SFAS No. 127, "Deferral
of the Effective Date of Certain Provisions of SFAS No. 125," requires the
deferral of implementation as it relates to repurchase agreements,
dollar-rolls, securities lending and similar transactions until years
beginning after December 31, 1997. Earlier or retrospective applications of
this Statement is not permitted. SFASNo. 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. Those standards are based on an approach that
focuses on control, whereby after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities
it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. This Statement
provides consistent standards for distinguishing transfers of financial
assets that are sal es from transfers that are secured borrowings. The
adoption of this pronouncement is not expected to have a significant effect
on the Company's financial position or results of operations.
28
18
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
EMPLOYEES' STOCK OWNERSHIP PLAN ("ESOP")
The Company recognizes compensation cost equal to the fair value of the ESOP
shares committed to be released.
Dividends on unallocated ESOP shares are reported as a reduction of
accrued interest on the ESOPloan.
The Company reports loans from outside lenders to its ESOP as a
liability on its balance sheet and reports interest cost on the debt.
For earnings per share (EPS) computations, ESOP shares that have been
committed to be released are considered outstanding. ESOP shares that have
not been committed to be released are not considered outstanding.
STOCK-BASED COMPENSATION
On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." The Statement establishes financial accounting and
reporting standards for stock-based compensation plans. SFAS No. 123
encourages, but does not require, a fai r value based method of accounting
for stock-based compensation plans. The statement allows an entity to
continue to measure compensation cost for those plans using the intrinsic
value based method prescribed by Accounting Principles Board ("APB") Opinion
No. 25. For those entities electing to use the intrinsic value based method,
SFAS No. 123 requires pro forma disclosures of net income and earnings per
share computed as if the fair value based method had been applied. The
Company continues to account for stock-based compensation costs under
APB Opinion No. 25.
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.
For earnings per share computations, ESOP shares that have been
committed to be released are considered outstanding. ESOP shares that have
not been committed to be released are not considered outstanding.
All share information set forth herein has been adjusted to reflect
the 3-for-2 split of the Company's common stock effective September 9, 1994.
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 $3.2 million and $2.1 million at
December 31, 1996 and 1995, respectively.
INCOME TAXES
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. Based on
the Bank's historical and current pre-tax earnings, management believes it is
more likely than not that the Bank will realize its existing gross deferred
tax asset.
The Company and its subsidiaries file state and consolidated federal
income tax returns on an October 31 year-end.
29
19
2. SHORT-TERM INVESTMENTS
Short-term investments consist of the following:
---------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1996 1995
---------------------------------------------------------------------------------------------------------------------------------
Federal funds sold (overnight) $109,902 $100,245
Term federal funds sold -- 10,000
Money market funds 24,408 7,260
---------------------------------------------------------------------------------------------------------------------------------
Total short-term investments $134,310 $117,505
=================================================================================================================================
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 market value of investment securities follows:
---------------------------------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) AT DECEMBER 31, 1996 COST GAINS LOSSES VALUE
---------------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
Other bonds and obligations $ 160 $ -- $ -- $ 160
---------------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity 160 -- -- 160
---------------------------------------------------------------------------------------------------------------------------------
Securities available for sale:
Debt securities:
U.S. Treasury obligations 139,197 1,509 -- 140,706
U.S. Government agency obligations 7,899 31 (53) 7,877
Other bonds and obligations 1,000 -- -- 1,000
---------------------------------------------------------------------------------------------------------------------------------
Total 148,096 1,540 (53) 149,583
---------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities:
Government National Mortgage Association 69,903 987 (480) 70,410
Federal Home Loan Mortgage Corporation 226,130 1,878 (1,920) 226,088
Federal National Mortgage Association 9,261 356 -- 9,617
Other 453 27 -- 480
---------------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 305,747 3,248 (2,400) 306,595
---------------------------------------------------------------------------------------------------------------------------------
Total debt securities 453,843 4,788 (2,453) 456,178
---------------------------------------------------------------------------------------------------------------------------------
Equity securities 11,014 4,624 (64) 15,574
---------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale 464,857 $9,412 $(2,517) $471,752
---------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains on securities
available for sale 6,895
---------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale, net 471,752
---------------------------------------------------------------------------------------------------------------------------------
Total investment securities, net $471,912
=================================================================================================================================
30
20
3. INVESTMENT SECURITIES (continued)
--------------------------------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) AT DECEMBER 31, 1996 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
================================================================================================================================
During the years ended December 31, 1996, 1995 and 1994, the Company realized
gains and losses on sales of securities available for sale as follows:
--------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1996 1995 1994
REALIZED REALIZED REALIZED
GAINS LOSSES GAINS LOSSES GAINS LOSSES
--------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury obligations $ 118 $(103) $ 4 $(889) $ -- $(382)
Mortgage-backed securities -- (166) -- -- -- --
Marketable equity securities 1,146 (45) 574 (96) 724 (34)
--------------------------------------------------------------------------------------------------------------------------------
Total realized gains (losses) $1,264 $(314) $578 $(985) $724 $(416)
================================================================================================================================
Proceeds from sales of debt securities available for sale during 1996, 1995
and 1994 were $40.8 million, $41.9 million and $25.6 million , respectively.
Proceeds from sales of marketable equity securities available for sale during
1996, 1995 and 1994, were $9.1 million, $4.1 million and $2.7 million,
respectively.
There were no sales of investment securities held-to-maturity during
1996, 1995 and 1994.
