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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 (Fee Required)
For the fiscal year ended December 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
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: (617) 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 13, 1998 as reported by NASDAQ, was $166,212,860.
As of March 13, 1998, there were 3,578,478 shares of the registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1997 Annual Report to Stockholders are
incorporated by reference in Parts I, II, III and IV of this Form 10-K. Portions
of the Proxy Statement for the 1998 Annual Meeting of Stockholders are
incorporated by reference in Part III of this Form 10-K.
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Note regarding forward-looking statements.
The discussions set forth below and elsewhere herein contain certain
statements that may be considered forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. A number of important factors could
cause actual results to differ materially from those in the forward-looking
statements. Those factors include fluctuations in interest rates, inflation,
government regulations and economic conditions and competition in the geographic
and business areas in which the Company conducts its operations.
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.
MASSBANK Corp.'s principal sources of revenues on an unconsolidated basis,
which are used for the payment of dividends to stockholders and other purposes,
are dividends from MASSBANK and, to a lesser extent, interest income received
from its interest-bearing bank deposits. MASSBANK Corp.'s assets on an
unconsolidated basis at December 31, 1997 were represented by its investment in
the Bank of $101.1 million and other assets of $3.5 million. The Company's
liabilities consisted of loan indebtedness of $0.8 million and other liabilities
of less than $0.1 million. The proceeds of the loan were used to fund stock
purchases through the Employee Stock Ownership Plan ("ESOP"). See Note 18 to the
Consolidated Financial Statements for parent company only financial information.
At December 31, 1997 MASSBANK Corp. on a consolidated basis had total assets of
$925.4 million, deposits of $809.9 million, and stockholders' equity of $103.8
million which represents 11.2% of total assets. Book value per share at December
31, 1997 was $29.06.
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.
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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 $0.885 per share in 1997
compared to $0.69 per share in 1996 and $0.5475 per share in 1995. The Company's
dividend payout ratios (cash dividends paid divided by net income) for 1997,
1996 and 1995 were 31%, 26% and 23%, respectively.
Stock Repurchase Program
In July 1997, MASSBANK Corp. announced that its Board of Directors (the
"Board") had extended, for another year, the stock repurchase program which it
authorized in July, 1996. During 1997, the Company repurchased 46,807 of its
common shares under its ongoing repurchase program. This leaves 171,398 shares
available for repurchase in the current program.
Preferred Stock Purchase Rights
In January 1990, 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 in January 2000, entitle their holders
to purchase from the Company one one-hundredth of a share (a "unit") of Series A
Junior Participating Cumulative Preferred Stock, par value $1.00 per share
("preferred stock") at a cash exercise price of $70.00 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 15% or more of the
outstanding common stock, upon a tender offer that would result in a person or
group acquiring 15% 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 15% 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 15% 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, and a variety of consumer loans. The Bank also 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'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 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.
Acquisition
On February 26, 1997, MASSBANK signed a definitive merger agreement to
purchase the Glendale Co-operative Bank ("Glendale") of Everett, Massachusetts.
Under the agreement, MASSBANK acquired all of the outstanding shares of Glendale
at a price of $28.00 per share, for an aggregate purchase price of $7.38
million.
Glendale Co-operative Bank was a Massachusetts chartered co-operative bank
founded in 1928. Glendale operated a single banking office in the city of
Everett with total assets of $35.6 million. On July 21, 1997 MASSBANK completed
the acquisition. The transaction was accounted for as a purchase.
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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 $270.0 million at December 31, 1997.
