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1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from______________to____________
Commission File Number 0-15137
MASSBANK Corp.
(Exact name of registrant as specified in its charter)
Delaware 04-2930382
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
123 HAVEN STREET
Reading, Massachusetts 01867
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 662-0100
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.____
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based on the closing price for the registrant's common stock on
March 15, 2000 as reported by NASDAQ, was $82,604,308.
As of March 15, 2000, there were 3,264,193 shares of the registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of MASSBANK Scorpios 1999 Annual Report to Stockholders are
incorporated by reference in Parts I, II, III and IV of this Form 10-K. Portions
of the Definitive Notice of Annual Meeting and Proxy Statement for the 2000
Annual Meeting of Stockholders are incorporated by reference into Part III of
this Form 10-K.
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Cautionary Statement.
Certain statements contained in this report or incorporated herein by
reference are "forward-looking statements." We may also make written or oral
forward-looking statements in other documents we file with the SEC, in our
annual reports to stockholders, in press releases and other written materials,
and in oral statements made by our officers, directors or employees. You can
identify forward-looking statements by the use of the words "believe," "expect,"
"anticipate," "intend," "estimate," "assume" and other similar expressions which
predict or indicate future events and trends and which do not relate to
historical matters. You should not rely on forward-looking statements, because
they involve known and unknown risks, uncertainties and other factors, some of
which are beyond the control of the Company. These risks, uncertainties and
other factors may cause the actual results, performance or achievements of the
Company to be materially different from the anticipated future results,
performance or achievements expressed or implied by the forward-looking
statements.
Some of the factors that might cause these differences include the
following: fluctuations in interest rates, price volatility in the stock and
bond markets, inflation, government regulations and economic conditions and
competition in the geographic and business areas in which the Company conducts
its operations; and increases in loan defaults. You should carefully review all
of these factors, and you should be aware that there may be other factors that
could cause these differences. These forward-looking statements were based on
information, plans and estimates at the date of this report, and we do not
promise to update any forward-looking statements to reflect changes in
underlying assumptions or factors, new information, future events or other
changes.
PART I
Item 1. Business
Business of MASSBANK Corp.
General
MASSBANK Corp. (the "Company") is a general business corporation
incorporated under the laws of the State of Delaware on August 11, 1986.
MASSBANK Corp. was organized for the purpose of becoming the holding company for
MASSBANK (the "Bank"). The Company is a one-bank holding company registered with
the Federal Reserve Board under the Bank Holding Company Act of 1956, as
amended. As of and since December 2, 1986, the effective date of the
reorganization whereby MASSBANK Corp. became the holding company for the Bank,
the Bank has been a wholly-owned subsidiary of MASSBANK Corp. The only office of
MASSBANK Corp., and its principal place of business, is located at the main
office of the Bank at 123 Haven Street, Reading, Massachusetts 01867.
MASSBANK Corp. currently has no material assets other than its investment
in the Bank. The Company's primary business, therefore, is managing its
investment in the stock of the Bank. MASSBANK Corp. is classified by the
Commonwealth of Massachusetts as a securities corporation for tax purposes which
restricts its business to buying, selling, dealing in, or holding securities on
its own behalf. In the future, MASSBANK Corp. may become an operating company or
acquire banks or companies engaged in bank-related activities.
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The principal sources of revenues for MASSBANK Corp. (the "Parent Company")
only are dividends from the Bank and, to a lesser extent, interest income
received from its interest-bearing bank deposits. These revenues are used
primarily for the payment of dividends to stockholders and for the purchase of
stock pursuant to the Company's stock repurchase program. MASSBANK Corp.'s
(Parent Company) only assets at December 31, 1999 were represented by its
investment in the Bank of $101.4 million and other assets of $0.9 million. The
Company's liabilities consisted of loan indebtedness of $0.5 million and other
liabilities of less than $0.3 million. The proceeds of the loan were used to
purchase shares of the Company's common stock for the Employee Stock Ownership
Plan ("ESOP"). See Note 17 to the Consolidated Financial Statements for Parent
Company only financial information. At December 31, 1999 MASSBANK Corp. on a
consolidated basis had total assets of $924.7 million, deposits of $818.1
million, and stockholders' equity of $101.5 million which represents 11.0% of
total assets. Book value per share at December 31, 1999 was $30.65.
The Company does not own or lease any real or personal property. Instead it
intends to utilize during the immediate future the premises, equipment and
furniture of the Bank without the direct payment of rental fees to the Bank.
Competition
The primary business of MASSBANK Corp. currently is the ongoing business of
the Bank. Therefore, the competitive conditions faced by MASSBANK Corp.
currently are the same as those faced by the Bank. See "Business of MASSBANK -
Competition." In addition, many banks and financial institutions have formed
holding companies. It is likely that these holding companies will attempt to
acquire commercial banks, thrift institutions or companies engaged in
bank-related activities. MASSBANK Corp. would face competition in undertaking
any such acquisitions and in operating any such entity subsequent to its
acquisition.
Employees
MASSBANK Corp. does not employ any persons; its management also serves as
management of, and is paid by, the Bank. See "Item 10 - Directors and Executive
Officers of the Registrant." MASSBANK Corp. utilizes the support staff of the
Bank from time to time and does not pay any separate salaries or expenses in
connection therewith.
Dividends
MASSBANK Corp. paid total cash dividends of $1.11 per share in 1999
compared to $1.02 per share in 1998 and $0.885 per share in 1997. The Company's
dividend payout ratios (cash dividends paid divided by net income) for 1999,
1998 and 1997 were 33%, 33% and 31%, respectively.
Stock Repurchase Program
During 1999, the Company purchased 210,967 shares of its common stock
pursuant to its ongoing stock repurchase program. At December 31, 1999 there
were 91,231 shares available for repurchase under the current program.
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Preferred Stock Purchase Rights
In January 2000, the Company adopted a new Shareholder Rights Plan to
replace an existing Plan which was expiring. Accordingly, the Board of Directors
declared a dividend distribution of one Preferred Stock Purchase Right for each
outstanding share of MASSBANK Corp. common stock. These Rights, which expire
January 18, 2010, entitle their holders to purchase from the Company one
one-thousandth of a share (a "unit") of Series B Junior Participating Cumulative
Preferred Stock, par value $1.00 per share ("preferred stock") at a cash
exercise price of $136.00 per unit, subject to adjustment. The Rights will trade
separately from the common stock and will become exercisable when a person or
group has acquired 11% or more of the outstanding common stock, upon a tender
offer that would result in a person or group acquiring 11% or more of the
outstanding common stock, or upon the declaration by the Board of Directors that
any person holding 10% or more of the outstanding shares of common stock is an
"adverse person".
In the event a person or group acquires 11% or more of the outstanding
common stock or the Board of Directors declares a person an "adverse person",
each Right would entitle its holder (except if the holder is a person or group
described above) to receive upon exercise sufficient units of preferred stock to
equal a value of two times the exercise price of the Right. In the event the
Company is acquired in a merger or other business combination transaction or if
50% or more of the Company's assets or earning power is sold, each holder may
receive upon exercise common stock of the acquiring company having a market
value equal to two times the exercise price of the Right.
The Rights are redeemable in whole, but not in part, by the Board of
Directors at a price of $.01 per Right any time before a person or group
acquires 11% or more of the outstanding common stock or the Board of Directors
declares a person an "adverse person".
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Business of MASSBANK
General
MASSBANK is a Massachusetts-chartered savings bank founded in 1872 as the
Melrose Savings Bank. In 1983, the Reading Savings Bank was merged into the
Melrose Savings Bank and the name of the resulting institution was changed to
MASSBANK for Savings. In 1986, the Bank converted from mutual to stock form of
ownership. In 1996, the name of the bank was changed from "MASSBANK for Savings"
to "MASSBANK".