31
21
3. INVESTMENT SECURITIES (continued)
The amortized cost and 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, 1996 1995
---------------------------------------------------------------------------------------------------------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---------------------------------------------------------------------------------------------------------------------------------
Investment securities held to maturity:
Other bonds and obligations:
Maturing within 1 year $ -- $ -- $ 225 $ 225
Maturing after 5 years but within 10 years 111 111 124 124
Maturing after 10 years but within 15 years 49 49 53 53
---------------------------------------------------------------------------------------------------------------------------------
Total debt securities held to maturity 160 160 402 402
=================================================================================================================================
Investment securities available for sale:
U.S. Treasury obligations:
Maturing within 1 year 55,820 56,120 75,948 76,251
Maturing after 1 year but within 5 years 80,390 81,566 128,838 132,716
Maturing after 5 years but within 10 years 2,987 3,020 2,985 3,148
---------------------------------------------------------------------------------------------------------------------------------
Total 139,197 140,706 207,771 212,115
---------------------------------------------------------------------------------------------------------------------------------
U.S. Government agency obligations:
Maturing within 1 year -- -- 6,995 7,103
Maturing after 1 year but within 5 years 6,899 6,904 6,999 7,069
Maturing after 5 years but within 10 years 1,000 973 -- --
---------------------------------------------------------------------------------------------------------------------------------
Total 7,899 7,877 13,994 14,172
---------------------------------------------------------------------------------------------------------------------------------
Other bonds and obligations:
Maturing within 1 year 1,000 1,000 999 997
Maturing after 1 year but within 5 years -- -- 997 1,007
---------------------------------------------------------------------------------------------------------------------------------
Total 1,000 1,000 1,996 2,004
---------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities:
Maturing after 1 year but within 5 years 2,408 2,458 38 38
Maturing after 5 years but within 10 years 15,975 16,544 21,967 22,846
Maturing after 10 years but within 15 years 287,364 287,593 189,518 193,636
---------------------------------------------------------------------------------------------------------------------------------
Total 305,747 306,595 211,523 216,520
---------------------------------------------------------------------------------------------------------------------------------
Total debt securities available for sale 453,843 456,178 435,284 444,811
---------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains on debt securities
available for sale 2,335 -- 9,527 --
---------------------------------------------------------------------------------------------------------------------------------
Total debt securities available for sale,
net carrying value $456,178 $456,178 $444,811 $444,811
=================================================================================================================================
Mortgage-backed securities are shown at their contractual maturity but are
expected to have shorter average lives due to prepayments.
32
22
4. TRADING SECURITIES
The amortized cost and market values of trading securities are as follows:
- --------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------------
Amortized Market Amortized Market
Cost Value Cost Value
- --------------------------------------------------------------------------------
Investments in mutual funds $4,790 $4,672 $6,834 $6,819
- --------------------------------------------------------------------------------
Total trading securities $4,790 $4,672 $6,834 $6,819
- --------------------------------------------------------------------------------
During the years ended December 31, 1996, 1995 and 1994, the Company realized
gains and losses on sales of trading securities as follows:
- --------------------------------------------------------------------------------
(IN THOUSANDS) YEARS ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Realized Realized Realized
Gains Losses Gains Losses Gains Losses
- --------------------------------------------------------------------------------
U.S. Treasury obligations $-- $ -- $20 $ -- $3 $ (52)
Investments in mutual funds -- (44) -- (133) 6 (271)
Marketable equity securities 65 -- 4 -- - --
- --------------------------------------------------------------------------------
Total realized gains (losses) $65 $(44) $24 $(133) $9 $(323)
================================================================================
Proceeds from sales of trading securities during 1996, 1995 and 1994 were $3.1
million, $26.5 million and $81.1 million, respectively. Unrealized gains or
(losses) included in income in 1996, 1995 and 1994 were $(103) thousand, $608
thousand and $(532) 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 mortgage 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.
33
23
5. LOANS (continued)
The composition of the Bank's loan portfolio is summarized as follows:
- --------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------------
Mortgage loans:
Residential:
Conventional:
Fixed rate $ 168,000 $ 163,691
Variable rate 48,832 45,717
FHA and VA 2,515 3,244
Commercial 4,121 6,975
Construction 1,388 1,516
- --------------------------------------------------------------------------------
Total mortgage loans 224,856 221,143
Add: premium on loans 325 388
Less: deferred mortgage loan origination fees (1,042) (928)
- --------------------------------------------------------------------------------
Mortgage loans, net 224,139 220,603
- --------------------------------------------------------------------------------
Other loans:
Consumer:
Installment 1,967 1,988
Guaranteed education 9,729 10,420
Other secured 1,611 2,012
Home equity lines of credit 11,316 13,144
Unsecured 271 265
- --------------------------------------------------------------------------------
Total consumer loans 24,894 27,829
Commercial 628 753
- --------------------------------------------------------------------------------
Total other loans 25,522 28,582
- --------------------------------------------------------------------------------
Total loans $ 249,661 $ 249,185
- --------------------------------------------------------------------------------
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, 1996 follows:
- --------------------------------------------------------------------------------
(IN THOUSANDS)
- --------------------------------------------------------------------------------
Balance at December 31, 1995 $ 2,810
Additions 142
Repayments (2,557)
- --------------------------------------------------------------------------------
Balance at December 31, 1996 $ 395
================================================================================
34
24
6. ALLOWANCE FOR LOAN LOSSES
An analysis of the activity in the allowance for loan losses is as follows:
- --------------------------------------------------------------------------------
(IN THOUSANDS) YEARS ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Balance at beginning of year $ 2,529 $ 2,566 $ 2,261
Provision for loan losses 160 170 705
Recoveries of loans previously charged-off 90 42 26
- --------------------------------------------------------------------------------
Total 2,779 2,778 2,992
- --------------------------------------------------------------------------------
Less charge-offs:
Mortgage loans (480) (124) (339)
Other loans (62) (125) (87)
- --------------------------------------------------------------------------------
Balance at end of year $ 2,237 $ 2,529 $ 2,566
================================================================================
The following table shows the allocation of the allowance for loan losses by
category of loans at December 31, 1996, 1995 and 1994.
