MASSBANK Corp. Reports 7.9% Increase in Earnings Per Share for the First Quarter 2006

Business Wire, April 18, 2006

READING, Mass. -- MASSBANK Corp. (NASDAQ - MASB), the Holding Company for MASSBANK, today reported net income of $1,810,000 or $0.41 in diluted earnings per share for the first quarter 2006, compared with net income of $1,694,000 or $0.38 in diluted earnings per share in the first quarter of 2005. Basic earnings per share in the recent quarter were $0.42 per share compared to $0.39 per share in the first quarter of last year. This is the Company's fourth consecutive quarter of year-over-year earnings per share increases.

Income Statement

Net interest income, the Company's core earnings, totaled $5,441,000 for the recent quarter, up $137,000 or 2.6% from the same quarter in 2005. This is the sixth consecutive quarter that the Company has reported a year-over-year improvement in net interest income. The net interest margin in the recent quarter improved 25 basis points to 2.53% from 2.28% in the first quarter of 2005. This is an increase of 11.0% over the same quarter last year. The Company continues to benefit from rising 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 eight times since the end of March 2005, increasing the rate from 2.75% to 4.75%. The existence of a flat yield curve environment (an environment where interest rates offered on assets with longer maturities differ little from rates offered on assets with shorter maturities) however, is making it increasingly difficult to improve the net interest margin.

Return on average assets and return on average equity for the first quarter 2006 were 0.82% and 6.91%, respectively, up from 0.71% and 6.21% for the comparable quarter in 2005.

Balance Sheet

The Company's total assets decreased $81.0 million to $890.5 million at March 31, 2006 from $971.5 million at March 31, 2005. Deposits decreased $62.3 million or 7.4% year-over-year from $837.6 million at March 31, 2005 to $775.2 million at March 31, 2006 due to increased competition for deposits. Stockholders' equity was $104.1 million at March 31, 2006, representing a book value of $24.03 per share. This compares to $107.7 million at March 31, 2005 representing a book value of $24.43 per share.

The Company's non-accrual loans are near historical lows totaling $130,000 at March 31, 2006 representing 0.06% of total loans. This compares to $128,000 representing 0.06% of total loans at March 31, 2005. At March 31, 2006, the Bank's allowance for loan losses totaled $1.247 million representing 0.56% of total loans compared to $1.253 million representing 0.54% of total loans at March 31, 2005. In addition, the Bank's allowance for loan losses on off-balance sheet credit exposures totaled $517,000 at March 31, 2006 compared to $605,000 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.

ADDITIONAL INFORMATION

Dividend Declaration

MASSBANK Corp. today announced a quarterly cash dividend on its common stock of $0.27 per share. This, the Company's seventy-ninth consecutive dividend, will be payable on May 19, 2006 to stockholders of record at the close of business on May 4, 2006.

Stock Repurchase Program

During the three months ended March 31, 2006, the Company continued the repurchase of its common stock by acquiring 12,500 shares in the open market. As of March 31, 2006 there were 110,217 shares available for repurchase in the current program.

Annual Meeting of Stockholders

At the Annual Meeting of Stockholders of MASSBANK Corp. held today, stockholders voted affirmatively to elect Allan S. Bufferd, Kathleen M. Camilli, Stephen W. Carr and Nancy L. Pettinelli to serve as Directors of the Company until the 2009 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 other 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, 2005.