The Bank is primarily engaged in the business of attracting deposits from
the general public through its fifteen full service banking offices in Reading,
Chelmsford, Dracut, Everett, Lowell, Medford, Melrose, Stoneham, Tewksbury,
Westford and Wilmington, and originating residential and commercial real estate
mortgages, construction loans, commercial loans, and a variety of consumer
loans. The Bank invests a significant portion of its funds in U.S. Treasury and
Government agency securities, mortgage-backed securities, federal funds sold,
and other authorized investments. The Bank also invests a portion of its funds
in equity securities traded on a national securities exchange or quoted on the
NASDAQ System. The Bank's earnings depend largely upon net interest income,
which is the difference between the interest and dividend income derived by the
Bank from its loans and investments and the interest paid by the Bank on its
deposits and borrowed funds. The Company's earnings results are also affected by
the provision for loan losses; non-interest income, such as fee-based revenues
and net securities gains or losses; non-interest expense; and income taxes.
The Bank's deposits are insured to applicable limits by the Bank Insurance
Fund ("BIF") of the Federal Deposit Insurance Corporation (the "FDIC") and
excess deposit accounts are insured by the Depositors Insurance Fund ("DIF"), a
private industry-sponsored deposit insurer.
The Bank recognizes that loan and investment opportunities change over time
and that yields derived from such opportunities can vary significantly even when
the risks associated with those opportunities are comparable. By developing a
relatively liquid loan and investment portfolio, the Bank has attempted to
position itself so as to be able to take advantage of these changing
opportunities. Consequently, the Bank expects that the relative mix of its loan
and investment portfolios will change over time in response to changing market
conditions.
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Market Area
The Bank is headquartered in Reading, Massachusetts, which is located
approximately 15 miles north of Boston. The Bank's market area includes a
significant portion of eastern Massachusetts and is served by a network of 15
branch offices located on a broad arc stretching from Melrose and Everett in the
south, Dracut in the north, and Westford in the west.
The Bank's general market area consists of the municipalities in which it
operates banking offices and all of the contiguous cities and towns.
The Bank currently operates banking offices in the municipalities of
Chelmsford, Dracut, Everett, Lowell, Medford, Melrose, Reading, Stoneham,
Tewksbury, Westford and Wilmington.
Lending Activities
The Bank's net loan portfolio totaled $322.8 million at December 31, 1999.
The following table sets forth information concerning the Bank's loan portfolio
by type of loan at the dates shown:
- -------------------------------------------------------------------------------------------
(In thousands) At December 31, 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------
Mortgage loans:
Residential:
Conventional $286,429 $280,681 $243,482 $216,832 $209,408
FHA and VA 740 1,181 1,843 2,515 3,244
Commercial 2,471 2,257 3,861 4,121 6,975
Construction 232 730 492 1,388 1,516
- -------------------------------------------------------------------------------------------
Total mortgage loans 289,872 284,849 249,678 224,856 221,143
Add: premium on loans 159 259 343 325 388
Less: deferred mortgage loan
origination fees (1,451) (1,454) (1,223) (1,042) (928)
- -------------------------------------------------------------------------------------------
Mortgage loans, net 288,580 283,654 248,798 224,139 220,603
- -------------------------------------------------------------------------------------------
Other loans:
Consumer:
Installment 1,418 1,547 2,199 1,967 1,988
Guaranteed education 7,037 7,967 8,934 9,729 10,420
Other secured 1,318 1,366 1,600 1,611 2,012
Home equity lines of credit 11,737 10,159 10,470 11,316 13,144
Unsecured 225 235 266 271 265
- -------------------------------------------------------------------------------------------
Total consumer loans 21,735 21,274 23,469 24,894 27,829
Commercial 15,050 61 36 628 753
- -------------------------------------------------------------------------------------------
Total other loans 36,785 21,335 23,505 25,522 28,582
- -------------------------------------------------------------------------------------------
Total loans 325,365 304,989 272,303 249,661 249,185
Less: Allowance for loan losses (2,555) (2,450) (2,334) (2,237) (2,529)
- -------------------------------------------------------------------------------------------
Net loans $322,810 $302,539 $269,969 $247,424 $246,656
- -------------------------------------------------------------------------------------------
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The following table shows the maturity distribution and interest rate
sensitivity of the Bank's loan portfolio at December 31, 1999:
Maturity/Scheduled Payments (1)
Within One to Five to After
(In thousands) one year five years ten years ten years Total
- -------------------------------------------------------------------------------------------
Mortgage loans:
Residential $ 193 $10,753 $76,243 $198,698 $285,887
Commercial & construction 405 149 950 1,189 2,693
- -------------------------------------------------------------------------------------------
Total mortgage loans 598 10,902 77,193 199,887 288,580
Other loans 16,466 2,627 4,715 12,977 36,785
- -------------------------------------------------------------------------------------------
Total loans $17,064 $13,529 $81,908 $212,864 $325,365
- -------------------------------------------------------------------------------------------
(1) Loan amounts are accumulated as if the entire balance came due on the last
contractual payment date. Accordingly, the amounts do not reflect proceeds from
contractual loan amortization or anticipated prepayments.
The following table shows the amounts, included in the table above, which
are due after one year and which have fixed or adjustable interest rates:
Total Due After One Year
Fixed Adjustable
(In thousands) Rate Rate Total
- -------------------------------------------------------------------------------------------
Mortgage loans:
Residential $246,871 $38,823 $285,694
Commercial & construction 179 2,109 2,288
- -------------------------------------------------------------------------------------------
Total mortgage loans 247,050 40,932 287,982
Other loans 1,547 18,772 20,319
- -------------------------------------------------------------------------------------------
Total loans $248,597 $59,704 $308,301
- -------------------------------------------------------------------------------------------
Mortgage Lending. The Bank believes that the repayment periods of long-
term first mortgage loans, the general resistance of the public to variable rate
mortgage instruments and the highly competitive nature of the mortgage industry
require a prudent approach to mortgage lending. Consequently, as part of its
policy of generally attempting to match the maturities of its assets and its
liabilities, the Bank has kept its mortgage loan portfolio to a level at which
the Bank believes there is an acceptable risk-to-reward ratio in light of
opportunities in the market-place and its long-term objectives. The Bank's net
loan portfolio represented approximately 34.9% and 32.0% of the Company's total
assets at December 31, 1999, and 1998, respectively. The Bank realizes that this
low level of loans with respect to assets in relation to the securities
portfolio results in a reduction in yield; however, the Bank believes that this
reduction would be more than offset in risk and loss associated with lending
during periods of economic decline. In today's economic climate, the Bank would
prefer a more even mix of loans and securities. However, there remains a
tremendous amount of competition for mortgages in the Bank's area, and
developing a quality loan portfolio takes time. In 1999, the Bank's total loan
portfolio continued to grow, showing a 6.7% increase to $325.4 million compared
to $305.0 million at the end of 1998.
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8
Mortgage Lending (continued)
Loan originations come from a number of sources, including referrals from
real estate brokers, walk-in customers, purchasers of property owned by existing
customers and refinancings for existing customers. In addition to actively
soliciting loan referrals, the Bank conducts an advertising and promotion
program, directed both toward the general public and real estate professionals
who might refer potential borrowers.
Substantially all of the real estate loans originated by the Bank during
1999 were secured by real estate located in the Bank's primary lending area,
reflecting the Bank's commitment to serve the credit needs of the local
communities in which it operates banking offices.
The Bank makes both conventional fixed and adjustable-rate loans on one-
to-four family residential properties for a term of ten to thirty years. The
Bank currently retains all of the mortgages it originates for its own portfolio.