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, 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------
Mortgage loans:
Residential:
Conventional $243,482 $216,832 $209,408 $207,772 $204,096
FHA and VA 1,843 2,515 3,244 4,158 5,166
Commercial 3,861 4,121 6,975 8,155 9,654
Construction 492 1,388 1,516 603 474
- -------------------------------------------------------------------------------------------
Total mortgage loans 249,678 224,856 221,143 220,688 219,390
Add: premium on loans 343 325 388 452 813
Less: deferred mortgage loan
origination fees (1,223) (1,042) (928) (871) (856)
- -------------------------------------------------------------------------------------------
Mortgage loans, net 248,798 224,139 220,603 220,269 219,347
- -------------------------------------------------------------------------------------------
Other loans:
Consumer:
Installment 2,199 1,967 1,988 1,972 2,474
Guaranteed education 8,934 9,729 10,420 10,152 9,131
Other secured 1,600 1,611 2,012 2,598 1,735
Home equity lines of credit 10,470 11,316 13,144 14,674 15,744
Unsecured 266 271 265 269 277
- -------------------------------------------------------------------------------------------
Total consumer loans 23,469 24,894 27,829 29,665 29,361
Commercial 36 628 753 882 338
- -------------------------------------------------------------------------------------------
Total other loans 23,505 25,522 28,582 30,547 29,699
- -------------------------------------------------------------------------------------------
Total loans 272,303 249,661 249,185 250,816 249,046
Less: Allowance for loan losses (2,334) (2,237) (2,529) (2,566) (2,261)
- -------------------------------------------------------------------------------------------
Net loans $269,969 $247,424 $246,656 $248,250 $246,785
- -------------------------------------------------------------------------------------------
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The following table shows the maturity distribution and interest rate
sensitivity of the Bank's loan portfolio at December 31, 1997:
Maturity/Scheduled Payments (1)
Within One to Five to After
(In thousands) one year five years ten years ten years Total
- -------------------------------------------------------------------------------------------
Mortgage loans:
Residential $1,482 $ 6,869 $63,393 $172,720 $244,464
Commercial & construction 628 1,040 1,286 1,380 4,334
- -------------------------------------------------------------------------------------------
Total mortgage loans 2,110 7,909 64,679 174,100 248,798
Other loans 1,777 3,278 6,090 12,360 23,505
- -------------------------------------------------------------------------------------------
Total loans $3,887 $11,187 $70,769 $186,460 $272,303
- -------------------------------------------------------------------------------------------
(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 $192,976 $50,006 $242,982
Commercial & construction 488 3,218 3,706
- -------------------------------------------------------------------------------------------
Total mortgage loans 193,464 53,224 246,688
Other loans 2,315 19,413 21,728
- -------------------------------------------------------------------------------------------
Total loans $195,779 $72,637 $268,416
- -------------------------------------------------------------------------------------------
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, over several years, has kept its mortgage loan portfolio
to a level at which the Bank believed there was an acceptable risk-to-reward
ratio in light of opportunities in the marketplace and the Bank's long-term
objectives. The Bank's net loan portfolio represented approximately 29.2% and
27.9% of the Company's total assets at December 31, 1997, and 1996,
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. The Bank
anticipates that its loan portfolio will grow slowly over the next few years.
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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 refinancing 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
1997 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 retains the 10, 12, 15 or 20 year fixed rate mortgages and adjustable rate
mortgages it originates for its own portfolio. Long-term (25 or 30 year) fixed
rate residential mortgages are generally sold in the secondary market.
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.
During the latter part of 1997, the Bank introduced a new Home Equity Line
of Credit product which it hopes will be well received by customers in the
months ahead. This new product offers customers a special introductory interest
rate of 7.25% which is fixed until the year 2000. Thereafter, the interest rate
will be variable and will be indexed to the 13 week (91 day) Treasury Bill
auction rate plus a margin of 3.25%. This indexed variable rate has historically
responded more favorably to movements in market interest rates than the PRIME
RATE used by many financial institutions and should, therefore, be more
attractive to bank customers.
In the last few years, the Bank has instituted several other 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. In 1996, the Bank introduced the "Home Town Advantage" mortgage
program which has produced some good results. This new 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, 1997, 1-4 family residential mortgage loans totaled $244.5
million, or 89.8% of the total loan portfolio, compared to $218.6 million, or
87.6% of the total loan portfolio, at December 31, 1996. Residential mortgage
loan originations amounted to $50.0 million during 1997, an increase of 19.3%
from $41.9 million in 1996. Origination volumes are sensitive to interest rates
and are affected by the interest rate environment. The prevailing low interest
rates in 1997 encouraged many borrowers to refinance. This resulted in higher
mortgage loan originations for the Bank.
The Bank also originates mortgage loans secured by commercial or investment
property such as multifamily housing, strip shopping centers, office buildings
and retail buildings. At December 31, 1997, commercial and multifamily real
estate mortgages and construction loans totaled approximately $4.3 million, or
1.6% of the total loan portfolio, compared to $5.5 million, or 2.2% of the total
loan portfolio, at December 31, 1996. In 1997, commercial and multifamily real
estate mortgage loan originations amounted to $0.3 million.
