MASSBANK Corp. Reports Second Quarter 2006 Earnings of $1.8 Million or $0.40 Per Share

Business Wire, July 21, 2006

READING, Mass. -- MASSBANK Corp. (NASDAQ - MASB), the Holding Company for MASSBANK, today reported net income of $1,755,000 or $0.40 in diluted earnings per share for the second quarter 2006, compared with net income of $1,857,000 or $0.42 in diluted earnings per share in the second quarter of 2005. Basic earnings per share in the recent quarter were $0.41 per share compared to $0.42 per share in the second quarter of last year. For the six months ended June 30, 2006, the Company reported net income of $3,565,000 or $0.82 in diluted earnings per share ($0.82 in basic earnings per share). This compares to $3,551,000 or $0.80 in diluted earnings per share ($0.81 in basic earnings per share) for the six months ended June 30, 2005.

Income Statement

Net interest income, the Company's core earnings, totaled $5,388,000 for the recent quarter, essentially unchanged from the same quarter in 2005. The net interest margin in the recent quarter improved 21 basis points to 2.57% from 2.36% in the second quarter of 2005. This is the seventh consecutive quarter that the Company has reported a year-over-year improvement in net interest margin. The current inverted yield curve environment (an environment where short-term rates actually exceed long-term rates) however, is making it increasingly difficult to improve the net interest margin.

The Company's earnings in the second quarter 2006 were negatively impacted by the poor performance of the equity securities markets during last two months of the quarter. Securities gains in the recent quarter decreased $125,000 when compared to the second quarter of last year. Second quarter 2006 earnings results also reflect a decrease in other non-interest income of $75,000 and an increase in the bank's provision for loan losses of $50,000. These are offset by a decrease of $127,000 in the Company's non-interest expenses due in part to an increase of $54,000 in the credit provision for off-balance sheet credit exposures recorded in the recent quarter (reducing loan loss reserves against outstanding loan commitments) and cost containment measures implemented by the Company's management.

Return on average assets and return on average equity for the second quarter 2006 were 0.81% and 6.81%, respectively, compared to 0.79% and 6.89%, respectively, for the second quarter of 2005.

Balance Sheet

The Company's total assets decreased $71.2 million to $861.9 million at June 30, 2006 from $933.1 million at June 30, 2005. Deposits decreased $65.4 million or 8.0% year-over-year from $817.2 million at June 30, 2005 to $751.8 million at June 30, 2006 due to increased competition for deposits. Stockholders' equity was $102.4 million at June 30, 2006, representing a book value of $23.72 per share. This compares to $108.4 million at June 30, 2005 representing a book value of $24.83 per share.

The Bank's non-accrual loans are near historical lows totaling $102,000 at June 30, 2006 representing 0.05% of total loans. This compares to $343,000 representing 0.15% of total loans at June 30, 2005. At June 30, 2006, the Bank's allowance for loan losses totaled $1.297 million representing 0.60% of total loans compared to $1.253 million representing 0.54% of total loans at June 30, 2005. In addition, the Bank's allowance for loan losses on off-balance sheet credit exposures totaled $443,000 at June 30, 2006 compared to $585,000 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 eightieth consecutive dividend, will be payable on August 17, 2006 to stockholders of record at the close of business on August 2, 2006.

Stock Repurchase Program

During the three months ended June 30, 2006, the Company continued the repurchase of its common stock by acquiring 20,000 shares in the open market. As of June 30, 2006, there were 90,217 shares available for repurchase in the current program.

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, 2005.