These are primarily 10, 12, 15 or 20 year fixed rate and adjustable rate
mortgages. The few long-term (25 or 30 year) fixed rate mortgage loans that the
Bank originates from time to time are also added to the loan portfolio.
Adjustable rate mortgage loans ("ARMs") have rates that are re-set at either 1,
3, 5 or 10 year intervals and provide a margin over various mortgage indices.
In recent years, the Bank has instituted several new loan programs which
have been well received by customers. It instituted a program featuring a 5/1
and 7/1 year ARM product with an initial fixed rate for 5 or 7 years and a 1
year adjustable rate thereafter. A special First Time Home Buyers Program has
also been instituted featuring a discounted 7/1 ARM. This program is designed
for first-time home buyers meeting certain income and property location
restrictions. The Bank has also introduced the "Home Town Advantage" mortgage
program which has produced some good results. This program offers homebuyers a
(0.125) percent discount on their mortgage rate if they purchase residential
property located in one of the communities where the bank operates a banking
office.
At December 31, 1999, 1-4 family residential mortgage loans totaled $285.9
million, or 87.9% of the total loan portfolio, compared to $280.7 million, or
92.0% of the total loan portfolio, at December 31, 1998. Residential mortgage
loan originations amounted to $55.2 million during 1999, down from $93.8 million
in 1998. Origination volumes are sensitive to interest rates and are affected by
the interest rate environment. In 1999, the upturn in interest rates
significantly reduced the demand for mortgage refinancings. Consequently, the
Bank was not able to reach the prior year's level of residential mortgage loan
originations.
The Bank also originates construction loans and mortgage loans secured by
commercial or investment property such as multifamily housing, strip shopping
centers, office buildings and retail buildings. At December 31, 1999, commercial
and multifamily real estate mortgages and construction loans totaled
approximately $2.7 million, or 0.8% of the total loan portfolio, compared to
$3.0 million, or 1.0% of the total loan portfolio, at December 31, 1998. In
1999, commercial and multifamily real estate mortgage loan and construction loan
originations amounted to $0.8 million.
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Mortgage Lending (continued)
The total amount of first mortgage loans held by the Bank at December 31,
1999 was $288.6 million as indicated in the maturity distribution table
appearing on page six. Of this amount, $41.3 million was subject to interest
rate adjustments. The remaining $247.3 million in fixed rate mortgage loans
represents 26.7% of the Company's total assets.
Fees received for originating loans and related direct incremental loan
origination costs are offset and the resulting net amount is deferred and
amortized over the life of the related loans using the level-yield method.
The Bank also receives fees and charges relating to existing loans,
primarily late charges and prepayment penalties.
Other Loans. The Bank makes a variety of consumer loans and had a consumer
loan portfolio of approximately $21.7 million at December 31, 1999 representing
6.7% of the Bank's total loan portfolio. Of this amount $7.0 million or 2.2% of
the total loan portfolio are education loans made under the Massachusetts Higher
Education Assistance Corporation. The Bank may sell education loans in the
future.
The balance of the Bank's consumer loan portfolio consists of home equity
lines of credit and installment consumer credit contracts such as automobile
loans, home improvement loans and other secured and unsecured financings. These
loans totaled $14.7 million at December 31, 1999, representing 4.5% of the
Bank's total loan portfolio.
At December 31, 1999, the Bank also had $15.1 million in outstanding loans
to commercial enterprises not secured by real estate.
Loan Approval. The Bank's loan approval process for all loans generally
includes a review of an applicant's financial statements, credit history,
banking history and verification of employment. For mortgage loans, the Bank
generally obtains an independent appraisal of the subject property. The Bank has
a formal lending policy approved by the Board of Directors of the Bank which
delegates levels of loan approval authority to Bank personnel. All loans in
excess of established limits require approval of the Bank's Board of Directors.
The Bank issues commitments to prospective borrowers to make loans subject
to certain conditions for generally up to 60 days. The interest rate applicable
to the committed loans is usually the rate in effect at the time the application
fee is paid. At December 31, 1999, the Bank had issued commitments on
residential first mortgage loans totaling $2,829,000, and had commitments to
advance funds on construction loans and unused credit lines, including unused
portions of home equity lines of credit, of $65,000 and $31,693,000,
respectively.
Loan Delinquencies. It is the Bank's policy to manage its loan portfolio so
as to recognize problem loans at an early stage and thereby minimize loan
losses. Loans are considered delinquent when any payment of principal or
interest is 30 days or more past due. The Bank generally commences collection
procedures, however, when accounts are 15 days past due. It is the Bank's
practice to generally discontinue accrual of interest on all loans for which
payments are more than 90 days past due. Loans delinquent for 90 or more days,
as shown in the table on the following page, totaled $795,000 at December 31,
1999.
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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. As of
year-end 1999, MASSBANK had $62 thousand in real estate acquired through
foreclosure in its balance sheet.
Non-Performing Assets
The following table shows the composition of non-performing assets at the
dates shown:
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(In thousands) At December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------
Nonaccrual loans:
Mortgage loans:
Residential:
Conventional $ 655 $ 845 $1,536 $1,468 $2,016
FHA and VA -- -- 9 13 14
Commercial -- -- -- -- --
Consumer 140 159 226 120 398
- ------------------------------------------------------------------------------------------------
Total nonaccrual loans 795 1,004 1,771 1,601 2,428
- ------------------------------------------------------------------------------------------------
Real estate acquired through foreclosure:
Residential:
Conventional 62 86 -- 503 255
- ------------------------------------------------------------------------------------------------
Total real estate acquired through
foreclosure 62 86 -- 503 255
- ------------------------------------------------------------------------------------------------
Total non-performing assets $ 857 $1,090 $1,771 $2,104 $2,683
- ------------------------------------------------------------------------------------------------
Percent of non-performing loans to total loans 0.24% 0.33% 0.65% 0.64% 0.97%
Percent of non-performing assets to total assets 0.09% 0.12% 0.19% 0.24% 0.31%
The reduction in interest income associated with nonaccrual loans is as
follows:
- ------------------------------------------------------------------------------------------------
(In thousands) Years Ended December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------
Interest income that would have been
recorded under original terms $ 64 $ 84 $163 $149 $204
Interest income actually recorded 51 61 97 78 60
- ------------------------------------------------------------------------------------------------
Reduction in interest income $ 13 $ 23 $ 66 $ 71 $144
- ------------------------------------------------------------------------------------------------
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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.
The following table sets forth the activity in the allowance for loan losses
during the years indicated:
- ------------------------------------------------------------------------------------------------
(In thousands) Years ended December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------
Balance at beginning of year $2,450 $2,334 $2,237 $2,529 $2,566
Glendale Co-Operative Bank acquisition -- -- 105 -- --
Provision for loan losses 140 193 260 160 170
Charge-offs:
Residential real estate (62) (81) (221) (480) (124)
Consumer loans (14) (22) (12) (25) (30)
Other loans -- -- (94) (37) (95)
Recoveries:
Residential real estate 39 17 34 83 41
Commercial real estate -- -- 20 -- --
Consumer loans 2 6 1 7 1
Other Loans -- 3 4 -- --
- ------------------------------------------------------------------------------------------------
Net charge-offs (35) (77) (268) (452) (207)
- ------------------------------------------------------------------------------------------------
Balance at end of year $2,555 $2,450 $2,334 $2,237 $2,529
- ------------------------------------------------------------------------------------------------
Net loan charge offs as a percent of average
loans outstanding during the period 0.01% 0.03% 0.10% 0.18% 0.08%
Allowance for loan losses as a percent
of total loans outstanding at year-end 0.79% 0.80% 0.86% 0.90% 1.01%
Allowance for loan losses as a percent
of nonaccrual loans 321.4 % 244.0 % 131.8 % 139.7 % 104.2 %
- ------------------------------------------------------------------------------------------------
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Investment Activities
The Bank believes that investment opportunities in United States
Government, corporate and other securities are at times more attractive than the
opportunities present in the loan market. As compared to loans, these
investments of the Bank are generally shorter-term and hence more liquid, are
subject to lower risk of loss, and present an opportunity for appreciation. In
addition, these investments often permit the Bank to better match the maturities
of its assets and its liabilities.
