SOURCE: MASSBANK Corp.

April 25, 2007 16:50 ET

MASSBANK Corp. Reports First Quarter 2007 Earnings of $2.08 Million or $0.48 per Share

READING, MA -- (MARKET WIRE) -- April 25, 2007 -- MASSBANK Corp. (NASDAQ: MASB), the Holding Company for MASSBANK, today reported net income of $2,081,000 or $0.48 in diluted earnings per share for the first quarter 2007, compared with net income of $1,810,000 or $0.41 in diluted earnings per share in the first quarter of 2006. Basic earnings per share in the recent quarter were $0.48 per share compared to $0.42 per share in the first quarter of the prior year. The Company's first quarter 2007 earnings include an after tax benefit of $660,000 or $0.15 in diluted earnings per share from a change in accounting rules for valuing certain financial instruments at fair value.

Effective January 1, 2007, the Company elected early adoption of Statement of Financial Accounting Standards ("SFAS") No. 159 and No. 157. SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities," was issued in February 2007 and permits the measurement of selected eligible financial instruments at fair value at specified election dates. Upon adoption of SFAS No. 159, the Company selected the fair value option for all its U.S. Treasury and Government Agency securities available for sale, a portfolio totaling $261.3 million as of January 1, 2007. The initial fair value measurement of these securities resulted in a $2.2 million cumulative effect adjustment, net of tax, recorded as a reduction in retained earnings as of January 1, 2007. This charge to retained earnings has no overall impact on total stockholders' equity because the fair value adjustment had previously been included as an element of stockholders' equity in the accumulated other comprehensive loss account. Under the provisions of SFAS No. 159, the cumulative-effect adjustment is a one-time charge to retained earnings and will not be recognized in current earnings. None of the eligible securities selected were sold during the first quarter 2007. The Company intends to account for certain selected financial assets at fair value under Statement No. 159 with changes in fair value recognized in earnings on an ongoing basis.

As a result of the Company's election to early adopt SFAS No. 159, the Company recorded $1,014,000 of pretax unrealized trading gains ($660,000 net of taxes) in its first quarter earnings for the change in fair value of the selected securities noted above from the election date of January 1, 2007 to March 31, 2007.

The Company's return on average assets and return on average equity for the first quarter of 2007 improved to 1.01% and 7.79%, respectively, from 0.82% and 6.91%, respectively, for the first quarter of 2006. The net interest margin for the first quarter of 2007 was 2.39% compared to 2.53% for the same quarter of the prior year.

Income Statement

Net interest income for the first quarter 2007 decreased by $650,000 or 11.9% as the bank continued to be challenged by the current inverted yield curve environment (an environment where short-term rates actually exceed long-term rates) and increased funding costs. This has resulted in a decrease of 14 basis points in net interest margin in the recent quarter compared to the same quarter of 2006. Average earning assets for the first quarter of 2007 declined to $803.4 million, from $863.0 million in the first quarter of the prior year due to a lower deposit base. This is due in part to intense competition for short-term deposits.

Non-interest income for the three months ended March 31, 2007 increased $879,000 or 143.9% to $1,490,000 from $611,000 for the same period in 2006. This increase is due primarily to an increase in net securities gains of $883,000, from $251,000 in the first quarter 2006 to $1,134,000 in the recent quarter. Net securities gains in the first quarter 2007 were comprised of $1,049,000 in net gains on trading securities and net gains on available for sale securities of $85,000. This compares to net gains on trading securities and available for sale securities of $238,000 and $13,000, respectively, for the same quarter in 2006. The net gains on trading securities for the first quarter 2007 consisted of $1,014,000 in pretax unrealized trading gains resulting from the early adoption of SFAS No. 159 discussed earlier, realized trading losses on equity securities of $27,000, unrealized trading gains on equity securities of $60,000 and realized gains on other securities of $2,000. Other non-interest income consisting of deposit account service fees, option fees and other income totaled $356,000 for the three months ended March 31, 2007 compared to $360,000 for the same period in 2006.

