MASSBANK Corp. Announces Fourth Quarter Earnings; Increase in Dividends and New Stock...

Business Editors

READING, Mass.--(BUSINESS WIRE)--Jan. 23, 2003

MASSBANK Corp. (NASDAQ - MASB), the Holding Company for MASSBANK, today reported net income of $2,252,000 or $0.47 in diluted earnings per share for the fourth quarter 2002, compared with net income of $2,694,000

For the year ended December 31, 2002, the Company reported net income of $9,814,000 or $2.04 in diluted earnings per share ($2.09 in basic earnings per share) versus $10,759,000 or $2.24 in diluted earnings per share ($2.30 in basic earnings per share) for the year ended December 31, 2001.

The Company's net income for the fourth quarter 2002 compared to the same quarter of 2001 reflects an improvement of $664,000 in net interest income after provision for loan losses. This is the fifth consecutive quarter that the Company has increased its net interest income. This increase, however, is offset by a decrease in non-interest income of $1,367,000. In the fourth quarter 2002, the Company recorded net losses on securities of $83,000 compared to net securities gains of $1,150,000 in the same quarter of the prior year. Net securities losses in the recent quarter were comprised of $30,000 in gains on debt securities and $113,000 in losses on equity securities. The losses on equity securities were primarily attributable to the decline in equity securities prices during recent months. Other non-interest income in the final quarter of 2002 declined to $317,000 from $451,000 in the same quarter of 2001. Earnings results for the fourth quarter 2002 also reflect an increase in non-interest expense of $54,000 primarily due to increases in pension and health insurance costs, and a reduction in income tax expense of $315,000 due to lower income before taxes and a decline in the Company's effective income tax rate.

The Company's net income for the recent quarter reflects a continued improvement in core earnings due to an increase in net interest margin and asset growth. The Company's net interest margin for the recent quarter increased to 2.57% from 2.39% in the same quarter of 2001. Average earning assets for the quarter ended December 31, 2002 increased $35.9 million to $985.9 million, from $950.0 million in the last quarter of 2001.

Non-performing assets at December 31, 2002 were $420,000 or 0.04% of total assets. This compares to non-performing assets of $644,000 representing 0.07% of total assets at December 31, 2001. At year-end 2002 MASSBANK's allowance for loan losses totaled $2.655 million representing 632% of non-accrual loans compared to $2.643 million representing 410% of non-accrual loans at December 31, 2001.

The Company's total assets increased $37.8 million to $1.009 billion at December 31, 2002 from $971.2 million at December 31, 2001. Deposits increased $34.2 million year-over-year reaching $883.9 million as of December 31, 2002. Stockholders equity increased to $117.3 million at December 31, 2002, representing a record book value of $25.45 per share, from $114.9 million representing a book value of $24.34 per share at December 31, 2001.

During the three months ended December 31, 2002 the Company continued the repurchase of its common stock by acquiring 98,500 shares. As of December 31, 2002 there were 78,758 shares available for repurchase in the current program.

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.

DIVIDEND INCREASE

MASSBANK Corp. (NASDAQ - MASB), the Holding Company for MASSBANK announced today that its Board of Directors has authorized an increase in the Company's quarterly cash dividend to stockholders, from $0.22 to $0.23 per common share. The increase will raise the annualized dividend from $0.88 to $0.92 per share. This, the Company's sixty-sixth consecutive quarterly dividend, will be payable on February 21, 2003 to stockholders of record at the close of business on February 5, 2003.

NEW STOCK REPURCHASE PROGRAM

The Company also announced today that its Board of Directors has extended, for another year, the stock repurchase program which it authorized in January of last year. Additionally, the Board approved an increase of 200,000 in the number of shares of the Company's common stock authorized for repurchase in the current program.

ADDITIONAL INFORMATION

Date Set for Annual Meeting

The Company also announced that the Annual Meeting of Stockholders had been set for Tuesday, April 21, 2003 at 10:00 A.M. at the Sheraton Ferncroft Resort, 50 Ferncroft Road, Danvers, Massachusetts. The record date for the Annual Meeting is February 28, 2003.

