e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED SEPTEMBER 30, 2008


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-51194

Benjamin Franklin Bancorp, Inc.

(Exact Name of Registrant as Specified in its Charter)


Massachusetts		04-3336598
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

58 Main Street, Franklin, MA		02038
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (617) 528-7000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Shares issued of the registrant’s common stock (no par value) at November 10, 2008: 7,842,015

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BENJAMIN FRANKLIN BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


	September 30,			December 31,
	2008			2007
	(Unaudited)			(Audited)
ASSETS
Cash and due from banks	$	13,450		$	12,226
Cash supplied to ATM customers		24,784			42,002
Short-term investments		12,818			10,363

Total cash and cash equivalents		51,052			64,591

Securities available for sale, at fair value		181,376			156,761
Restricted equity securities, at cost		12,986			11,591

Total securities		194,362			168,352

Loans:
Residential real estate		229,981			188,654
Commercial real estate		179,521			168,649
Construction		48,919			55,763
Commercial		178,704			159,233
Consumer		41,783			40,436

Total loans, gross		678,908			612,735
Allowance for loan losses		(6,853	)		(5,789	)

Loans, net		672,055			606,946

Premises and equipment, net		5,049			5,410
Accrued interest receivable		3,803			3,648
Bank-owned life insurance		11,016			10,700
Goodwill		33,763			33,763
Other intangible assets		2,057			2,474
Other assets		7,580			7,394

	$	980,737		$	903,278


LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Regular savings accounts	$	81,338		$	79,167
Money market accounts		141,566			110,544
NOW accounts		70,618			52,000
Demand deposit accounts		112,786			113,023
Time deposit accounts		254,437			262,634

Total deposits		660,745			617,368

Short-term borrowings		8,000			2,500
Long-term debt		189,109			162,784
Deferred gain on sale of premises		3,355			3,531
Other liabilities		13,014			9,651

Total liabilities		874,223			795,834


Common stock, no par value; 75,000,000 shares authorized; 7,842,015 shares issued and 7,710,632 shares outstanding at September 30, 2008; 8,030,415 shares issued and 7,856,172 shares outstanding at December 31, 2007		—			—
Additional paid-in capital		75,065			77,370
Retained earnings		40,256			38,515
Unearned compensation		(6,515	)		(7,094	)
Accumulated other comprehensive loss		(2,292	)		(1,347	)

Total stockholders’ equity		106,514			107,444

	$	980,737		$	903,278

See accompanying notes to condensed consolidated financial statements

BENJAMIN FRANKLIN BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
	(Unaudited)				(Unaudited)
Interest and dividend income:
Loans, including fees	$	10,299	$	9,856	$	30,152	$	29,273
Debt securities		1,884		1,904		5,808		5,543
Dividends		121		180		405		512
Short-term investments		59		141		397		644

Total interest and dividend income		12,363		12,081		36,762		35,972
Interest expense:
Interest on deposits		3,193		4,367		10,462		12,832
Interest on short-term borrowings		4		75		43		222
Interest on long-term debt		2,241		1,873		6,531		5,274

Total interest expense		5,438		6,315		17,036		18,328

Net interest income		6,925		5,766		19,726		17,644
Provision for loan losses		447		57		1,128		469

Net interest income, after provision for loan losses		6,478		5,709		18,598		17,175

Other income:
ATM servicing fees		272		663		937		1,982
Deposit servicing fees		467		385		1,305		1,093
Other loan-related fees		98		297		521		770
Gain on sale of loans, net		30		217		216		514
Gain on sale of premises, net		63		63		189		377
Gain on trading assets		—		138		—		138
Gain on sale of CSSI customer list		—		—		92		100
Income from bank-owned life insurance		101		105		295		300
Miscellaneous		255		211		713		571

Total other income		1,286		2,079		4,268		5,845

Operating expenses:
Salaries and employee benefits		3,327		3,631		9,963		11,073
Occupancy and equipment		871		844		2,657		2,587
Data processing		559		601		1,728		1,803
Professional fees		184		179		541		651
Marketing and advertising		205		159		386		488
Amortization of intangible assets		151		197		483		619
Other general and administrative		704		639		1,933		2,240

Total operating expenses		6,001		6,250		17,691		19,461

Income before income taxes		1,763		1,538		5,175		3,559
Provision for income taxes		541		467		1,670		1,067

Net income	$	1,222	$	1,071	$	3,505	$	2,492


Weighted-average shares outstanding:
Basic		7,286,451		7,622,441		7,300,010		7,700,171
Diluted		7,355,906		7,666,939		7,369,376		7,736,356
Earnings per share:
Basic	$	0.17	$	0.14	$	0.48	$	0.32
Diluted	$	0.17	$	0.14	$	0.48	$	0.31

See accompanying notes to condensed consolidated financial statements

BENJAMIN FRANKLIN BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands, except per share data)

(Unaudited)


	Common Stock					Additional Paid-in			Retained			Unearned			Accumulated Other Comprehensive			Total Stockholders’
	Shares			Amount		Capital			Earnings			Compensation			Loss			Equity
Balance at December 31, 2006		8,249,802		$	—	$	82,909		$	36,634		$	(7,938	)	$	(2,200	)	$	109,405