(IN THOUSANDS) AT DECEMBER 31, 1996 1995 1994
Percentage Percentage Percentage
of Loans of Loans of Loans
Amount to Total Amount to Total Amount to Total
- -------------------------------------------------------------------------------------
Mortgage loans:
Residential $1,915 88% $2,101 86% $1,908 84%
Commercial 3 2 104 3 67 3
Consumer loans 119 10 237 11 134 12
Other loans 57 -- 61 -- 56 1
Unallocated 143 -- 26 -- 401 --
- -------------------------------------------------------------------------------------
Total $2,237 100% $2,529 100% $2,566 100%
=====================================================================================
7. NON-PERFORMING ASSETS
The following schedule summarizes non-performing assets at the dates shown:
- --------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Total nonaccrual loans $1,601 $2,428 $2,098
Total real estate acquired through foreclosure 503 255 129
- --------------------------------------------------------------------------------
Total non-performing assets $2,104 $2,683 $2,227
================================================================================
Percent of non-performing loans to total loans 0.64% 0.97% 0.84%
Percent of non-performing assets to total assets 0.24% 0.31% 0.26%
The reduction in interest income associated with nonaccrual loans is as follows:
- ------------------------------------------------------------------------------------------------------
(IN THOUSANDS) YEARS ENDED DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
Interest income that would have been recorded under original terms $149 $204 $185
Interest income actually recorded 78 60 88
- ------------------------------------------------------------------------------------------------------
Reduction in interest income $ 71 $144 $ 97
======================================================================================================
At December 31, 1996 and 1995, the Company had no impaired loans as defined in
SFAS114. Additionally, the Company had no impaired loans during 1996 and its
average recorded investment in impaired loans during the year ended December 31,
1995 was negligible.
35
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 com mitments 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, 1996 1995
- ----------------------------------------------------------------------------------------------------
Financial instruments whose contract amounts represent credit risk:
Commitments to originate residential mortgage loans $ 4,264 $ 3,466
Unadvanced portions of construction loans 332 444
Unused credit lines, including unused portions of equity lines of credit 19,546 20,714
====================================================================================================
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, 1996 1995 (IN YEARS)
- --------------------------------------------------------------------------------
Premises:
Land $1,168 $1,168 --
Buildings 3,395 3,395 15-45
Building and leasehold improvements 1,587 1,449 3-30
Equipment 3,093 2,921 3-20
- --------------------------------------------------------------------------------
9,243 8,933
Less: accumulated depreciation and amortization 5,148 4,707
- --------------------------------------------------------------------------------
Total premises and equipment, net $4,095 $4,226
================================================================================
The Bank is obligated under a number of noncancelable operating leases for
various banking offices. These operating leases expire at various dates through
2006 with options for renewal. Rental expenses for the years ended December 31,
1996, 1995 and 1994 amounted to $508 thousand, $494 thousand and $484 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, 1996, are as follows:
- --------------------------------------------------------------------------------
(IN THOUSANDS) YEARS ENDING DECEMBER 31, PAYMENTS
- --------------------------------------------------------------------------------
1997 $ 511
1998 454
1999 374
2000 176
2001 176
Later years 240
- --------------------------------------------------------------------------------
Total $1,931
================================================================================
36
26
10. DEPOSITS
Deposits are summarized as follows:
- -----------------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1996 1995
- -----------------------------------------------------------------------------------------
Amount Rate Amount Rate
- -----------------------------------------------------------------------------------------
Demand and NOW:
NOW accounts $ 45,352 1.16% $ 51,197 1.23%
Demand accounts 17,382 -- 15,216 --
- -----------------------------------------------------------------------------------------
Total demand and NOW 62,734 0.84 66,413 0.95
- -----------------------------------------------------------------------------------------
Savings:
Regular savings and special notice accounts 333,834 3.49 330,230 3.39
Money market accounts 23,824 3.12 26,368 3.28
- -----------------------------------------------------------------------------------------
Total savings 357,658 3.47 356,598 3.38
- -----------------------------------------------------------------------------------------
Time certificates:
Fixed rate certificates 303,722 5.52 274,684 5.80
Variable rate certificates 65,417 6.37 57,373 6.65
- -----------------------------------------------------------------------------------------
Total time certificates 369,139 5.67 332,057 5.95
- -----------------------------------------------------------------------------------------
Deposit acquisition premium, net of amortization (1,181) -- (1,411) --
- -----------------------------------------------------------------------------------------
Total deposits $788,350 4.29% $753,657 4.30%
=========================================================================================
The maturity distribution and related rate structure of the Bank's time
certificates at December 31, 1996 follows:
- --------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1996
- --------------------------------------------------------------------------------
Average
Amount Interest Rate
- -------------------------------------------------------------------------------
Due within 3 months $ 89,757 5.44%
Due within 3-6 months 67,602 5.33
Due within 6-12 months 84,180 5.77
Due within 1-2 years 89,687 5.84
Due within 2-3 years 34,900 6.24
Due within 3-5 years 2,825 5.81
Thereafter 188 6.20
- --------------------------------------------------------------------------------
Total $369,139 5.67%
================================================================================
At December 31, the Bank had individual time certificates of deposit over $100
thousand maturing as follows:
- --------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------------
Due within 3 months $18,834 $ 8,969
Due within 3-6 months 7,479 6,206
Due within 6-12 months 15,327 14,311
Due within 1-2 years 13,545 10,964
Due within 2-3 years 5,411 4,387
Due within 3-5 years 439 1,411
Thereafter -- 101
- --------------------------------------------------------------------------------
Total $61,035 $46,349
================================================================================
37
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 carrying amounts of the interest-bearing deposits in banks and term federal
funds sold reported in the balance sheet at December 31, 1996 and 1995
approximate fair value.
SECURITIES
The fair value of investment 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 securities at December 31, 1996 and 1995.