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Mortgage Lending (continued)
The total amount of first mortgage loans held by the Bank at December 31,
1997 was $248.8 million as indicated in the maturity distribution table
appearing on the previous page. Of this amount, $53.9 million was subject to
interest rate adjustments. The remaining $194.9 million in fixed rate mortgage
loans represents 21.1% 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 $23.5 million at December 31, 1997 representing
8.6% of the Bank's total loan portfolio. Of this amount $8.9 million or 3.3% 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 $14.5 million at December 31, 1997, representing 5.3% of the
Bank's total loan portfolio.
At December 31, 1997, the Bank had only $36 thousand 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, 1997, the Bank had issued commitments on
residential first mortgage loans totaling $4,090,000, and had commitments to
advance funds on construction loans and unused credit lines, including unused
portions of home equity lines of credit, of $496,000 and $19,445,000,
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 $1,771,000 at December 31,
1997.
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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 1997, MASSBANK had zero real estate acquired through foreclosure on its
balance sheet.
Non-Performing Assets
The following table shows the composition of non-performing assets at the
dates shown:
- ------------------------------------------------------------------------------------------------
(In thousands) At December 31, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------
Nonaccrual loans:
Mortgage loans:
Residential:
Conventional $1,536 $1,468 $2,016 $1,496 $1,048
FHA and VA 9 13 14 62 43
Commercial -- -- -- 152 --
Consumer 226 120 398 388 178
- ------------------------------------------------------------------------------------------------
Total nonaccrual loans 1,771 1,601 2,428 2,098 1,269
- ------------------------------------------------------------------------------------------------
Real estate acquired through foreclosure:
Residential:
Conventional -- 503 255 129 699
- ------------------------------------------------------------------------------------------------
Total real estate acquired through
foreclosure -- 503 255 129 699
- ------------------------------------------------------------------------------------------------
Total non-performing assets $1,771 $2,104 $2,683 $2,227 $1,968
- ------------------------------------------------------------------------------------------------
Percent of non-performing loans to total loans 0.65% 0.64% 0.97% 0.84% 0.51%
Percent of non-performing assets to total assets 0.19% 0.24% 0.31% 0.26% 0.23%
The reduction in interest income associated with nonaccrual loans is as
follows:
- ------------------------------------------------------------------------------------------------
(In thousands) Years Ended December 31, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------
Interest income that would have been
recorded under original terms $163 $149 $204 $185 $105
Interest income actually recorded 97 78 60 88 40
- ------------------------------------------------------------------------------------------------
Reduction in interest income $ 66 $ 71 $144 $ 97 $ 65
- ------------------------------------------------------------------------------------------------
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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, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------
Balance at beginning of year $2,237 $2,529 $2,566 $2,261 $2,056
Glendale Co-Operative Bank acquisition 105 -- -- -- --
Provision for loan losses 260 160 170 705 671
Charge-offs:
Residential real estate (221) (480) (124) (339) (305)
Commercial real estate -- -- -- -- (135)
Consumer loans (12) (25) (30) (24) (17)
Other loans (94) (37) (95) (63) (31)
Recoveries:
Residential real estate 34 83 41 23 20
Commercial real estate 20 -- -- -- --
Consumer loans 1 7 1 3 2
Other Loans 4 -- -- -- --
- ------------------------------------------------------------------------------------------------
Net charge-offs (268) (452) (207) (400) (466)
- ------------------------------------------------------------------------------------------------
Balance at end of year $2,334 $2,237 $2,529 $2,566 $2,261
- ------------------------------------------------------------------------------------------------
Net loan charge offs as a percent of average
loans outstanding during the period 0.10% 0.18% 0.08% 0.16% 0.19%
Allowance for loan losses as a percent
of total loans outstanding at year-end 0.86% 0.90% 1.01% 1.02% 0.91%
Allowance for loan losses as a percent
of nonaccrual loans 131.8% 139.7% 104.2% 122.3% 178.2%
- ------------------------------------------------------------------------------------------------
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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 interest rates, changes in prepayment risk, the need to increase
regulatory capital and other similar factors. Income on debt securities
available for sale is accrued and included in interest and dividend income. The
specific identification method is used to determine realized gains and losses on
sales of securities available for sale which are also reported in non-interest
income under the caption "gains (losses) on securities." When a security suffers
a loss in value which is considered other than temporary, such loss is
recognized by a charge to earnings.
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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 debt trading
securities is accrued and included in interest and dividend income. All of the
Company's mortgage-backed securities are currently classified as available for
sale. 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, 1997, 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 $635.7
million, representing 68.7% of the Company's total assets.