Non-interest expense for the three months ended March 31, 2007 decreased $207,000 or 6.3% to $3,100,000 compared to $3,307,000 for the same period in 2006. Salaries and employee benefits increased $16,000 or less than 1%. Included in salaries and employee benefits for the three months ended March 31, 2007 and March 31, 2006 were stock-based compensation costs of $20,000 and $10,000, respectively.

Deferred compensation plan expense decreased $44,000 in the recent quarter compared to the same quarter last year. This decrease was essentially offset by the lower earnings on plan assets reflected in non-interest income of $46,000.

Occupancy and equipment expense decreased $71,000 or 11.8% to $531,000 for the three months ended March 31, 2007 from $602,000 for the same period in 2006. The decrease is due primarily to a reduction in building and equipment depreciation expense, and a reduction in costs for snow removal this winter.

Professional services expense decreased $40,000 or 23.8% to $128,000 in the recent quarter compared to $168,000 for the same quarter last year due primarily to a reduction in legal fees.

All other company expenses decreased 68,000 or 11.8% to $509,000 for the three months ended March 31, 2007 compared to $577,000 for the same period in 2006 due to reductions in a various types of expenses.

Balance Sheet

The Company's total assets decreased $62.3 million to $828.2 million at March 31, 2007, from $890.5 million at March 31, 2006. Deposits decreased $60.9 million or 7.9% year-over-year from $775.2 million at March 31, 2006 to $714.3 million at March 31, 2007. Stockholders' equity increased $4.5 million or 4.3% to $108.6 million at March 31, 2007, from $104.1 million at March 31, 2006. Book value per share increased $1.01 or 4.2% to $25.04 per share at March 31, 2007, from $24.03 per share at March 31, 2006.

The Company's non-accrual loans remain near historical lows totaling $148,000 at March 31, 2007, representing 0.07% of total loans. This compares to $130,000 representing 0.06% of total loans at March 31, 2006. At March 31, 2007, the Bank's allowance for loan losses totaled $1.382 million representing 0.68% of total loans compared to $1.247 million representing 0.56% of total loans at March 31, 2006. In addition, the Bank's allowance for loan losses on off-balance sheet credit exposures totaled $345,000 at March 31, 2007 compared to $517,000 a year earlier. This is intended to protect the Bank against possible losses on loan commitments made to customers that have not yet been drawn down.

MASSBANK Corp. is the holding company for MASSBANK, a Massachusetts chartered savings bank. The Bank operates fifteen banking offices in Reading, Chelmsford, Dracut, Everett, Lowell, Medford, Melrose, Stoneham, Tewksbury, Westford and Wilmington, providing a variety of deposit, lending and trust services.

ADDITIONAL INFORMATION

Dividend Declaration

MASSBANK Corp. today announced a quarterly cash dividend on its common stock of $0.28 per share. This, the Company's eighty-third consecutive dividend, will be payable on May 18, 2007 to stockholders of record at the close of business on May 3, 2007.

Stock Repurchase Program

The Company did not repurchase any of its common stock during the recent quarter. As of March 31, 2007, there were 123,217 shares available for repurchase in the current program.

Annual Meeting of Stockholders

At the Annual Meeting of Stockholders of MASSBANK Corp. held on Tuesday, April 17, 2007, stockholders voted to elect Alexander S. Costello, Stephen E. Marshall, Paul J. McCarthy and Nalin M. Mistry to serve as Directors of the Company until the 2010 Annual Meeting of Stockholders.

Cautionary Statement

This press release may contain forward-looking information, including information concerning the Company's expectations of future business prospects. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results or performance to be materially different from the results and performance expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements concerning the Company's belief, expectations or intentions concerning the Company's future performance, the financial outlook of the markets it serves and the performance and activities of its competitors. These statements reflect the Company's current views. They are based on numerous assumptions and are subject to numerous risks and uncertainties, including the strength of the local economy and the U.S. economy in general, unexpected fluctuations in market interest rates, unexpected fluctuations in the markets for equities, bonds, federal funds and other financial instruments, an increase in the level of non-performing assets, an increase in competitive pricing pressures within the Company's market, adverse legislative or regulatory developments, a significant decline in residential real estate values in the Company's market area, adverse impacts resulting from the continuing war on terrorism, an increase in employee-related costs, the impact of deflation or inflation, and other factors described in the Company's annual report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2006.

