MASSBANK Corp. Reports Increase in Earnings Per Share for the Fourth Quarter 2005

Business Wire, Jan 23, 2006

READING, Mass. -- MASSBANK Corp. (NASDAQ - MASB), the Holding Company for MASSBANK, today reported net income of $1,888,000 or $0.43 in diluted earnings per share for the fourth quarter 2005, compared with net income of $1,886,000 or $0.42 in diluted earnings per share in the fourth quarter of 2004. Basic earnings per share in the recent quarter were $0.44 per share compared to $0.43 per share in the fourth quarter of the prior year. This is the Company's third consecutive quarter of year-over-year earnings per share increases.

For the year ended December 31, 2005, the Company reported net income of $7,323,000 or $1.66 in diluted earnings per share ($1.68 in basic earnings per share) compared to $7,380,000 or $1.64 in diluted earnings per share ($1.67 in basic earnings per share) for the year ended December 31, 2004.

Income Statement

Net interest income, the Company's core earnings, totaled $5,493,000 for the fourth quarter of 2005, up $118,000 or 2.2% from the same quarter in 2004. This is the fifth 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 24 basis points to 2.53% from 2.29% in the fourth quarter of 2004. This is an increase of 10.5% 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 December 2004, increasing the rate from 2.25% to 4.25%.

Return on average assets and return on average equity for the fourth quarter 2005 were 0.84% and 7.23%, respectively, up from 0.78% and 6.86% for the comparable quarter in 2004.

Balance Sheet

The Company's total assets decreased $77.5 million to $898.7 million at December 31, 2005 from $976.2 million at December 31, 2004. Deposits decreased approximately $64.8 million or 7.6% year-over-year from $849.5 million at December 31, 2004 to $784.7 million at December 31, 2005. Stockholders' equity was $105.3 million at December 31, 2005, representing a book value of $24.32 per share. This compares to $110.0 million at December 31, 2004, representing a book value of $25.11 per share.

The Company's non-accrual loans remain low totaling $257,000 at December 31, 2005, representing 0.11% of total loans. This compares to $74,000 representing 0.03% of total loans at December 31, 2004. At December 31, 2005, the Bank's allowance for loan losses totaled $1.253 million representing 0.56% of total loans compared to $1.307 million representing 0.55% of total loans at December 31, 2004. In addition, the Bank's allowance for loan losses on off-balance sheet credit exposures totaled $517,000 at December 31, 2005 compared to $588,000 a year earlier. This is intended to protect the bank against 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 $0.27 per share. This, the Company's seventy-eighth consecutive dividend, will be payable on February 20, 2006 to stockholders of record at the close of business on February 3, 2006.

Stock Repurchase Program

During the three months ended December 31, 2005, the Company continued the repurchase of its common stock by acquiring 10,600 shares in the open market. As of December 31, 2005 there were 122,717 shares available for repurchase in the current program.

Date Set for Annual Meeting

The Company also announced that the Annual Meeting of Stockholders will be held at the Sheraton Ferncroft Resort, 50 Ferncroft Road, Danvers, Massachusetts on Tuesday, April 18, 2006 at 10:00 a.m. Only stockholders of record at the close of business on February 27, 2006 are entitled to notice of and to vote at the Annual Meeting.

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, 2004.