The Bank's investment portfolio is managed by its officers in accordance
with an investment policy approved by the Bank's Board of Directors. The
objectives of that policy are to provide a level of liquidity, earnings and
diversification consistent with the exercise of prudent investment judgment. The
policy authorizes the senior management of the Bank to make and execute
investment decisions and requires that those persons report all investment
transactions to the Bank's Board of Directors at each of its regular meetings.
In addition, management is required to report all gains or losses on all
securities transactions at each meeting of the Bank's Board of Directors.
Purchases and sales of securities by the Bank are generally required to be made
on a competitive basis and all investments must be permitted by applicable law.
The Bank invests in a wide variety of securities and obligations,
including: Federal funds sold (which are sold only to institutions included on
the Bank's internally-prepared approved list of adequately capitalized
institutions); commercial paper and bankers' acceptances; United States Treasury
and Government agency obligations; United States agency guaranteed and other
mortgage-backed securities; investment grade corporate debt securities
(generally limited to those rated A or better by Standard & Poor's); mutual
funds; and equity securities traded on a national securities exchange or quoted
on the NASDAQ System.
Under the investment policy management determines the appropriate
classification of securities at the time of purchase. Those 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 market conditions, interest rates, changes in prepayment risk, the
need to increase regulatory capital and other factors. Income on debt securities
available for sale is accrued and included in interest and dividend income. The
specific identification method is used to determine realized gains or losses on
sales of securities available for sale which are also reported in non-interest
income under the caption "gains 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.
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Investment Activities (continued)
Investments classified as trading securities are stated at market with
unrealized gains or losses included in earnings. Income on trading securities is
accrued and included in interest and dividend income. All of the Company's
mortgage-backed securities are currently classified as available for sale. At
times of low loan demand, short-term mortgage-backed securities may be used as
substitutes for loans as certain of their financial characteristics are very
similar to short-term mortgage loans.
At December 31, 1999, the Company's investments, which consists of
securities held to maturity, securities available for sale (including
mortgage-backed securities), trading securities, short-term investments, term
federal funds sold and interest-bearing deposits in banks totaled $578.5
million, representing 62.6% of the Company's total assets.
13
14
The following table sets forth the composition of the Company's investment
portfolio as of the dates indicated:
Investment Portfolio
- ------------------------------------------------------------------------------------------------
(In thousands) At December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------
Federal funds sold:
Overnight federal funds $ 86,211 $123,207 $ 85,241
Term federal funds -- 25,000 20,000
- ------------------------------------------------------------------------------------------------
Total federal funds sold 86,211 148,207 105,241
Money market funds 24,717 24,569 24,514
Interest-bearing deposits in bank 3,841 2,033 2,083
- ------------------------------------------------------------------------------------------------
Total federal funds sold and other
short-term investments $114,769 $174,809 $131,838
- ------------------------------------------------------------------------------------------------
Percent of total assets 12.4% 18.5% 14.2%
- ------------------------------------------------------------------------------------------------
(In thousands) At December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------
Securities held to maturity: (a)
Other bonds and obligations $ 230 $ 354 $ 372
- ------------------------------------------------------------------------------------------------
Total securities held to maturity $ 230 $ 354 $ 372
Securities available for sale: (b)
U.S. Treasury obligations 137,615 114,981 123,021
U.S. Government agency obligations 16,015 8,992 9,813
Marketable equity securities 21,537 21,580 17,545
Investments in mutual funds -- -- 1,114
Mortgage-backed securities 282,335 272,573 330,731
- ------------------------------------------------------------------------------------------------
Total securities available for sale 457,502 418,126 482,224
Trading securities: (b)
U.S. Treasury obligations 4,956 29,707 18,542
Investments in mutual funds 1,086 1,086 2,718
- ------------------------------------------------------------------------------------------------
Total trading securities 6,042 30,793 21,260
- ------------------------------------------------------------------------------------------------
Total securities $463,774 $449,273 $503,856
- ------------------------------------------------------------------------------------------------
Percent of total assets 50.2% 47.5% 54.4%
- ------------------------------------------------------------------------------------------------
Total investments $578,543 $624,082 $635,694
Total investments as a percent of total assets 62.6% 65.9% 68.7%
- ------------------------------------------------------------------------------------------------
(a) At amortized cost.
(b) At market value.
14
15
The following tables present the carrying value of debt securities held to
maturity and available for sale at December 31, 1999 maturing within stated
periods with the weighted average interest yield from securities falling within
the range of maturities:
Debt Securities Held to Maturity
Other
bonds
and
(Dollars in thousands) obligations (1) Total
- ------------------------------------------------------------------------------------------------
Maturing after 1 but within 5 years
Amount $ 230 $ 230
Yield 6.80% 6.80%
- ------------------------------------------------------------------------------------------------
Total
Amount $ 230 $ 230
Yield 6.80% 6.80%
Average life in years 1.29 1.29
Debt Securities Available for Sale
U.S.
U. S. Government Mortgage-
Treasury agency backed
(Dollars in thousands) obligations obligations securities (2) Total
- ------------------------------------------------------------------------------------------------
Maturing within 1 year
Amount $ 52,845 $6,992 $ 523 $ 60,360
Yield 6.09% 5.19% 5.33% 5.98%
Maturing after 1
but within 5 years
Amount 82,707 9,000 3,869 95,576
Yield 5.93% 5.46% 8.06% 5.97%
Maturing after 5
but within 10 years
Amount 2,966 -- 56,571 59,537
Yield 5.85% -- 6.88% 6.83%
Maturing after 10
but within 15 years
Amount -- -- 221,202 221,202
Yield 6.79% 6.79%
Maturing after 15 years
Amount -- 151 4,103 4,254
Yield 7.68% 6.16% 6.21%
- ------------------------------------------------------------------------------------------------
Total
Amount $138,518 $16,143 $286,268 $440,929
Yield 5.99% 5.36% 6.81% 6.50%
- ------------------------------------------------------------------------------------------------
Average life in years 1.87 0.97
Average contractual
maturity in years 11.86
15
16
(1) Yields on tax exempt obligations have been computed on a tax equivalent
basis.
(2) Mortgage-backed securities are based on contractual maturities. Actual
maturities will differ from contractual maturities due to scheduled
amortization and prepayments.
At December 31, 1999, the Company did not have an investment in any issuer
(other than securities of the U.S. Government and Government Agencies) in excess
of 10% of stockholders equity.
16
17
Deposits and Other Sources of Funds
General. Deposits have been the Bank's primary source of funds for making
investments and loans. In addition to deposits, the Bank's other major sources
of funds are derived from amortization and prepayment of loans and
mortgage-backed securities, from sales or maturities of securities, and from
operations. Deposit flows can vary significantly and are influenced by
prevailing interest rates, money market conditions, economic conditions and
competition. The Bank can respond to changing market conditions and competition
through the pricing of its deposit accounts. Management can attempt to control
the level of its deposits to a significant degree through its pricing policies.