                              MASSBANK CORP.
                           FINANCIAL HIGHLIGHTS
                                (Unaudited)
                    ($ in thousands except share data)


                                                     Three Months Ended
                                                          March 31,
                                                      2007         2006
                                                  -----------  -----------
For the Period Ended
Total interest and dividend income                $     9,979  $     9,801
Total interest expense                                  5,188        4,360
                                                  -----------  -----------
Net interest income                                     4,791        5,441
Provision (credit) for loan losses                         --           --
                                                  -----------  -----------
Net interest income after provision (credit) for
 loan losses                                            4,791        5,441
Gains on securities, net                                1,134          251
Other non-interest income                                 356          360
Non-interest expense                                    3,100        3,307
Income tax expense                                      1,100          935
                                                  -----------  -----------
Net income                                        $     2,081  $     1,810

Weighted Average Common Shares Outstanding
Basic                                               4,335,589    4,339,812
Diluted                                             4,361,453    4,376,936

Per Common Share
Earnings:
     Basic                                        $      0.48  $      0.42
     Diluted                                             0.48         0.41
Cash dividends paid                                      0.28         0.27
Book value (period end)                                 25.04        24.03

Ratios (1)
Return on average assets                                 1.01%        0.82%
Return on average equity                                 7.79         6.91
Net interest margin                                      2.39         2.53
Total equity to assets (period end)                     13.12        11.69


                                                             At
                                                         March 31,
                                                      2007         2006
                                                  -----------  -----------
At Period End
Assets                                            $   828,181  $   890,509
Deposits                                              714,298      775,232
Total loans                                           203,370      222,260
Stockholders' equity                              $   108,626  $   104,121
Common shares outstanding                           4,338,154    4,333,629

Asset Quality
Non-accrual loans                                 $       148  $       130
Real estate acquired through foreclosure                   --           --
                                                  -----------  -----------
Total non-performing assets                       $       148  $       130
Allowance for loan losses                         $     1,382  $     1,247

Non-accrual loans to total loans                         0.07%        0.06%



(1) Ratios are presented on an annualized basis with the exception of
equity to assets.








                      MASSBANK CORP. AND SUBSIDIARIES
                        Consolidated Balance Sheets
                                (Unaudited)
                    ($ in thousands except share data)

                                                     At           At
                                                  March 31,    March 31,
                                                     2007         2006
                                                 ------------ ------------
Assets:
  Cash and due from banks                        $      7,464 $      9,623
  Short-term investments                              163,698      167,397
                                                 ------------ ------------
      Total cash and cash equivalents                 171,162      177,020
                                                 ------------ ------------
  Interest-bearing deposits in banks                       --          641
  Term federal funds sold                              50,000           --
  Securities available for sale, at market
   value (amortized cost of $140,743 in 2007
   and $457,911 in 2006)                              140,415      450,371
  Securities held to maturity, at amortized
   cost (market value of $5,101 in 2007 and
   $5,702 in 2006)                                      5,208        5,910
  Trading securities, at market value                 240,042        8,833
  Loans:
    Mortgage loans                                    193,661      212,623
    Other loans                                         9,709        9,637
                                                 ------------ ------------
      Total loans                                     203,370      222,260
  Allowance for loan losses                            (1,382)      (1,247)
                                                 ------------ ------------
      Net loans                                       201,988      221,013
                                                 ------------ ------------
  Premises and equipment                                7,238        6,938
  Real estate held for resale                             425           --
  Accrued interest and income receivable                4,726        4,663
  Goodwill                                              1,090        1,090
  Deferred income tax asset, net                        2,620        4,228
  Other assets                                          3,267        9,802
                                                 ------------ ------------
      Total assets                               $    828,181 $    890,509
                                                 ------------ ------------
Liabilities and Stockholders' Equity:
  Deposits:
    Demand and NOW                               $     75,967 $     84,188
    Savings                                           333,266      414,408
    Time certificates of deposit                      305,065      276,636
                                                 ------------ ------------
      Total deposits                                  714,298      775,232
  Escrow deposits of borrowers                            993        1,031
  Accrued income taxes, net                               419          637
  Allowance for loan losses on off-balance
   sheet credit exposures                                 345          517
  Other liabilities                                     3,500        8,971
                                                 ------------ ------------
      Total liabilities                               719,555      786,388
                                                 ------------ ------------
  Stockholders' equity:
    Preferred stock, par value $1.00 per share;
     2,000,000 shares authorized, none issued              --           --
    Common stock, par value $1.00 per share;
     10,000,000 shares authorized, 7,870,817
     and 7,829,292 shares issued in 2007 and
     2006, respectively                                 7,871        7,829
    Additional paid-in capital                         58,401       57,397
    Retained earnings                                 105,686      105,380
                                                 ------------ ------------
                                                      171,958      170,606
    Treasury stock at cost 3,532,663 and 3,495,663
     shares in 2007 and 2006, respectively            (62,902)     (61,692)
    Accumulated other comprehensive loss                 (430)      (4,793)
    Shares held in rabbi trust at cost, 17,944
     and 15,644 shares in 2007 and 2006,
     respectively                                        (426)        (351)
    Deferred compensation obligation                      426          351
                                                 ------------ ------------
      Total stockholders' equity                      108,626      104,121
                                                 ------------ ------------
      Total liabilities and stockholders' equity $    828,181 $    890,509
                                                 ------------ ------------