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 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 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, adverse impacts resulting from the continuing war on terrorism, an increase in medical insurance and other employee related costs, the impact of 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, 2001.

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

                            Three Months Ended    Twelve Months Ended
                                December 31,          December 31,
For the Period Ended          2002       2001       2002       2001

Total interest and
 dividend income            $ 11,385   $ 12,602   $ 47,103   $ 55,117
Total interest expense         5,062      6,939     22,701     32,391

Net interest income            6,323      5,663     24,402     22,726

Provision for loan losses        --           4        --          40
Gains (losses) on
 securities, net                ( 83)     1,150      1,718      4,363
Other non-interest income        317        451      1,205      1,450
Non-interest expense           3,085      3,031     12,037     11,721
Income tax expense             1,220      1,535      5,474      6,019

Net income                     2,252      2,694      9,814     10,759

Weighted Average Common
 Shares Outstanding (1)
Basic                      4,664,612  4,692,311  4,697,826  4,685,873
Diluted                    4,774,919  4,811,658  4,822,501  4,809,665

Per Common Share (1)
Earnings:
    Basic                   $   0.48   $   0.57   $   2.09   $   2.30
    Diluted                     0.47       0.56       2.04       2.24
Cash dividends paid             0.22       0.21       0.88       0.84
Book value (period end)                              25.25      24.34
Market value (period end)                            28.30      23.87

Ratios (2)
Return on average assets        0.90%      1.11%      0.99%      1.13%
Return on average equity        7.63       9.27       8.39       9.53
Return on average realized
 equity (3)                     8.14      10.05       8.92      10.25
Interest rate spread            2.35       2.06       2.24       2.01
Net interest margin             2.57       2.39       2.52       2.43
Total equity to assets
 (period end)                                        11.62      11.83


                                                      At
                                                  December 31,
At Period End                                  2002          2001
                                                                                                  ----                ----
Assets                                     $1,008,983    $  971,168
Deposits                                      883,928       849,684
Loans                                         318,799       331,017
Total stockholders' equity                    117,285       114,904
Common shares outstanding (1)               4,608,066     4,721,237

Asset Quality
Non-accrual loans                          $      420    $      644
Real estate acquired through foreclosure         --            --

Total non-performing assets                $      420    $      644
Allowance for loan losses                  $    2,655    $    2,643

Non-accrual loans to total loans                 0.13%         0.19%
Non-performing assets to total assets            0.04%         0.07%
Allowance for loan losses as a %
 of non-accrual loans                          632.1 %       410.4 %
Allowance for loan losses as a %
 of non-performing assets                      632.1 %       410.4 %

(1) Current and prior year share data reflects the three-for-two stock
    split of April 19, 2002.
(2) Ratios are presented on an annualized basis with the exception of
    equity to assets.
(3) Excludes average unrealized gains or losses on securities
    available for sale.



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

                                                  At          At
                                              December 31,December 31,
                                                 2002        2001
Assets:
 Cash and due from banks                     $    8,356   $   8,945
 Interest-bearing deposits in banks               4,941       6,490
 Federal funds sold                             221,586     204,294
 Short-term investments                          27,077      32,088
 Debt securities available for sale             366,189     356,591
 Equity securities available for sale            13,833      15,993
 Trading securities                              36,249       3,089
 Loans:
  Mortgage loans                                302,788     296,469
  Other loans                                    16,011      34,548

   Total loans                                  318,799     331,017
 Allowance for loan losses                       (2,655)     (2,643)
   Net loans                                    316,144     328,374
 Premises and equipment                           6,795       6,927
 Accrued interest receivable                      3,926       3,950
 Goodwill                                         1,090       1,090
 Current income tax asset, net                      199         208
 Other assets                                     2,598       3,129

   Total assets                              $1,008,983   $ 971,168


Liabilities and Stockholders' Equity:
 Deposits:
  Demand and NOW                             $   85,327   $  82,143
  Savings                                       548,947     383,960
  Time certificates of deposit                  249,654     383,610
  Deposit acquisition premium,
    net of amortization                            --           (29)

   Total deposits                               883,928     849,684
 Escrow deposits of borrowers                     1,387       1,403
 Employee stock ownership plan liability           --           156
 Deferred income taxes                            2,671       2,275
 Other liabilities                                3,712       2,746