Another important factor in attracting deposits is convenience. In addition to
the Bank's fifteen conveniently located banking offices, customers can access
accounts through the Bank's ATM network. The Bank is a member of the Transaxion
("TX"), New York Cash Exchange ("NYCE") and CIRRUS System, Inc. ("CIRRUS")
networks which allow access to ATMs in over 100,000 locations worldwide.
Deposits. A substantial amount of the Bank's deposits are derived from
customers who live or work within the Bank's market area. The Bank does not
solicit deposits through any outside agents. The Bank's deposits consist of
regular, silver and smart savings accounts, special notice accounts, NOW and
Super NOW accounts, business checking accounts, money market deposit accounts,
IRA and Keogh accounts, and term deposit accounts.
The performance of the stock market in 1999, continued to draw savings from
bank deposit accounts making it more difficult to grow bank deposits. As a
result, the Bank's deposits decreased by $6.0 million during the twelve months
ended December 31, 1999, from $824.0 million at year-end 1998 to $818.0 million
at the end of 1999.
Borrowed Funds. From time to time the Bank has obtained funds through
repurchase agreements with its customers and federal funds purchased. The Bank
also has the ability, although it has never exercised it, to borrow from the
Federal Reserve Bank and The Depositors Insurance Fund, Inc. The Company did not
have any borrowed funds in 1999 or 1998.
17
18
DEPOSITS
The following table shows the composition of the deposits as of the dates
indicated:
(In thousands) at December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------
Percent Percent Percent
of of of
Amount Deposits Amount Deposits Amount Deposits
Demand and NOW
NOW $ 48,422 5.92% $ 52,324 6.35% $ 47,944 5.92%
Demand accounts
(non interest-bearing) 24,516 3.00 23,849 2.89 18,915 2.34
------- ---- ------- ---- ------ -----
Total demand and NOW 72,938 8.92 76,173 9.24 66,859 8.26
Savings:
Regular savings and
special notice accounts 333,535 40.77 326,192 39.59 329,348 40.67
Money market accounts 19,555 2.39 21,857 2.65 23,527 2.90
------- ------- ----- ------- -----
Total savings 353,090 43.16 348,049 42.24 352,875 43.57
Time Certificates of deposit:
Fixed rate certificates 302,423 36.97 318,491 38.65 316,368 39.06
Variable rate certificates 90,093 11.01 82,033 9.96 74,666 9.22
------ ------ ---- ------ ----
Total time certificates
of deposit 392,516 47.98 400,524 48.61 391,034 48.28
Deposit acquisition premium,
net of amortization (487) (.06) (715) (.09) (918) (0.11)
---- ---- ---- ---- -----
Total deposits $818,057 100.00% $824,031 100.00% $809,850 100.00%
In the following table the average amount of deposits and average rate is
shown for each of the years as indicated.
(In thousands) Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
NOW accounts $ 49,559 1.01% $ 48,006 1.15% $ 46,580 1.14%
Demand (non interest-bearing)
accounts 24,189 -- 21,011 -- 18,156 --
Escrow deposits of borrowers 1,185 0.19 1,142 0.18 1,159 0.28
Money market accounts 20,519 2.96 22,299 3.07 24,186 3.07
Regular savings and
special notice accounts 333,332 3.44 327,338 3.44 331,209 3.47
Time certificates of deposit 397,935 5.19 391,816 5.57 386,062 5.67
------- ------- -------
826,719 4.02 811,612 4.23% 807,352 4.30%
18
19
Investment Management and Trust Services
The Bank's Trust and Investment Services Division offers a variety of
investment, trust and estate planning services and also serves as Trustee,
Executor, and Executor's Agent for bank customers.
As of December 31, 1999 the Trust Division had approximately $33.9 million
(market value) of assets in custody and under management.
Competition
The Bank faces substantial competition both in originating loans and in
attracting deposits. Competition in originating loans comes primarily from other
thrift institutions, commercial banks, credit unions and mortgage banking
companies. The Bank competes for loans principally on the basis of interest
rates and loan fees, the types of loans originated and the quality of services
provided to borrowers.
In attracting deposits, the Bank's primary competitors are other thrift
institutions, commercial banks, mutual funds and credit unions located in its
market area. The Bank's attraction and retention of deposits depend on its
ability to provide investment opportunities that satisfy the requirements of
customers with respect to rate of return, liquidity, risk and other factors. The
Bank attracts a significant amount of deposits through its branch offices
primarily from the communities in which those branch offices are located. The
Bank competes for these deposits by offering competitive rates, convenient
branch and ATM locations and convenient business hours.
19
20
Supervision and Regulation of the Company and its Subsidiaries
The Company and the Bank are in a heavily regulated industry. As a Delaware
business corporation, the Company is subject to all of the federal and state
laws and regulations that apply to corporations generally, including the federal
and state securities laws and the Delaware Business Corporation Law. In
addition, as a company that owns and controls a bank, the Company is regulated
as a bank holding company, is subject to supervision, examination and regulation
by the Board of Governors of the Federal Reserve System (the "FRB") under the
federal Bank Holding Company Act (the "BHC Act"), and is subject to statutes,
regulations and policies administered by the FRB relating to, among other
things, mergers, acquisitions and changes in controlling ownership, non-bank
activities and subsidiaries, capital adequacy, the receipt and payment of
dividends, and the provision of financial and managerial support to its
subsidiary bank. In addition, the Company is subject to certain state law
restrictions administered by the Massachusetts Division of Banks (the
"Division"), relating to, among other things, the acquisition of additional
banking institutions and the conduct of nonbank activities.
As a Massachusetts-chartered savings bank whose deposits are insured by the
Federal Deposit Insurance Corporation (the "FDIC") (and, with respect to any
deposits in excess of FDIC limits, by the private, industry-sponsored Depositors
Insurance Fund of Massachusetts), the Bank is subject to regulation, supervision
and examination by federal and state regulatory authorities, including the FDIC
and the Division. This framework of federal and state banking supervision and
regulation is administered primarily for the benefit of borrowers, depositors
and the respective deposit insurance funds and not for the benefit of the Bank,
the Company or its stockholders.
The Bank is subject to extensive federal and state statutes, regulations,
policies and standards regarding virtually all aspects of its operations,
including capital adequacy, reserves, liquidity, payment of dividends,
transactions with affiliates, loans to officers, directors, principal
shareholders and their related interests, mergers, acquisitions and changes in
controlling ownership, establishment, relocation and closure of branch banking
offices, community reinvestment, equal credit opportunity, credit reporting,
real estate settlement procedures, funds availability, disclosure to consumers,
financial accounting, reporting and recordkeeping, and Year 2000 preparedness.
In the event the Bank failed to maintain adequate capital or otherwise failed to
operate in accordance with applicable federal and Massachusetts statutes,
regulations or policies, the FDIC and the Division have authority to place the
Bank in receivership or conservatorship or impose other sanctions, including but
not limited to restrictions on dividend or other payments by the Bank to the
Company, termination of the Bank's deposit insurance, restrictions on the Bank's
growth, issuance of orders to cease and desist from or to take specified
actions, assessment of money penalties, and removal of officers or directors.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") establishes five categories of banking institutions -- in descending
order of capital adequacy: "well-capitalized," "adequately capitalized,"
"undercapitalized," significantly undercapitalized," and "critically
undercapitalized" -- and imposes certain restrictions and requires federal bank
regulatory agencies to take "prompt corrective action" with respect to banks
that are in one of the three "undercapitalized" categories. As of December 31,
1999, the Bank was "well capitalized" as defined under FDICIA. For a discussion
of the Bank's capital adequacy, see Note 14 to the Company's Consolidated
Financial Statements, on page 46.