                      MASSBANK CORP. AND SUBSIDIARIES
                    Consolidated Statements of Income
                                (Unaudited)
                    ($ in thousands except share data)

                                                     Three Months Ended
                                                   March 31,    March 31,
                                                      2007         2006
                                                  ------------ ------------
Interest and dividend income:
     Mortgage loans                               $      2,676 $      2,890
     Other loans                                           193          180
     Securities available for sale:
        Mortgage-backed securities                       1,806        1,798
        Other securities                                    31        2,844
     Mortgage-backed securities held to maturity            69           79
     Trading securities                                  2,637           82
     Federal funds sold                                  2,180        1,922
     Other investments                                     387            6
                                                  ------------ ------------
        Total interest and dividend income               9,979        9,801
                                                  ------------ ------------

Interest expense:
     Deposits                                            5,188        4,360
                                                  ------------ ------------
        Total interest expense                           5,188        4,360
                                                  ------------ ------------

     Net interest income                                 4,791        5,441
Provision (credit) for loan losses                          --           --
                                                  ------------ ------------
     Net interest income after provision
      (credit) for loan losses                           4,791        5,441

                                                  ------------ ------------
Non-interest income:
     Deposit account service fees                           83           90
     Gains on securities available for sale, net            85          238
     Gains on trading securities, net                    1,049           13
     Option fees                                            75           --
     Deferred compensation plan income                      25           71
     Other                                                 173          199

                                                  ------------ ------------
        Total non-interest income                        1,490          611

                                                  ------------ ------------
Non-interest expense:
     Salaries and employee benefits                      1,884        1,868
     Deferred compensation plan expense                     48           92
     Occupancy and equipment                               531          602
     Data processing                                       146          143
     Professional services                                 128          168
     Advertising and marketing                              33           37
     Deposit insurance                                      28           34
     Other                                                 302          363

                                                  ------------ ------------
        Total non-interest expense                       3,100        3,307

                                                  ------------ ------------
     Income before income taxes                          3,181        2,745
Income tax expense                                       1,100          935

                                                  ------------ ------------
     Net income                                   $      2,081 $      1,810

                                                  ------------ ------------
Weighted average common shares outstanding:
     Basic                                           4,335,589    4,339,812
     Diluted                                         4,361,453    4,376,936
Earnings per share (in dollars):
     Basic                                        $       0.48 $       0.42
     Diluted                                              0.48         0.41

Contact Information

  • For further information contact:
    Reginald E. Cormier
    Senior Vice President, Treasurer and CFO
    (781) 942-8192