12
13
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, 1997 1996 1995
- ------------------------------------------------------------------------------------------------
Federal funds sold:
Overnight federal funds $ 85,241 $109,902 $100,245
Term federal funds 20,000 10,000 15,000
- ------------------------------------------------------------------------------------------------
Total federal funds sold 105,241 119,902 115,245
Money market funds 24,514 24,408 7,260
Interest-bearing deposits in bank 2,083 1,751 941
- ------------------------------------------------------------------------------------------------
Total federal funds sold and other
short-term investments $131,838 $146,061 $123,446
- ------------------------------------------------------------------------------------------------
Percent of total assets 14.2% 16.4% 14.4%
- ------------------------------------------------------------------------------------------------
(In thousands) At December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------
Securities held to maturity: (a)
Other bonds and obligations $ 372 $ 160 $ 402
- ------------------------------------------------------------------------------------------------
Total securities held to maturity 372 160 402
Securities available for sale: (b)
U.S. Treasury obligations 123,021 140,706 212,115
U.S. Government agency obligations 9,813 7,877 14,172
Other bonds and obligations -- 1,000 2,004
Marketable equity securities 17,545 15,574 11,290
Investments in mutual funds 1,114 -- --
Mortgage-backed securities 330,731 306,595 216,520
- ------------------------------------------------------------------------------------------------
Total securities available for sale 482,224 471,752 456,101
Trading securities: (b)
U.S. Treasury obligations 18,542 -- --
Investments in mutual funds 2,718 4,672 6,819
- ------------------------------------------------------------------------------------------------
Total trading securities 21,260 4,672 6,819
- ------------------------------------------------------------------------------------------------
Total securities $503,856 $476,584 $463,322
- ------------------------------------------------------------------------------------------------
Percent of total assets 54.4% 53.7% 54.2%
- ------------------------------------------------------------------------------------------------
Total investments $635,694 $622,645 $586,768
Total investments as a percent of total assets 68.7% 70.1% 68.7%
- ------------------------------------------------------------------------------------------------
(a) At amortized cost.
(b) At market value.
13
14
The following tables present the carrying value of debt securities held to
maturity and available for sale at December 31, 1997 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 6.77% 6.77%
Maturing after 5 years but within 10 years
Amount $ 97 $ 97
Yield 9.36% 9.36%
Maturing after 10 years but within 15 years
Amount 45 45
Yield 10.61% 10.61%
- -----------------------------------------------------------------------------------------
Total
Amount $ 372 $ 372
Yield 7.91% 7.91%
Average life in years 5.35 5.35
Debt Securities Available for Sale
U.S. Other Mortgage-
U. S. Government bonds backed
Treasury agency and securities (2)
(Dollars in thousands) obligations obligations obligations Total
- ------------------------------------------------------------------------------------------------
Maturing within 1 year
Amount $ 35,869 $2,000 $ -- $ 312 $ 38,181
Yield 6.62% 6.75% 4.50% 6.61%
Maturing after 1
but within 5 years
Amount 85,530 6,600 -- 8,826 100,956
Yield 6.59% 6.18% 7.44% 6.64%
Maturing after 5
but within 10 years
Amount -- 1,000 -- 30,677 31,677
Yield 6.76% 7.64% 7.61%
Maturing after 10
but within 15 years
Amount -- -- -- 279,147 279,147
Yield 6.89% 6.89%
Maturing after 15 years
Amount -- 200 -- 6,142 6,342
Yield 7.94% 6.15% 6.21%
- ------------------------------------------------------------------------------------------------
Total
Amount $121,399 $9,800 $ -- $325,104 $456,303
Yield 6.60% 6.39% 6.96% 6.85%
- ------------------------------------------------------------------------------------------------
Average life in years 1.72 3.18 --
Average contractual
maturity in years 12.49
14
15
(1) Yields on tax exempt obligations have been computed on a tax equivalent
basis.
(2) Mortgage-backed securities are shown at their contractual maturity, but are
expected to have shorter lives due to scheduled payments and prepayments.
At December 31, 1997, the Company did not have an investment in any issuer
(other than securities of the U.S. government) in excess of 10% of stockholders
equity.