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, 1996 1995
- --------------------------------------------------------------------------------
Carrying Calculated Carrying Calculated
Amount Fair Value Amount Fair Value
- --------------------------------------------------------------------------------
Real estate:
Residential:
Adjustable $ 49,261 $ 49,240 $ 46,101 $ 46,632
Fixed 170,774 171,766 167,539 171,096
Commercial:
Adjustable 4,034 4,047 6,569 6,410
Fixed 70 75 394 400
Consumer and other 25,522 25,527 28,582 28,393
- --------------------------------------------------------------------------------
Total loans 249,661 250,655 249,185 252,931
Less: allowance for loan losses 2,237 -- 2,529 --
- --------------------------------------------------------------------------------
Net loans $247,424 $250,655 $246,656 $252,931
================================================================================
38
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, 1996 and 1995. 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, 1996 1995
- ------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ------------------------------------------------------------------------------------------------
Demand accounts $ 17,382 $ 17,382 $ 15,216 $ 15,216
NOW accounts 45,352 45,352 51,197 51,197
Regular savings and special notice accounts 333,834 333,834 330,230 330,230
Money market accounts 23,824 23,824 26,368 26,368
Time certificates 369,139 371,368 332,057 334,641
Deposit acquisition premium, net of amortization (1,181) -- (1,411) --
- ------------------------------------------------------------------------------------------------
Total deposits 788,350 791,760 753,657 757,652
Escrow deposits of borrowers 1,271 1,271 992 992
- ------------------------------------------------------------------------------------------------
Total $ 789,621 $793,031 $ 754,649 $758,644
================================================================================================
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, 1996 and 1995 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.
39
29
12. INCOME TAXES
Income tax payable (receivable) was allocated as follows:
- --------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------------
Current income tax payable (receivable):
Federal $ 633 $ 894
State 172 (14)
- --------------------------------------------------------------------------------
Total current income tax payable 805 880
- --------------------------------------------------------------------------------
Deferred income tax payable:
Federal 1,327 2,878
State 462 1,002
- --------------------------------------------------------------------------------
Total deferred income tax payable 1,789 3,880
- --------------------------------------------------------------------------------
Total income tax payable $2,594 $4,760
================================================================================
Income tax expense (benefit) was allocated as follows:
- --------------------------------------------------------------------------------
(IN THOUSANDS) YEARS ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Current income tax expense:
Federal $ 4,641 $ 4,209 $ 3,635
State 1,122 1,071 1,265
- --------------------------------------------------------------------------------
Total current tax expense 5,763 5,280 4,900
================================================================================
Deferred income tax expense (benefit):
Federal 194 183 (164)
State 53 115 (28)
Change in valuation reserve (9) (22) 25
- --------------------------------------------------------------------------------
Total deferred tax expense (benefit) 238 276 (167)
- --------------------------------------------------------------------------------
Total income tax expense $ 6,001 $ 5,556 $ 4,733
================================================================================
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 as a result of the following:
- -----------------------------------------------------------------------------------------
(IN THOUSANDS) Years ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------
Computed "expected" income tax expense at statutory rate $5,400 $5,010 $4,521
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal benefit 764 771 804
Recognition of previously unrecognized tax benefits -- -- (462)
Dividends received deduction (94) (72) (71)
Other (60) (131) (84)
Change in valuation reserve (9) (22) 25
- -----------------------------------------------------------------------------------------
Income tax expense $6,001 $5,556 $4,733
- -----------------------------------------------------------------------------------------
Effective income tax rate 38.9% 38.8% 36.6%
- -----------------------------------------------------------------------------------------
40
30
12. INCOME TAXES (continued)
At December 31, 1996 and 1995, the Bank had gross deferred tax assets and gross
deferred tax liabilities as follows:
- --------------------------------------------------------------------------------
(IN THOUSANDS) AT DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------------
Deferred tax assets:
Loan losses $ 248 $ 455
Deferred loan fees, net 256 405
Deferred compensation and pension cost 409 485
Depreciation 35 39
Purchase accounting 194 70
Other 45 37
- --------------------------------------------------------------------------------
Gross deferred tax asset 1,187 1,491
Valuation reserve (9) (18)
- --------------------------------------------------------------------------------
Net deferred tax asset 1,178 1,473
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Valuation of securities 2,894 5,223
Other unrealized securities gains 56 100
Other 17 30
- --------------------------------------------------------------------------------
Gross deferred tax liability 2,967 5,353
- --------------------------------------------------------------------------------
Net deferred tax liability $(1,789) $(3,880)
================================================================================
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, 1996. The primary sources of
recovery of the gross federal deferred tax asset are federal income taxes paid
of $11.9 million in 1996, 1995 and 1994 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.
In August, 1996, the provisions repealing the current thrift bad debt rules
were passed by Congress as part of "The Small Business Job Protection Act of
1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all thrift institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). The Bank has previously
recorded a deferred tax liability equal to the bad debt recapture and, as such,
the new rules will have no effect on net income or income tax expense.
The unrecaptured base year reserves will not be subject to recapture as
long as the institution continues to carry on the business of banking. In
addition, the balance of the pre-1988 bad debt reserves continues to be subject
to provisions of present law that require recapture in the case of certain
excess distributions to shareholders. The tax effect of pre-1988 bad debt
reserves subject to recapture in the case of certain excess distributions is
approximately $7.3 million.
41
31
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 to otherwise violate legal or regulatory requirements. Substantially all of
the Company's retained earnings are unrestricted at December 31, 1996.