20
21
Supervision and Regulation of the Company and its Subsidiaries
(continued)
FDICIA establishes a system of risk-based deposit insurance assessments
that takes a bank's capital level and supervisory risk characteristics into
account in calculating the amount of its federal deposit insurance assessment.
In addition, FDICIA places certain restrictions on the equity investments and
other "principal" activities of all state-chartered banks, including the Bank.
FDICIA further requires the FDIC and other federal bank regulatory agencies to
establish regulatory "safety and soundness" standards to govern various aspects
of bank operations including internal controls, information systems and audit
systems, loan documentation, credit underwriting, interest rate risk exposure,
asset growth, executive compensation, asset quality, earnings and stock
valuation, as the agencies consider appropriate. The FDIC may require a bank
that is not in compliance with safety and soundness standards promulgated under
FDICIA to submit and implement a written plan to achieve compliance within a
specified time period and may impose sanctions on a bank that fails to submit
and implement an acceptable plan when required. At December 31, 1998, the Bank's
operations were in substantial compliance with all applicable safety and
soundness standards promulgated under FDICA.
On September 29, 1994, the Riegle-Neal Interstate Banking and Branching Act
of 1994 (the "Interstate Banking Act") was signed into law by President Clinton.
In 1996, Massachusetts enacted legislation "opting in" to interstate branch
banking and imposing certain limitations and requirements as permitted by the
Interstate Banking Act. The Interstate Banking Act and the 1996 Massachusetts
legislation permit interstate branching, mergers and bank acquisitions by
Massachusetts bank holding companies and banks and permit out-of-state bank
holding companies and banks to expand their banking operations into
Massachusetts by merger, acquisition or de novo branching subject to certain
regulatory approval requirements and other limitations.
As to the Gramm-Leach-Bliley Act, the legislation, which became law on
November 12, 1999, repeals provisions of the Glass-Steagall Act: Section 20,
which restricted the affiliation of banks with firms "engaged principally" in
specified securities activities; and Section 32, which restricts officer,
director, or employee interlocks between a bank and any company or person
"primarily engaged" in specified securities activities. Moreover, the general
effect of the law is to establish a comprehensive framework to permit
affiliations among commercial banks, insurance companies, securities firms, and
other financial service providers by revising and expanding the BHCA framework
to permit a holding company system, such as the Company, to engage in a full
range of financial activities through a new entity known as a financial holding
company. "Financial activities" is broadly defined to include not only banking,
insurance, and securities activities, but also merchant banking and additional
activities that the Federal Reserve Bank ("FRB"), in consultation with the
Secretary of the Treasury, determines to be financial in nature, incidental to
such financial activities, or complementary activities that do not pose a
substantial risk to the safety and soundness of depository institutions or the
financial system generally. In sum, the Gramm- Leach-Bliley Act is intended to
permit bank holding companies that qualify and elect to be treated as a
financial holding company to engage in a significantly broader range of
financial activities than the activities described above that are not so
treated.
Generally, although significant implementation, regulations have yet to be
published, the Gramm-Leach-Bliley Act:
21
22
Supervision and Regulation of the Company and its Subsidiaries
(continued)
* repeals historical restrictions on, and eliminates many federal and
state law barriers to, affiliations among banks, securities firms,
insurance companies, and other financial service providers;
* provides a uniform framework for the functional regulation of the
activities of banks, savings institutions, and their holding
companies;
* broadens the activities that may be conducted by national banks
(and derivatively state banks), banking subsidiaries of bank holding
companies, and their financial subsidiaries;
* provides an enhanced framework for protecting the privacy of
consumer information;
* adopts a number of provisions related to the capitalization,
membership, corporate governance, and other measures designed to
modernize the Federal Home Loan Bank system;
* modifies the laws governing the implementation of the Community
Reinvestment Act of 1977; and
* addresses a variety of other legal and regulatory issues affecting
both day-to-day operations and long-term activities of financial
institutions.
In order to elect to become a financial holding company and engage in the
new activities, a bank holding company, such as the Company, must meet certain
tests and file an election form with the FRB which generally is acted on within
thirty days. To qualify, all of a bank holding company's subsidiary banks must
be well-capitalized (as discussed below under "The Bank") and well-managed, as
measured by regulatory guidelines. In addition, to engage in the new activities
each of the bank holding company's banks must have been rated "satisfactory" or
better in its most recent federal Community Reinvestment Act evaluation.
Furthermore, a bank holding company that elects to be treated as a financial
holding company may face significant consequences if its banks fail to maintain
the required capital and management ratings, including entering into an
agreement with the FRB which imposes limitations on its operations and may even
require divestitures. Such possible ramifications may limit the ability of a
bank subsidiary to significantly expand or acquire less than well-capitalized
and well-managed institutions. At this time, the Company has not determined
whether it will become a financial holding company.
From time to time the U.S. Congress and the Massachusetts Legislature adopt
legislation and the Federal and State bank regulatory agencies issue regulations
and policies that may significantly affect the operations of the Bank and the
Company. No assurance can be given as to whether or when such additional
legislation, regulations or policies may be adopted or as to the effect any such
legislation, regulations or policies may have on the Company or the Bank.
22
23
Employees
MASSBANK Corp. utilizes the support staff of the Bank from time to time
without the payment of any fees. No separate compensation is being paid to the
executive officers of MASSBANK Corp., all of whom are executive officers of the
Bank and receive compensation as such. As of December 31, 1999, the Bank had 143
full-time employees, including 29 officers, and 62 part-time employees. None of
the Bank's employees is represented by a collective bargaining group, and
management believes that its employee relations are good. The Bank provides its
employees with formal training in product knowledge, sales techniques, fair
lending, and motivation. In addition, each supervisor at the Bank receives
management training before assuming his or her supervisory duties and
periodically thereafter. The Bank maintains a comprehensive employee benefit
program for qualified employees that includes a qualified pension plan, an
Employee Stock Ownership Plan (ESOP), health and dental insurance, life and
long-term disability insurance and tuition assistance.
Subsidiaries
The Bank has three wholly-owned subsidiaries: Readibank Investment
Corporation, Melbank Investment Corporation, and Readibank Properties, Inc.
Readibank Investment Corporation and Melbank Investment Corporation were
established for the purpose of managing portions of the Bank's investment
portfolio. Assets of Readibank Investment Corporation and Melbank Investment
Corporation totaled $133.9 million and $134.1 million, respectively, at December
31, 1999.
Readibank Properties, Inc. incorporated primarily for the purpose of real
estate development, had total assets of $630 thousand at December 31, 1999.
Executive Officers of the Registrant
The executive officers of the Company and the Bank and the age of each
officer as of March 4, 2000 are as follows:
Name Age Office
Gerard H. Brandi 51 Chairman of the Board of Directors,
President and Chief Executive
Officer of the Company and the Bank
David F. Carroll 52 Vice President of the Bank
Reginald E. Cormier 52 Senior Vice President, Treasurer and
Chief Financial Officer of the
Company and the Bank
Thomas J. Queeney 37 Vice President and Senior Trust
Officer of the Bank
Donald R. Washburn 56 Senior Vice President of the Bank
Donna H. West 54 Senior Vice President of the Bank
and Assistant Secretary of the
Company
23
24
Gerard H. Brandi. Mr. Brandi has served in various capacities with MASSBANK
since he joined the Bank in 1975 as Vice President of the Lending Division. He
served as Senior Vice President from 1978 to 1981, Executive Vice President and
Senior Lending Officer from 1981 to 1983, and Executive Vice President and
Treasurer from 1983 to 1986. Mr. Brandi was named President of the Company and
the Bank in 1986, Chief Executive Officer in 1992 and Chairman in 1993.