15
16
Deposits and Other Sources of Funds
General. Deposits have been the primary source of funds of the Bank 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 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 Bank's deposits increased by $21.5 million or 2.7% during the twelve
months ended December 31, 1997, from $788.4 million at year end 1996 to $809.9
million at the end of 1997. The increase is attributable to the $29.8 million in
deposits acquired in connection with the Glendale purchase. Also, in 1997, the
Bank experienced some modest deposit outflow due to the strong performance of
the stock market and mutual funds which were both fierce competitors for the
savers' dollars.
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 1997 or 1996.
16
17
DEPOSITS
The following table shows the composition of the deposits as of the dates
indicated:
(In thousands) at December 31, 1997 1996 1995
- --------------------------------------------------------------------------------------------------
Percent Percent Percent
of of of
Amount Deposits Amount Deposits Amount Deposits
Demand and NOW
NOW $ 47,944 5.92% $ 45,352 5.75% $ 51,197 6.79%
Demand accounts
(non interest-bearing) 18,915 2.34 17,382 2.21 15,216 2.02
-------- ------ -------- ------ -------- ------
Total demand and NOW 66,859 8.26 62,734 7.96 66,413 8.81
Savings:
Regular savings and
special notice accounts 329,348 40.67 333,834 42.35 330,230 43.82
Money market accounts 23,527 2.90 23,824 3.02 26,368 3.50
-------- ------ -------- ------ -------- ------
Total savings 352,875 43.57 357,658 45.37 356,598 47.32
Time Certificates of deposit:
Fixed rate certificates 316,368 39.06 303,722 38.52 274,684 36.45
Variable rate certificates 74,666 9.22 65,417 8.30 57,373 7.61
-------- ------ -------- ------ -------- ------
Total time certificates
of deposit 391,034 48.28 369,139 46.82 332,057 44.06
Deposit acquisition premium,
net of amortization (918) (0.11) (1,181) (.15) (1,411) (.19)
-------- ------ -------- ------ -------- ------
Total deposits $809,850 100.00% $788,350 100.00% $753,657 100.00%
-------- ------ -------- ------ -------- ------
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, 1997 1996 1995
- --------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
NOW accounts $ 46,580 1.14% $ 47,197 1.21% $ 50,513 1.28%
Demand (non interest-bearing)
accounts 18,156 -- 15,992 -- 13,645 --
Escrow deposits of borrowers 1,159 0.28 780 0.19 788 0.28
Money market accounts 24,186 3.07 25,205 3.20 28,052 3.29
Regular savings and
special notice accounts 331,209 3.47 332,851 3.44 359,397 3.59
Time certificates of deposit 386,062 5.67 352,385 5.74 300,141 5.78
-------- -------- --------
807,352 4.30% $774,410 4.27% $752,536 4.11%
17
18
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, 1997 the Trust Division had approximately $30.2 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
branches and ATM locations and convenient business hours.
18
19
Supervision and Regulation of the Company and its Subsidiaries
The Bank is in a heavily regulated industry. As a Massachusetts-chartered
savings bank whose deposits are insured by the FDIC and The Depositors Insurance
Fund, the Bank is 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 Depositors Insurance Fund. This
Federal and State regulation is for the benefit of borrowers, depositors and the
respective deposit insurance funds and is 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, fair lending, fair credit reporting, real
estate settlement procedures, funds availability, disclosure to consumers and
financial accounting, reporting and recordkeeping. In the event the Bank did not
operate in accordance with FDIC statutes, regulations or policies, the FDIC has
authority to terminate insurance of the Bank's deposit accounts and the FDIC and
the Commissioner of Banks have authority to impose other sanctions for such
non-compliance. For a discussion of the Bank's capital adequacy, see Note 15 of
Notes to Consolidated Financial Statements appearing in the Company's 1997
Annual Report to Stockholders, which is incorporated herein by reference.
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 and is subject to statutes, regulations and policies relating to,
among other things, mergers, acquisitions and changes in controlling ownerships,
non-bank activities and subsidiaries, capital adequacy, the payment of
dividends, the tying of the sale or pricing of products or services of bank and
nonbank subsidiaries, and the provision of financial and managerial support of
its subsidiary bank.