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 I
capital. Highly rated banks (i.e., those with a composite rating of 1 under the
CAMEL rating system) are required to maintain a minimum leverage ratio of Tier I
capital to total average assets of at least 3.00%. An additional 100 to 200
basis points are required for all but these most highly rated institutions. The
Bank is also required to maintain a minimum level of risk-based capital. Under
the new risk-based capital standards, FDIC insured institutions must maintain a
Tier I capital to risk-weighted assets ratio of 4.00% and are generally expected
to meet a minimum total qualifying capital to risk-weighted assets ratio of
8.00%. The new risk-based capital guidelines take into consideration risk
factors, as defined by the regulators, associated with various categories of
assets, both on and off the balance sheet. Under the guidelines, capital
strength is measured in two tiers which are used in conjunction with risk
adjusted assets to determine the risk-based capital ratios. Tier II capital
components include supplemental capital components such as qualifying allowance
for loan losses and qualifying subordinated debt. Tier I capital plus the Tier
II capital components is referred to as total qualifying capital.
The capital ratios of the Company and its principal subsidiary "Massbank"
set forth below currently exceed the minimum ratios for "well capitalized" banks
as defined by federal regulators.
- --------------------------------------------------------------------------------------------------------
(IN THOUSANDS) FOR CAPITAL TO BE WELL
AT DECEMBER 31, 1996 ACTUAL ADEQUACY PURPOSES CAPITALIZED(1)
- --------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------------------
Tier I Capital (to Average Assets):
Massbank Corp. (consolidated) $87,068 10.09% $25,899 3.00% N/A --
Massbank (the "Bank") 85,688 9.93 25,899 3.00 $43,165 5.00%
Tier I Capital (to Risk-Weighted Assets):
Massbank Corp. (consolidated) 87,068 33.41 10,423 4.00 N/A --
Massbank (the "Bank") 85,688 32.88 10,423 4.00 15,634 6.00
Total Capital (to Risk-Weighted Assets):
Massbank Corp. (consolidated) 89,305 34.27 20,846 8.00 N/A --
Massbank (the "Bank") 87,925 33.74 20,846 8.00 26,057 10.00
========================================================================================================
(1) This column presents the minimum amounts and ratios that a financial
institution must have to be categorized as adequately capitalized.
42
32
14. EMPLOYEE BENEFITS
PENSION PLAN
The Bank sponsors a noncontributory 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, 1996, 1995 and 1994, the plan's latest valuation dates:
- -------------------------------------------------------------------------------------------------
(IN THOUSANDS) AT OCTOBER 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
Vested $3,636 $3,845 $3,436
Non-vested 25 55 79
- -------------------------------------------------------------------------------------------------
Total accumulated benefit obligation $3,661 $3,900 $3,515
=================================================================================================
Actuarial present value of projected benefit obligation for
service rendered to date $4,287 $4,622 $4,036
Plan assets at fair value 5,090 4,181 3,648
- -------------------------------------------------------------------------------------------------
Excess (deficiency) of plan assets over projected benefit obligation $ 803 $ (441) $ (388)
=================================================================================================
Assumptions used in determining the actuarial present value of the projected
benefit obligation were as follows:
Discount rate 7.50% 7.00% 7.50%
Rate of increase in compensation levels 4.50% 4.00% 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:
- ------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AT OCTOBER 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
Unrecognized net asset at October 31, being recognized over 21 years $ 232 $ 254 $ 275
Unrecognized net gains or (losses) 670 (412) (538)
Accrued pension cost (99) (283) (125)
- ------------------------------------------------------------------------------------------------------
Excess (deficiency) of plan assets over projected benefit obligation $ 803 $(441) $(388)
======================================================================================================
Net pension expense for the years ended December 31, included the following
components:
- --------------------------------------------------------------------------------
(IN THOUSANDS) YEARS ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Service cost-benefits earned during the period $ 309 $ 319 $ 228
Accrual of discount 308 303 270
Actual return on plan assets (632) (686) (219)
Net amortization and deferral 283 412 (80)
- --------------------------------------------------------------------------------
Net pension expense $ 268 $ 348 $ 199
================================================================================
Assumptions used to develop the net pension expense data were:
Discount rate 7.00% 7.50% 7.50%
Expected long-term rate of return on assets 8.00% 7.50% 7.50%
Rate of increase in compensation levels 4.00% 5.50% 5.50%
================================================================================
43
33
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 $418 thousand, $413
thousand and $433 thousand were awarded under the plan in 1996, 1995 and 1994,
respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
The Bank has an Employees' Stock Ownership Plan ("ESOP") for the benefit of each
employee who has completed at least 1,000 hours of service with the Company in
the previous twelve months. 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,
1996 and 1995, such outstanding liabilities totaled $937 thousand and $1,093
thousand, respectively.
Shares of the Company's common stock purchased with the loan proceeds are
held in a suspense account. As the loan is repaid, a proportionate number of
shares are released for allocation to plan participants. The shares are
allocated to plan participants annually, on a pro rata basis, based on
compensation.
The ESOP acquired unallocated shares in 1986 when the plan was first
established and more recently in 1993. At December 31, 1996, the ESOP held
39,600 unallocated shares and 81,873 shares which have been allocated to
participants. The fair value of the unallocated shares at December 31, 1996
was $1,510 thousand.
Dividends on unallocated shares are used to offset a portion of the
interest paid on the ESOP loan. Dividends on allocated shares held by the ESOP
are allocated to plan participants proportionately based on the number of shares
in the participant's allocated account.
Total compensation and interest expense applicable to the ESOP amounted to
$314 thousand, $303 thousand and $206 thousand for the years ended December 31,
1996, 1995 and 1994, respectively.
EMPLOYEE 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.
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 $99
thousand, $94 thousand and $87 thousand in 1996, 1995 and 1994, respectively.
44
34
14. EMPLOYEE BENEFITS (continued)
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,
all but 3.5 of the shares available for issuance under the 1986 plan have been
granted as of December 31, 1996. 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, 1996, there were 114,937.5 non-qualified
stock options and 145,437.5 incentive stock options granted and outstanding to
purchase shares under the plans. 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.