   Total liabilities                            891,698     856,264
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, 7,610,195
     and 7,494,980 shares issued, respectively    7,610       7,495
 Additional paid-in capital                      53,297      62,875
 Retained earnings                               95,243      99,996

                                                156,150     170,366
 Treasury stock at cost 3,026,129 and
     4,362,289 shares, respectively             (46,557)    (61,749)
 Accumulated other comprehensive income:
     Net unrealized gains on securities
     available for sale, net of tax effect        7,692       6,443
 Common stock acquired by ESOP                     --          (156)

  Total stockholders' equity                    117,285     114,904
  Total liabilities and stockholders'
    equity                                   $1,008,983   $ 971,168




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

                                               Three Months Ended
                                           December 31,   December 31,
                                                2002            2001
Interest and dividend income:
    Mortgage Loans                         $     5,249    $     5,083
    Other loans                                    277            467
    Securities available for sale:
        Mortgage-backed securities               3,193          4,549
        Other securities                         1,625          1,124
    Trading securities                             204             13
    Federal funds sold                             703          1,077
    Other investments                              134            289

        Total interest and dividend income      11,385         12,602

Interest expense:
    Deposits                                     5,062          6,939

        Total interest expense                   5,062          6,939

    Net interest income                          6,323          5,663

Provision for loan losses                         --                4

    Net interest income after provision
      for loan losses                            6,323          5,659

Non-interest income:
    Deposit account service fees                   140            156
    Gains (losses) on securities
     available for sale, net                      (103)         1,156
    Gains (losses) on trading
      securities, net                               20             (6)
    Other                                          177            295

        Total non-interest income                  234          1,601

Non-interest expense:
    Salaries and employee benefits               1,938          1,849
    Occupancy and equipment                        507            474
    Data processing                                134            122
    Professional services                          102             85
    Advertising and marketing                       39             56
    Amortization of intangibles                   --               82
    Deposit insurance                               45             41
    Other                                          320            322

        Total non-interest expense               3,085          3,031

    Income before income taxes                   3,472          4,229
Income tax expense                               1,220          1,535


    Net income                             $     2,252    $     2,694

Weighted average common shares outstanding:
    Basic                                    4,664,612      4,692,311
    Diluted                                  4,774,919      4,811,658
Earnings per share (in dollars):
    Basic                                  $      0.48    $      0.57
    Diluted                                       0.47           0.56


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

                                              Twelve Months Ended
                                             December 31, December 31,
                                                 2002          2001

Interest and dividend income:
    Mortgage Loans                           $   20,819    $   19,631
    Other loans                                   1,362         2,315
    Securities available for sale:
        Mortgage-backed securities               14,863        18,847
        Other securities                          5,729         5,502
    Trading securities                              685           158
    Federal funds sold                            2,974         7,444
    Other investments                               671         1,220

        Total interest and dividend income       47,103        55,117


Interest expense:
    Deposits                                     22,701        32,391
        Total interest expense                   22,701        32,391
    Net interest income                          24,402        22,726

Provision for loan losses                          --              40

    Net interest income after provision
      for loan losses                            24,402        22,686

Non-interest income:
    Deposit account service fees                    567           638
    Gains on securities available
      for sale, net                               1,566         4,263
    Gains on trading securities, net                152           100
    Other                                           638           812

        Total non-interest income                 2,923         5,813

Non-interest expense:
    Salaries and employee benefits                7,298         6,723
    Occupancy and equipment                       1,998         2,056
    Data processing                                 528           494
    Professional services                           526           426
    Advertising and marketing                       168           192
    Amortization of intangibles                      29           327
    Deposit insurance                               182           173
    Other                                         1,308         1,330

        Total non-interest expense               12,037        11,721

    Income before income taxes                   15,288        16,778
Income tax expense                                5,474         6,019


    Net income                               $    9,814    $   10,759

Weighted average common shares outstanding:
    Basic                                     4,697,826     4,685,873
    Diluted                                   4,822,501     4,809,665
Earnings per share (in dollars):
    Basic                                    $     2.09    $     2.30
    Diluted                                        2.04          2.24