MASSBANK Inc. (NDAQ:MASB) shares rose marginally after Lawrence B. Seidman disclosed a 5.83% and made several suggestions to the company aimed at unlocking value for shareholders. The activist investor recommended that the company consider (1) an accelerated share repurchase program, including considering a dutch auction, (2) a new management team capable of making proper loans, and (3) a sale of the company.

MASSBANK is clearly in need of change. A quick look at the balance sheet shows a clear dropoff in earnings. Total assets have gone down to 15 consecutive quarters, from $1 billion in September of 2003 to $817 million in June 2007. Net loans have declined for 7 consecutive quarters from $230 million in September 2005 to $197 million in the most recent quarter. And total deposits have gone down 15 consecutive quarters, from $899 million in September 2003 to $705 million in the most recent quarter.

Perhaps more troubling is the company's sloth-like response to market conditions and weak balance sheet. Amazingly, net loans only account for 24% of total assets. No other exchange-traded thrift has a ratio below 32% and most have somewhere around 71%. Meanwhile, cash and cash equivalents accounts for 27% of assets! This means a cash to loans ratio of 112%! This is beyond conservative and bordering sheet laziness on the part of management.

Seidman also disclosed a rather disturbing conversation that he had with management. The investor contacted Mr. Brandi - the President and CEO - to discuss MASB's strategic plans for transforming the balance sheet, improving earnings, and returning capital to shareholders. Mr. Brandi then insulted Seidman by saying there was no way he'd ever meet the board of directors. After quickly dismissing the request, Mr. Brandi then challenged Seidman to a proxy fight in 2008. The CEO insisted that the activist investor could never win because shareholders love him so much.

In the end, this company has several problems that need to be addressed as soon as possible. The proposals made by Mr. Seidman make sense and should be considered by the board of directors. Combined, these factors make MASB a stock worth watching!

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