A summary of the status of the Company's fixed stock option plan as of
December 31, 1996, 1995 and 1994, and changes during the years ended on those
dates is presented below:(1)
- ---------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Shares Average Shares Average Shares Average
Under Exercise Under Exercise Under Exercise
FIXED OPTIONS Option Price Option Price Option Price
- ---------------------------------------------------------------------------------------------------
Outstanding at beginning of year 277,332 $18.13 317,366 $16.25 339,961.5 $14.47
Granted 34,500 31.20 33,250 23.38 49,500 22.95
Exercised (51,454) 14.32 (72,533) 12.28 (69,470.5) 12.10
Forfeited (3) 11.50 (751) 22.98 (2,625) 22.05
- ---------------------------------------------------------------------------------------------------
Outstanding at end of year 260,375 $20.61 277,332 $18.13 317,366 $16.25
===================================================================================================
Options exercisable at year-end 260,375 -- 277,332 -- 317,366 --
===================================================================================================
The following table summarizes information about fixed stock options outstanding
and exercisable at December 31, 1996:
- ---------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1996 OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------------------------------------------
Weighted Avg. Weighted Avg. Weighted Avg.
RANGE OF Number Remaining Exercise Number Exercise
EXERCISE PRICES Outstanding Contractual Life Price Exercisable Price
- ---------------------------------------------------------------------------------------------------------
$9.17 to $14.33 68,125 4.3 years $11.65 68,125 $11.65
21.33 to $23.13 155,000 6.2 years 22.14 155,000 22.14
24.38 to $26.50 3,500 8.4 years 25.59 3,500 25.59
31.00 to $33.25 33,750 9.1 years 31.21 33,750 31.21
- ---------------------------------------------------------------------------------------------------------
$9.17 to $33.25 260,375 6.1 years $20.61 260,375 $20.61
=========================================================================================================
(1) All share information presented has been adjusted to reflect the 3-for-2
split of the Company's common stock effective September 9, 1994.
45
35
14. EMPLOYEE BENEFITS (continued)
As discussed in Note 1, the Company adopted SFAS No. 123 on January 1,
1996, but continues to account for its stock option plan using the
intrinsic value based method prescribed by APB Opinion No. 25. Accordingly,
no compensation cost for this plan has bee n recognized in the Consolidated
Statements of Income for 1996. In determining the pro forma disclosures
required by SFAS No. 123, the fair value of each option grant is estimated
on the date of grant using the Black-Scholes option-pricing model. The
following table presents pro forma net income and earnings per share
assuming the stock option plan was accounted for using the fair value
method prescribed by SFAS No. 123, the weighted average assumptions used
and the grant date fair value of options granted in 1996 and 1995:
- -----------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA) YEARS ENDED DECEMBER 31, 1996 1995
- -----------------------------------------------------------------------------------------------------------------
Net income As reported $9,427 $8,759
Pro forma 9,230 8,598
- -----------------------------------------------------------------------------------------------------------------
Primary earnings per share As reported $ 3.44 $ 3.15
Pro forma 3.37 3.09
- -----------------------------------------------------------------------------------------------------------------
Fully diluted earnings per share As reported $ 3.43 $ 3.12
Pro forma 3.36 3.06
=================================================================================================================
Weighted average fair value $ 8.04 $ 6.93
Expected life 7.2 years 7.4 years
Risk-free interest rate 5.64% 7.66%
Expected volatility 23.0% 23.0%
Expected dividend yield 2.7% 2.7%
=================================================================================================================
The pro forma effect on net income and earnings per share for 1996 and 1995
is not representative of the pro forma effect on net income and earnings
per share for future years because it does not reflect compensation cost
for options granted prior to January 1, 1995.
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
$0.0113 per Right until ten days after a person becomes a 15% shareholder
of Massbank Corp. or until certain other triggering events have occurred.
46
36
16. PARENT COMPANY FINANCIAL STATEMENTS
The following are the condensed financial statements for Massbank Corp.
(the "Parent Company") only:
BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA) AT DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------------------------------------------
ASSETS:
Cash $ 20 $ 11
Interest-bearing deposits in banks 1,365 1,018
Investment in subsidiaries 91,807 90,998
Other assets 14 25
- --------------------------------------------------------------------------------------------------------------
Total assets $ 93,206 $ 92,052
==============================================================================================================
LIABILITIES:
Accrued income taxes payable $ -- $ 9
Employee stock ownership plan liability (Note 14) 937 1,093
Due to subsidiaries 3 123
Other liabilities 16 10
- --------------------------------------------------------------------------------------------------------------
Total liabilities 956 1,235
==============================================================================================================
STOCKHOLDERS' EQUITY (Notes 12, 13, 14 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, 5,476,125 and 5,424,671 shares issued, respectively 5,476 5,425
Additional paid-in capital 57,858 56,842
Retained earnings 65,756 58,773
- --------------------------------------------------------------------------------------------------------------
129,090 121,040
Treasury stock at cost, 2,789,411 and 2,683,065 shares, respectively (39,904) (36,370)
Net unrealized gains on securities available for sale, net of tax effect (Note 3) 4,001 7,240
Common stock acquired by ESOP (Note 14) (937) (1,093)
- --------------------------------------------------------------------------------------------------------------
Total stockholders' equity 92,250 90,817
- --------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 93,206 $ 92,052
==============================================================================================================
STATEMENTS OF INCOME
- --------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) YEARS ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
INCOME:
Dividends received from subsidiaries $5,750 $4,400 $4,000
Interest and dividend income 20 22 34
- --------------------------------------------------------------------------------------------------------------
5,770 4,422 4,034
NON-INTEREST EXPENSE 103 95 102
- --------------------------------------------------------------------------------------------------------------
Income before income taxes 5,667 4,327 3,932
INCOME TAX BENEFIT 14 130 13
- --------------------------------------------------------------------------------------------------------------
Income before equity in undistributed earnings of
subsidiaries 5,681 4,457 3,945
EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 3,746 4,302 4,240
- --------------------------------------------------------------------------------------------------------------
Net income $9,427 $8,759 $8,185
==============================================================================================================
The Parent Company only Statements of Changes in Stockholders' Equity are
identical to the consolidated statements and therefore are not presented here.