19
20
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") made significant changes in federal laws governing depository
institutions and the FDIC. Among other changes, FDICIA requires federal bank
regulatory agencies to take "prompt corrective action" with respect to banks
that do not meet applicable regulatory capital requirements. In addition, FDICIA
prohibits state chartered banks from engaging, as principals, in activities such
as equity investments and insurance underwriting, which are not permissible for
national banks, unless the FDIC has determined that the activity would pose no
significant risk to the Bank Insurance Fund and the state bank is in compliance
with applicable capital standards. An insured state bank, such as MASSBANK, may
to the extent permitted by the FDIC, acquire and retain ownership of common or
preferred stock listed on a national securities exchange, provided that the
insured state bank made or maintained an investment in such securities during
the period beginning on September 30, 1990 and ending on November 26, 1991,
which MASSBANK did, and provided further that the aggregate amount of the
investment does not exceed 100 percent of the Bank's capital. At December 31,
1997, the Bank had marketable equity securities and investment in mutual funds
with a market value of approximately $21.4 million, representing 21.3% of the
Bank's equity capital. In addition, FDICIA limits the aggregate amount a bank
may lend to its directors, executive officers and principal shareholders and
their related interests, prohibits depository institutions that are not well
capitalized from accepting brokered deposits without an express waiver from the
FDIC, requires uniform disclosures to consumers of the terms of bank deposit
accounts, and requires banks to give regulators and bank customers advance
notice of branch closings. FDICIA also 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.
FDICIA imposes annual audit and reporting requirements on banking
organizations with more than $500 million in total assets. Finally, the FDICIA
requires the FDIC and the other Federal bank regulatory agencies to issue
regulatory standards to govern various aspects of bank operations including real
estate lending, executive compensation, loan documentation, credit underwriting,
interest rate risk exposure, and asset growth.
In 1994, the Riegle-Neal Interstate Banking and Branching Act of 1994 (the
"Interstate Banking Act") was enacted. The Interstate Banking Act's provisions,
among other things: (i) permit bank holding companies, under certain
circumstances, to acquire control of banks in any state, subject to (a)
specified maximum national and state deposit concentration limits; (b) any
applicable state law provisions requiring that the acquired bank has to have
been in existence for a specified period of up to 5 years; (c) any applicable
nondiscriminatory state provisions that make an acquisition of a bank contingent
upon a requirement to hold a portion of such bank's assets available for call by
a state-sponsored housing entity; and (d) applicable anti-trust laws; (ii)
authorize interstate mergers by banks in different states, including branching
through bank mergers, beginning June 1, 1997, subject to the provisions noted in
(i) and to any state laws that "opt-in" as of an earlier date or "opt-out" of
the provisions entirely; (iii) authorize states to enact legislation permitting
interstate de novo branching; and (iv) provide for parity of treatment for
foreign bank branch activities.
In 1996, Massachusetts enacted legislation implementing the provisions of
the Interstate Banking Act. In the new legislation, Massachusetts authorized
immediate "opt-in" to interstate banking. Thus, the 1996 legislation
substantially facilitates the geographic expansion of banking by Massachusetts
and out-of-state banks.
20
21
The 1996 legislation also allows out-of-state banks to establish and
maintain branches through a merger or consolidation with or the purchase of
assets or stock of any Massachusetts bank or through de novo branch
establishment or purchase of a branch without purchase of the bank which owns
the branch, in Massachusetts, provided that such out-of-state bank is expressly
authorized to do so by the laws of the state under which it is organized. The
1996 legislation also allows Massachusetts banks to establish and maintain
branches through a merger or consolidation with or by the purchase of the whole
or any part of the assets or stock of any out-of-state bank or through de novo
branch establishment in any other state other than Massachusetts. Finally, the
1996 legislation prohibits the establishment of bank holding companies and
acquisition of banks and bank holding companies by Massachusetts and
out-of-state bank holding companies if the Massachusetts bank to be acquired has
been in existence less than 3 years or if, after such acquisition, the bank
holding company would control 28% of the deposits in Massachusetts (until 1998,
when the deposit limitation is increased to 30%).
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 additional legislation will be
enacted or whether additional regulations or policies will be issued or as to
the effect any such legislation, regulations or policies may have on the Bank or
the Company.
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, 1997, the Bank had 150
full-time employees, including 30 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.
21
22
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 $66.8 million and $63.7 million, at December 31, 1997,
respectively.
Readibank Properties, Inc. incorporated primarily for the purpose of real
estate development, had total assets of $631 thousand at December 31, 1997.