David F. Carroll. Mr. Carroll has been employed by the Bank since 1983 and
has been Vice President of Operations since 1984. He served as Vice President of
the Lending Division for a year before becoming Vice President of Operations.
Reginald E. Cormier. Mr. Cormier joined the Bank as Treasurer in September,
1987 and served in this capacity until his promotion to Vice President,
Treasurer and Chief Financial Officer in January, 1995. In December 1999, he was
promoted to Senior Vice President, Treasurer and Chief Financial Officer.
Thomas J. Queeney. Mr. Queeney joined the Bank in 1986 as a Management
Trainee in Loan Origination. He became an Assistant Manager in 1987 and was
promoted to Assistant Treasurer in 1988. He then served as a Marketing and
Investor Relations Representative until his promotion to Loan Servicing Manager
in 1990. In 1992, he was promoted to Loan Officer and Commercial Lending
Manager. He was promoted to Assistant Vice President, Lending in 1997, where he
served until his promotion to AVP/Trust Administrator in July of 1998. In
January of 1999, he was promoted to Vice President and Senior Trust Officer.
Donald R. Washburn. Mr. Washburn joined the Bank in 1973 as a Loan Officer.
He became an Assistant Vice President in January, 1977 and a Vice President in
the Lending Division in June, 1980. Mr. Washburn served as Vice President of the
Operations Division from February, 1983 to January, 1984, as Vice President of
the Community Banking Division from January, 1984 to January, 1986 and as Vice
President of the Lending Division from January, 1986 until his promotion to
Senior Vice President of the Lending Division in June, 1994.
Donna H. West. Mrs. West has been employed by the Bank since 1979 and has
served as Vice President of the Community Banking Division since October, 1987.
Starting at the Bank as an Assistant Branch Manager in 1979, Mrs. West became a
Branch Manager in 1981, an Assistant Treasurer and Branch Manager in 1982, an
Assistant Treasurer and Regional Branch Administrator in 1984 and an Assistant
Vice President and Regional Branch Administrator in 1986. She served in this
capacity until her October, 1987 promotion to Vice President of the Community
Banking Division. In June, 1994, Mrs. West was promoted to Senior Vice President
of the Community Banking Division.
24
25
Item 2. Properties
The main office of MASSBANK Corp. and MASSBANK is located at 123 Haven
Street, Reading, Massachusetts. Additionally, the Bank has fourteen branches and
three operations facilities. The Bank owns its main office, two operations
facilities and seven of its branches. All of the remaining branches and other
facilities are leased under various leases. At December 31, 1999, management
believes that the Bank's existing facilities are adequate for the conduct of its
business.
The following table sets forth certain information relating to the Bank's
existing facilities.
Owned Lease Renewal
or Expiration Option
Location Leased Date Through
MAIN OFFICE: 123 Haven Street, Reading, MA Owned ---- ----
BRANCH 296 Chelmsford Street, Chelmsford, MA Leased (2) ----
OFFICES: 17 North Road, Chelmsford, MA Leased (2) (1)
45 Broadway Road, Dracut, MA Leased 2002 ----
738 Broadway, Everett, MA Owned ---- ----
50 Central Street, Lowell, MA Owned ---- ----
755 Lakeview Avenue, Lowell, MA Owned ---- ----
4110 Mystic Valley Pkwy, Medford, MA Leased 2001 ----
476 Main Street, Melrose, MA Owned ---- ----
27 Melrose Street, Towers Plaza,
Melrose, MA Leased 2004 2014
240 Main Street, Stoneham, MA Leased 2003 ----
1800 Main Street, Tewksbury, MA Owned ---- ----
203 Littleton Road, Westford, MA Owned ---- ----
370 Main Street, Wilmington, MA Owned ---- ----
219 Lowell Street, Lucci's Plaza,
Wilmington, MA Leased 2006 ----
OPERATIONS
FACILITIES: 159 Haven Street, Reading, MA Owned ---- ----
169 Haven Street, Reading, MA Owned ---- ----
11 North Road, Chelmsford, MA Leased (2) (1)
(1) The Bank has an option to purchase in the year 2000.
(2) The Bank is a tenant at will.
Item 3. Legal Proceedings
From time to time, MASSBANK Corp. and/or the Bank are involved as a
plaintiff or defendant in various legal actions incident to their business. As
of December 31, 1999, none of these actions individually or in the aggregate is
believed by management to be material to the financial condition of MASSBANK
Corp. or the Bank.
Item 4. Submission of Matters to a Vote of Security Holders
None.
25
26
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The information contained under the caption "MASSBANK Corp. and
Subsidiaries Stockholder Data" in the Registrant's 1999 Annual Report to
Stockholders is incorporated herein by reference.
Item 6. Selected Financial Data
The information contained under the caption "MASSBANK Corp. and
Subsidiaries - Selected Consolidated Financial Data" in the Registrant's 1999
Annual Report to Stockholders is incorporated herein by reference.
This selected consolidated financial data should be read in conjunction
with the consolidated statements and related notes thereto appearing in the
Registrant's 1999 Annual Report to Stockholders which are incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Registrant's
1999 Annual Report to Stockholders is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information contained under the captions "Asset and Liability
Management", "Interest Rate Risk" and "Other Market Risks" included in
Management's Discussion and Analysis of Financial Condition and Results of
Operations section of the Registrant's 1999 Annual Report to Stockholders is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's consolidated financial statements and notes thereto,
together with the report of KPMG LLP, contained in the Registrant's 1999 Annual
Report to Stockholders are incorporated herein by reference. The unaudited
quarterly financial data set forth on page 52 of such Annual Report is
incorporated herein by reference.
Item 9. Changes in and Disagreements with Independent Accountants on
Accounting and Financial Disclosure
None
26
27
PART III
Item 10. Directors and Executive Officers of the Registrant
The information appearing under the caption "Election of Directors" and
"Compliance with Section 16(A) of the Exchange Act" in the Registrant's
definitive proxy statement relating to its 2000 Annual Meeting of Stockholders
is incorporated herein by reference. Information required by this item
concerning the Executive Officers of the Registrant is contained in Part I of
this Form 10-K.
Item 11. Executive Compensation
The information appearing under the caption "Executive Compensation" in the
Registrant's definitive proxy statement relating to its 2000 Annual Meeting of
Stockholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information appearing under the captions "Election of Directors" and
"Principal Stockholders" in the Registrant's definitive proxy statement relating
to its 2000 Annual Meeting of Stockholders is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information contained in Note 5 of the Consolidated Financial
Statements under the caption "Loans" in the Registrant's 1999 Annual Report to
Stockholders is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following financial statements and financial statement schedules are
contained herein or are incorporated herein by reference:
(a)1. Financial Statements
Reference to 1999
Annual Report
to Stockholders
(Pages)
Independent Auditors' Report 25
Consolidated balance sheets at December 31,
1999 and 1998 26
Consolidated statements of income for the three
years ended December 31, 1999 27
Consolidated statements of cash flows for the three
years ended December 31, 1999 28-29
Consolidated statements of changes in stockholders'
equity for the three years ended December 31,
1999 30
Notes to consolidated financial statements 31-52
2. Financial Statement Schedules
All schedules are omitted as the required information is either not
applicable or is included in the consolidated financial statements or related
notes.
27
28
3. Exhibits
Exhibit No. Description of Exhibit
3.1 Restated Certificate of Incorporation of the
Registrant - incorporated by reference to Exhibit
3.1 of the Registrant's Form S-4 Registration
Statement (Reg. No. 33-7916).
3.2 By-Laws of the Registrant - incorporated by reference
to Exhibit 3 of the Registrant's Form 10-Q for the
quarter ended September 30, 1991.