47
37
16. Parent Company Financial Statements (continued)
STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------
(IN THOUSANDS) YEARS ENDED DECEMBER 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,427 $ 8,759 $ 8,185
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed earnings of subsidiaries (3,746) (4,302) (4,240)
Decrease (increase) in other assets 25 (25) --
(Decrease) increase in accrued income taxes payable (21) (80) 4
Deferred income tax benefit (2) -- --
(Decrease) increase in other liabilities 6 10 (10)
(Decrease) increase in amount due to subsidiaries (121) 121 (1)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,568 4,483 3,938
- ----------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Payments to acquire treasury stock (3,534) (3,082) (5,063)
Issuance of common stock under stock option plan 738 891 841
Tax benefit resulting from stock options exercised 28 8 7
Dividends paid on common stock (2,459) (1,981) (1,692)
Tax benefit resulting from dividends paid on unallocated
shares held by the ESOP 15 -- --
- ----------------------------------------------------------------------------------------------------------
Net cash used in financing activities (5,212) (4,164) (5,907)
- ----------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 356 319 (1,969)
Cash and cash equivalents at beginning of year 1,029 710 2,679
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,385 $ 1,029 $ 710
==========================================================================================================
During the years ended December 31, 1996, 1995 and 1994, the Company made cash
payments for income taxes of $23 thousand, $13 thousand and $17 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 $41 thousand, $28 thousand and $49 thousand
during the years ended December 31, 1996, 1995 and 1994, respectively.
48
38
17. TEN-YEAR STATISTICAL SUMMARY (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $9,427 $8,759 $8,185 $6,695 $4,677 $2,250 $ 725 $2,668 $4,917 $5,521
Primary earnings per share(2) 3.44 3.15 2.84 2.23 1.59 0.78 0.22 0.66 1.14 1.14
Cash dividends declared per share(2) 0.92 0.73 0.60 0.45 1/3 0.35 1/3 0.30 1/3 0.28 1/3 0.28 0.25 1/3 0.22
Book value per share, at year end(2) 34.34 33.13 26.78 27.28 24.50 23.38 21.60 20.21 18.95 17.65
Return on average assets 1.08% 1.04% 0.96% 0.79% 0.61% 0.60% 0.23% 0.86% 1.56% 1.69%
Return on average realized equity(1) 11.01% 10.81% 10.62% 8.98% 6.79% 3.39% 1.03% 3.38% 6.20% 6.79%
==================================================================================================================================
<FN>
(1) Excludes average net unrealized gains or losses on securities available for sale.
(2) All share information presented has been adjusted to reflect the 3-for-2
split of the Company's common stock effective September 9, 1994.
18. QUARTERLY DATA (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------------
(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 $14,828 $14,767 $14,390 $14,124 $14,299 $14,244 $14,220 $13,848
Interest expense 8,473 8,441 8,139 8,009 8,095 7,933 7,680 7,188
- ------------------------------------------------------------------------------------------------------------------
Net interest income 6,355 6,326 6,251 6,115 6,204 6,311 6,540 6,660
Provision for loan losses 10 85 35 30 30 30 40 70
- ------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 6,345 6,241 6,216 6,085 6,174 6,281 6,500 6,590
Non-interest income 621 703 724 617 535 376 609 428
Non-interest expense 3,117 2,921 3,030 3,056 3,060 3,040 3,557 3,521
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,849 4,023 3,910 3,646 3,649 3,617 3,552 3,497
Income tax expense 1,459 1,579 1,540 1,423 1,402 1,400 1,383 1,371
- ------------------------------------------------------------------------------------------------------------------
Net income $ 2,390 $ 2,444 $ 2,370 $ 2,223 $ 2,247 $ 2,217 $ 2,169 $ 2,126
==================================================================================================================
Earnings per share (in dollars):(1)
Primary $ 0.88 $ 0.90 $ 0.86 $ 0.80 $ 0.81 $ 0.80 $ 0.78 $ 0.76
Fully diluted 0.87 0.90 0.86 0.80 0.81 0.80 0.78 0.76
- ------------------------------------------------------------------------------------------------------------------
Weighted average common
shares outstanding:(1)
Primary 2,722 2,716 2,754 2,783 2,776 2,774 2,789 2,797
Fully diluted 2,729 2,717 2,754 2,784 2,778 2,781 2,794 2,798
==================================================================================================================
<FN>
(1) Computation of earnings per share is further described in Note 1.
49
39
MASSBANK CORP. AND SUBSIDIARIES STOCKHOLDER DATA
YEARS ENDED DECEMBER 31, 1996 AND 1995
Massbank Corp.'s common stock is currently traded on the Nasdaq Stock Market
under the symbol "MASB." At December 31, 1996 there were 2,686,714 shares
outstanding and 998 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, 1996
- -------------------------------------------------------------------------------
Fourth Quarter 38 3/4 33 1/8 $0.24
Third Quarter 34 1/4 32 1/2 0.24
Second Quarter 33 3/4 32 3/4 0.22
First Quarter 34 1/2 31 0.22
- -------------------------------------------------------------------------------
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
===============================================================================
CORPORATE INFORMATION
MASSBANK Corp. Form 10-K Independent Auditors
123 Haven Street Shareholders may obtain without KPMG Peat Marwick LLP
Reading, MA 01867 charge a copy of the Company's 99 High Street
(617) 662-0100 1996 Form 10-K. Written requests Boston, MA 02110
FAX (617) 942-1022 should be addressed to:
Shareholder Services
Savings and Mortgage MASSBANK Corp. Legal Counsel
24-Hour-Rate Lines 159 Haven Street Goodwin, Procter & Hoar
(617) 662-0154 Reading, MA 01867 Exchange Place
(508) 446-9285 Boston, MA 02109
Notice of Shareholders' Meeting Dividend Reinvestment and
Stock Purchase Plan Reports on Effectiveness
The Annual Meeting of the Shareholders may obtain a brochure of Internal Control Structure
Shareholders of MASSBANK Corp. containing a detailed description of Over Financial Reporting
will be held at 10:00 a.m. the plan by writing to: Shareholders may obtain without
on Tuesday, April 22, 1997 at the Shareholder Services charge a copy of Management's
Tara Ferncroft Conference Resort MASSBANK Corp. and the Independent Auditors'
50 Ferncroft Road 159 Haven Street 1996 Reports on the Effectiveness
Danvers, MA 01923 Reading, MA 01867 of the Company's Internal Control
Structure Over Financial Reporting.
