You need to tell TurboTax that the interest is from a MA bank. Go back to the federal Wages and Income section, where you entered the 1099-INT. Edit the 1099-INT, and continue to the "Tell us if any of these uncommon situations apply" screen. Click the "My state doesn't tax all of this interest" checkbox, and you will be able to select Massachusetts from the dropdown menu. This will trigger the MA bank interest exclusion.
