MASSBANK Corp. Reports Increase in Earnings Per Share for the Fourth Quarter 2004

Business Wire, Feb 2, 2005

READING, Mass. -- MASSBANK Corp. (NASDAQ - MASB), the Holding Company for MASSBANK, today reported net income of $1,886,000 or $0.42 in diluted earnings per share for the fourth quarter 2004, compared with net income of $1,795,000 or $0.40 in diluted earnings per share in the fourth quarter of 2003. Basic earnings per share in the recent quarter were $0.43 per share compared to $0.41 per share in the fourth quarter of 2003. For the year ended December 31, 2004, the Company reported net income of $7,380,000 or $1.64 in diluted earnings per share ($1.67 in basic earnings per share). This compares to $7,863,000 or $1.73 in diluted earnings per share ($1.77 in basic earnings per share) for the year ended December 31, 2003.

The Company's earnings per share have increased for the second consecutive quarter when compared to the previous quarter of 2004. Return on average assets and return on average equity for the fourth quarter 2004 were 0.78% and 6.86%, respectively, up from 0.71% and 6.57% for the comparable quarter of 2003.

Income Statement

Net interest income totaled $5,375,000 for the fourth quarter of 2004, up $168,000 from the same quarter in 2003. The net interest margin improved to 2.29% in the recent quarter, from 2.13% in the fourth quarter of 2003. The 16 basis point improvement is primarily the result of a rise in short-term interest rates. The Federal Reserve Bank Board's Federal Open Market Committee (FOMC) has raised the target rate for Federal Funds by 25 basis points five times since the end of June 2004, increasing the rate from 1.00% to 2.25%. A further "measured rate" of increases is expected by most economists to continue in 2005. This will likely have a positive affect on the bank's future net interest income and net interest margin.

The negative provisions for loan losses in the fourth quarter of 2004 and 2003 of $55,000 and $52,000, respectively, are due to reductions in the size of the bank's loan portfolio and a low level of problem loans.

Non-interest income for the fourth quarter of 2004 totaled $648,000 compared to $681,000 for the same period in 2003. The decrease of $33,000 is due primarily to lower securities gains in the recent quarter compared to the fourth quarter of 2003.

Non-interest expense in the fourth quarter of 2004 remained essentially unchanged from the same quarter of 2003.

Balance Sheet

The Company's total assets decreased $34.6 million to $976.2 million at December 31, 2004 from $1.011 billion at December 31, 2003. Deposits decreased $33.0 million or 3.7% year-over-year from $882.5 million at December 31, 2003 to $849.5 million at December 31, 2004. Stockholders' equity was $110.0 million at December 31, 2004, representing a book value of $25.11 per share. This compares to $110.9 million at December 31, 2003 representing a book value of $25.17 per share.

The Company's non-accrual loans remain low totaling $74,000 at December 31, 2004 representing 0.03% of total loans. This compares to $230,000 representing 0.09% of total loans at December 31, 2003. At December 31, 2004 the Bank's allowance for loan losses totaled $1.307 million representing 0.55% of total loans compared to $1.554 million representing 0.61% of total loans at December 31, 2003. In addition, the Bank's allowance for loan losses on off-balance sheet credit exposures totaled $588,000 at December 31, 2004 compared to $626,000 a year earlier. This is intended to protect the bank against 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.

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, 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, 2003.