Written requests should be
Transfer Agent addressed to:
Boston EquiServe Shareholder Services
Shareholder Services MASSBANK Corp.
P.O. Box 644 159 Haven Street
Boston, MA 02102-0644 Reading, MA 01867
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OFFICERS AND DIRECTORS
MASSBANK CORP.
OFFICERS BOARD OF DIRECTORS
Gerard H. Brandi Samuel Altschuler *Robert S. Cummings
Chairman, President and President, Altron Incorporated Partner, Peabody and Brown
Chief Executive Officer
*Mathias B. Bedell Louise A. Hickey
Reginald E. Cormier Retired, Bedell Brothers Insurance Retired, Melrose-Wakefield Hospital
Vice President, Treasurer and Agency, Inc.
Chief Financial Officer Leonard Lapidus
*Gerard H. Brandi Retired, Depositors Insurance Fund
Robert S. Cummings Chairman, President and
Secretary Chief Executive Officer, *Stephen E. Marshall
Massbank Corp. President, C.H. Cleaves Insurance
Donna H. West Agency, Inc.
Assistant Secretary Allan S. Bufferd
Deputy Treasurer and Arthur W. McPherson
Director of Investments Certified Financial Planner
Massachusetts Institute of Technology
*Herbert G. Schurian
+Peter W. Carr Certified Public Accountant
Retired, Guilford Transportation
Industries *Dr. Donald B. Stackhouse
Dentist
Alexander S. Costello
President, Lowell Sun Publishing Co., Inc. *Member, Executive Committee
Member, Audit Committee
OFFICERS AND DIRECTORS
MASSBANK
OFFICERS
Gerard H. Brandi Gregory W. Bowe Gerard F. Frechette Alice B. Sweeney
Chairman, President and Assistant Vice President Loan Officer Assistant Comptroller
Chief Executive Officer
Ernest G. Campbell, Jr. Rachael E. Garneau Richard A. Tatarczuk
Donald R. Washburn Collections Officer Assistant Treasurer Assistant Vice President
Senior Vice President, Lending and Comptroller
Charles F. Coupe Margo E. Higgins
Donna H. West Information Officer Assistant Vice President Evangeline C. Westgate
Senior Vice President, Retail Banking and Human Resources Assistant Treasurer
Janet L. Daniels Officer
Raymond A. Brearey Assistant Vice President Patricia A. Witts
Vice President, Administration Brian W. Hurley Assistant Treasurer
Senior Trust Officer Aunali Dohadwala Assistant Vice President
Auditor Michael J. Woods
David F. Carroll Kenneth A. Masson Assistant Vice President
Vice President, Operations Karen J. Downs Assistant Vice President
Assistant Treasurer BOARD OF DIRECTORS
Reginald E. Cormier Robyn L. Nadeau AND EXECUTIVE COMMITTEE
Vice President, Treasurer Karen L. Flammia Assistant Treasurer
and Chief Financial Officer Assistant Vice President Mathias B. Bedell
Mindy S. Peloquin Gerard H. Brandi, Chairman
Marilyn H. Abbott Melissa J. Flanagan Assistant Treasurer Robert S. Cummings, Clerk
Assistant Treasurer Assistant Treasurer Stephen E. Marshall
Thomas J. Queeney Herbert G. Schurian
Andrea S. Bradford Ana M. Foster Assistant Vice President Dr. Donald B. Stackhouse
Assistant Vice President Compliance and Donna H. West
Security Officer Renald A. Robillard
Assistant Treasurer
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MASSBANK BRANCH OFFICES d/b/a
Massbank of Reading* Massbank of Melrose
123 Haven Street 476 Main Street
Reading, MA 01867 Melrose, MA 02176
(617) 942-8188 (617) 662-0100
27 Melrose Street
Massbank of Chelmsford Towers Plaza
Melrose, MA 02176
296 Chelmsford Street (617) 662-0165
Eastgate Plaza
Chelmsford, MA 01824
(508) 256-3751 Massbank of Stoneham
17 North Road 240 Main Street
Chelmsford, MA 01824 Stoneham, MA 02180
(508) 256-3733 (617) 662-0177
Massbank of Dracut Massbank of Tewksbury
45 Broadway Road 1800 Main Street
Dracut, MA 01826 Tewksbury, MA 01876
(508) 441-0040 (508) 851-0300
Massbank of Lowell Massbank of Westford
50 Central Street 203 Littleton Road
Lowell, MA 01852 Westford, MA 01886
(508) 458-3400 (508) 692-3467
755 Lakeview Avenue
Lowell, MA 01850 Massbank of Wilmington
(508) 458-3437
370 Main Street
Wilmington, MA 01887
Massbank of Medford (508) 658-4000
4110 Mystic Valley Parkway 219 Lowell Street
Wellington Circle Plaza Lucci's Plaza
Medford, MA 02155 Wilmington, MA 01887
(617) 395-4899 (508) 658-5775
*Main Office
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