Executive Officers of the Registrant
The executive officers of the Company and the Bank and the age of each
officer as of March 13, 1998 are as follows:
Name Age Office
- ---- --- ------
Gerard H. Brandi 49 Chairman of the Board of Directors,
President and Chief Executive
Officer of the Company and the Bank
Raymond A. Brearey 62 Vice President and Senior Trust
Officer of the Bank
David F. Carroll 50 Vice President of the Bank
Reginald E. Cormier 50 Vice President, Treasurer and Chief
Financial Officer of the Company and
the Bank
Donald R. Washburn 54 Senior Vice President of the Bank
Donna H. West 52 Senior Vice President of the Bank
and Assistant Secretary of the
Company
22
23
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.
Raymond A. Brearey. Mr. Brearey is Vice President and Senior Trust
Officer of the Bank. Prior to joining the Bank in 1992, Mr. Brearey was a
Senior Trust Officer of the Malden Trust Company in Malden, Massachusetts.
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 has served in this capacity until his promotion to Vice
President, Treasurer and Chief Financial Officer in January, 1995.
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.
23
24
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, 1997, 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 1998 ----
OFFICES: 17 North Road, Chelmsford, MA Leased 1999 (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 1998 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 1999 (1)
(1) Bank has option to purchase in year 2000.
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, 1997, 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.
24
25
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 1997 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 1997
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 1997 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
1997 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 Peat Marwick LLP, contained in the Registrant's
1997 Annual Report to Stockholders are incorporated herein by reference. The
unaudited quarterly financial data set forth on page 65 of such Annual Report is
incorporated herein by reference.
Item 9. Changes in and Disagreements with Independent Accountants on
Accounting and Financial Disclosure
None
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 1998 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 1998 Annual Meeting
of Stockholders is incorporated herein by reference.
25
26
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 1998 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 1997 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 1997
Annual Report
to Stockholders
(Pages)
Independent Auditors' Report 37
Consolidated balance sheets at December 31,
1997 and 1996 38
Consolidated statements of income for the three
years ended December 31, 1997 39
Consolidated statements of cash flows for the three
years ended December 31, 1997 40-41
Consolidated statements of changes in stockholders'
equity for the three years ended December 31,
1997 42
Notes to consolidated financial statements 43-65
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.
26
27
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 16, 1990,
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 16, 1990.
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 is
attached hereto as Exhibit 10.1.4 to this Annual Report.
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 are attached hereto as
Exhibit 10.2.2 to this Annual Report.
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.
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.
27
28
Exhibit No. Description of Exhibit
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.
10.3.4 Form of Employment Agreement with Raymond A. Brearey dated
June 22, 1992 - incorporated by reference to Exhibit
10.3.4 to the Registrant's annual report on Form 10-K for
the year ended December 31, 1992.
10.3.5 First amendment dated as of February 1, 1993 to the
Employment Agreement with Raymond A. Brearey incorporated
by reference to Exhibit 10.3.5 to the Registrant's annual
report on Form 10-K for the year ended December 31, 1992.
10.3.6 Second amendment dated as of February 1, 1993 to the
Employment Agreement with Raymond A. Brearey incorporated
by reference to Exhibit 10.3.6 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.
28
29
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 1997 Annual Report to Stockholders - except for those
portions of the 1997 Annual Report to Stockholders which
are expressly incorporated by reference in this report,
such 1997 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 Consent of Independent Auditors.
(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.
29
30
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 11, 1998
/s/ Reginald E. Cormier Vice President, Treasurer
- ------------------------- and Chief Financial Officer
Reginald E. Cormier (Principal Financial and
Accounting Officer) March 11, 1998
/s/ Samuel Altschuler Director March 18, 1998
- -------------------------
Samuel Altschuler
/s/ Mathias B. Bedell Director March 11, 1998
- -------------------------
Mathias B. Bedell
Director
- -------------------------
Allan S. Bufferd
Director
- -------------------------
Peter W. Carr
/s/ Alexander S. Costello Director March 19, 1998
- -------------------------
Alexander S. Costello
30
31
/s/ Robert S. Cummings Director March 11, 1998
- -------------------------
Robert S. Cummings
/s/ Louise A. Hickey Director March 18, 1998
- -------------------------
Louise A. Hickey
Director
- -------------------------
Leonard Lapidus
/s/ Stephen E. Marshall Director March 11, 1998
- -------------------------
Stephen E. Marshall
/s/ Arthur W. McPherson Director March 18, 1998
- -------------------------
Arthur W. McPherson
/s/ Herbert G. Schurian Director March 11, 1998
- -------------------------
Herbert G. Schurian
/s/ Donald B. Stackhouse Director March 11, 1998
- -------------------------
Donald B. Stackhouse
31