4.1 Shareholder Rights Agreement dated as of
January 18, 2000, between the Company and The First
National Bank of Boston, as Rights Agent - incorporated
herein by reference to the Exhibit to the Company's
Current Report on Form 8-K dated as of January 20, 2000.
10.1 MASSBANK Corp. 1986 Stock Option Plan, as amended -
incorporated by reference to Exhibit 28.1 to the
Registrant's Form S-8 Registration Statement
(Reg. No. 33-11949).
10.1.2 Amendment to MASSBANK Corp. 1986 Stock Option Plan dated
April 19, 1991 - incorporated by reference to Exhibit
10.1.2 to the Registrant's annual report on Form 10-K
for the year ended December 31, 1992.
10.1.3 MASSBANK Corp. 1994 Stock Incentive Plan - incorporated
by reference to Exhibit 10.1 to the Registrant's Form S-8
Registration Statement (Reg. No. 33-82110).
10.1.4 Amendment to MASSBANK Corp. 1994 Stock Incentive Plan
dated April 21, 1998 - incorporated by reference to
Exhibit 10.1.4 to the Registrant's annual report on Form
10-K for the year ended December 31, 1997.
10.2 MASSBANK for Savings Employees' Stock Ownership Plan
and Trust Agreement - incorporated by reference to
Exhibit 10.2 of the Registrant's Form S-4 Registration
Statement (Reg. No. 33-7916).
10.2.1 Amendments to the MASSBANK for Savings Employee's Stock
Ownership Plan and Trust Agreement - incorporated by
reference to Exhibit 10.2.1 to the Registrant's annual
report on Form 10-K for the year ended December 31, 1993.
10.2.2 Amendments to the MASSBANK for Savings Employee's Stock
Ownership Plan and Trust Agreement - incorporated by
reference to Exhibit 10.2.2 to the Registrant's annual
report on Form 10-K for the year ended December 31, 1997.
10.3 Form of Employment Agreement, as amended, with Gerard H.
Brandi - incorporated by reference to Exhibit 10.3 of
the Registrant's annual report on Form 10-K for the year
ended December 31, 1986 and Exhibit 10.3.1 of the
Registrant's annual report on Form 10-K for the year
ended December 31, 1989.
28
29
Exhibit No. Description of Exhibit
10.3.2 Amendment to the Employment Agreement with Gerard H.
Brandi - incorporated by reference to Exhibit 10.3.2 of
the Registrant's annual report on Form 10-K for the year
ended December 31, 1990.
10.3.3 Second amendment dated as of February 1, 1993 to the
Employment Agreement with Gerard H. Brandi - incorporated
by reference to Exhibit 10.3.3. to the Registrant's
annual report on Form 10-K for the year ended
December 31, 1992.
10.3.7 Form of Employment Agreement with David F. Carroll dated
as of February 1, 1993 - incorporated by reference to
Exhibit 10.3.7 to the Registrant's annual report on Form
10-K for the year ended December 31, 1992.
10.3.8 Form of Employment Agreement with Reginald E. Cormier
dated as of February 1, 1993 - incorporated by reference
to Exhibit 10.3.8 to the Registrant's annual report on
Form 10-K for the year ended December 31, 1992.
10.3.9 Form of Employment Agreement with Donald R. Washburn
dated as of February 1, 1993 - incorporated by reference
to Exhibit 10.3.9 to the Registrant's annual report on
Form 10-K for the year ended December 31, 1992.
10.3.10 Form of Employment Agreement with Donna H. West dated
as of February 1, 1993 - incorporated by reference to
Exhibit 10.3.10 to the Registrant's annual report on
Form 10-K for the year ended December 31, 1992.
10.3.11 Executive Severance Agreement with Gerard H. Brandi
dated as of January 18, 1994 - incorporated by reference
to exhibit 10.3.11 to the Registrant's annual report on
Form 10-K for the year ended December 31, 1993.
10.3.12 Executive Severance Agreement with David F. Carroll
dated as of December 23, 1993 - incorporated by reference
to exhibit 10.3.12 to the Registrant's annual report on
Form 10-K for the year ended December 31, 1993.
10.3.13 Executive Severance Agreement with Reginald E. Cormier
dated as of December 23, 1993 - incorporated by reference
to exhibit 10.3.13 to the Registrant's annual report on
Form 10-K for the year ended December 31, 1993.
29
30
Exhibit No. Description of Exhibit
10.3.14 Executive Severance Agreement with Donald R. Washburn
dated as of December 23, 1993 - incorporated by reference
to exhibit 10.3.14 to the Registrant's annual report on
Form 10-K for the year ended December 31, 1993.
10.3.15 Executive Severance Agreement with Donna H. West dated
as of December 23, 1993 - incorporated by reference to
exhibit 10.3.15 to the Registrant's annual report on
Form 10-K for the year ended December 31, 1993.
10.4 Form of Executive Supplemental Retirement Agreement, as
amended, with Gerard H. Brandi - incorporated by
reference to Exhibit 10.4 of Registrant's annual report
on Form 10-K for the year ended December 31, 1986.
10.4.1 Amendments to the Executive Supplemental Retirement
Agreement with Gerard H. Brandi are incorporated by
reference to Exhibit 10.4.1 of the Registrant's annual
report on Form 10-K for the year ended December 31, 1996.
12 Statement re: Computation of Ratios - Not applicable as
MASSBANK Corp. does not have any debt securities
registered under Section 12 of the Securities Exchange
Act of 1934.
13 1999 Annual Report to Stockholders - except for those
portions of the 1999 Annual Report to Stockholders which
are expressly incorporated by reference in this report,
such 1999 Annual Report to Stockholders is furnished for
the information of the SEC and is not to be deemed
"filed" with the SEC.
22 Subsidiaries of the Registrant - A list of subsidiaries
of the Registrant is attached hereto as Exhibit 22 to
this Annual Report.
23 Independent Accountants' Consent.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during
the last quarter of the period covered by this
Form 10-K.
(c) Exhibits to this Form 10-K are attached or
incorporated by reference as stated in the
Index to Exhibits.
(d) Not applicable.
27 Financial Data Schedule
30
31
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
MASSBANK CORP.
/s/Gerard H. Brandi
-------------------
Gerard H. Brandi
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/Gerard H. Brandi Chairman, President,
- ---------------------- Chief Executive Officer and
Gerard H. Brandi Director March 8, 2000
-------------
/s/Reginald E. Cormier Senior Vice President, Treasurer
- ---------------------- and Chief Financial Officer
Reginald E. Cormier (Principal Financial and
Accounting Officer) March 8, 2000
-------------
/s/Samuel Altschuler Director March 14, 2000
- ---------------------- -------------
Samuel Altschuler
/s/Mathias B. Bedell Director March 8, 2000
- ---------------------- -------------
Mathias B. Bedell
/s/Allan S. Bufferd Director March 10, 2000
- ---------------------- --------------
Allan S. Bufferd
Director
- ----------------------
Peter W. Carr
/s/Alexander S. Costello Director March 13, 2000
- ---------------------- --------------
Alexander S. Costello
31
32
/s/Robert S. Cummings Director March 8, 2000
- ---------------------- -------------
Robert S. Cummings
/s/Leonard Lapidus Director March 10, 2000
- ---------------------- --------------
Leonard Lapidus
/s/Stephen E. Marshall Director March 8, 2000
- ---------------------- -------------
Stephen E. Marshall
/s/Nancy L. Pettinelli Director March 13, 2000
- ---------------------- --------------
Nancy L. Pettinelli
/s/Herbert G. Schurian Director March 10, 2000
- ---------------------- --------------
Herbert G. Schurian
/s/Donald B. Stackhouse Director March 8, 2000
- ---------------------- -------------
Donald B. Stackhouse
32