Comprehensive income:
Net income		—			—		—			2,492			—			—			2,492
Net unrealized loss on securities available for sale, net of reclassification adjustment and tax effects		—			—		—			—			—			(160	)		(160	)
FASB Statement No. 158 tax effect adjustment		—			—		—			—			—			101			101

Total comprehensive income																			2,433

Common stock repurchased		(326,200	)		—		(4,628	)		—			—			—			(4,628	)
Restricted stock expense		47,615			—		—			—			487			—			487
Stock option expense		—			—		547			—			—			—			547
Release of ESOP stock		—			—		35			—			139			—			174
Dividends declared ($.16 per share)		—			—		—			(1,353	)		—			—			(1,353	)

Balance at September 30, 2007		7,971,217		$	—	$	78,863		$	37,773		$	(7,312	)	$	(2,259	)	$	107,065


Balance at December 31, 2007		7,856,172		$	—	$	77,370		$	38,515		$	(7,094	)	$	(1,347	)	$	107,444

Comprehensive income:
Net income		—			—		—			3,505			—			—			3,505
Net unrealized loss on securities available for sale, net of tax effects		—			—		—			—			—			(945	)		(945	)

Total comprehensive income																			2,560

Common stock repurchased		(190,000	)		—		(2,608	)		—			—			—			(2,608	)
Issuance of common stock in connection with stock incentive plan		—			—		26			—			(26	)		—			—
Restricted stock expense		44,460			—		—			—			461			—			461
Forfeiture of restricted stock		—			—		(6	)		—			6			—			—
Stock option expense		—			—		265			—			—			—			265
Release of ESOP stock		—			—		18			—			138			—			156
Dividends declared ($.22 per share)		—			—		—			(1,764	)		—			—			(1,764	)

Balance at September 30, 2008		7,710,632		$	—	$	75,065		$	40,256		$	(6,515	)	$	(2,292	)	$	106,514

See accompanying notes to condensed consolidated financial statements

BENJAMIN FRANKLIN BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2008			2007
Cash flows from operating activities:
Net income	$	3,505		$	2,492
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Amortization (accretion) of securities, net		274			(472	)
Amortization of loans, net		246			91
Amortization of deferred gain on sale of premises		(189	)		(190	)
Gain on sale of premises, net		—			(187	)
Provision for loan losses		1,128			469
Accretion of deposit and borrowing discounts, net		(12	)		(7	)
Amortization of mortgage servicing rights		199			225
Depreciation expense		611			688
Amortization of intangible assets		483			619
Stock-based compensation and ESOP		882			1,208
Income from bank-owned life insurance		(295	)		(300	)
Gains on trading assets		—			(138	)
Purchases of trading assets		—			(15,000	)
Gain on sales of loans, net		(216	)		(514	)
Loans originated for sale		(1,535	)		(41,305	)
Proceeds from sales of loans		1,751			41,818
Increase in accrued interest receivable		(155	)		(187	)
Other, net		3,204			(281	)

Net cash provided by (used for) operating activities		9,881			(10,971	)


Cash flows from investing activities:
Activity in available-for-sale securities:
Maturities, calls, and principal repayments		78,034			48,182
Purchases		(104,104	)		(74,580	)
Net change in restricted equity securities		(1,394	)		(448	)
Loan originations, net		(66,483	)		(15,516	)
Proceeds from sales of loans held for sale		—			62,122
Proceeds from sales of premises and equipment		—			821
Purchases of identifiable intangible assets		(66	)		(208	)
Additions to premises and equipment		(250	)		(1,057	)

Net cash (used for) provided by investing activities		(94,263	)		19,316

(Continued)

See accompanying notes to condensed consolidated financial statements

BENJAMIN FRANKLIN BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)

(Dollars in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2008			2007
Cash flows from financing activities:
Net increase (decrease) in deposits		43,395			(5,399	)
Net change in short-term borrowings		5,500			(8,850	)
Proceeds from long-term debt		53,500			27,000
Repayment of long-term debt		(27,180	)		(17,151	)
Common stock repurchased		(2,608	)		(4,628	)
Dividends paid on common stock		(1,764	)		(1,353	)

Net cash provided by (used for) financing activities		70,843			(10,381	)


Net change in cash and cash equivalents		(13,539	)		(2,036	)
Cash and cash equivalents at beginning of period		64,591			72,595


Cash and cash equivalents at end of period	$	51,052		$	70,559


Supplemental cash flow information:
Interest paid on deposits	$	10,492		$	12,977
Interest paid on borrowings		6,522			5,429
Income taxes paid		2,476			970
Loans held for sale transferred to loans, net		—			1,063
Loans held for sale transferred to other assets		—			545
Loans transferred to other assets		—			225
Securities transferred from held-to-maturity to available for sale		—			26

See accompanying notes to condensed consolidated financial statements

BENJAMIN FRANKLIN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.		*Basis of presentation and consolidation*

		The accompanying unaudited consolidated interim financial statements include the accounts of Benjamin Franklin Bancorp, Inc. (the “Company”) and its wholly-owned subsidiary, Benjamin Franklin Bank (the “Bank”). These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation have been included.

		The Company operates as one reportable segment for financial reporting purposes. All significant intercompany items are eliminated in consolidation. Certain amounts previously reported have been reclassified to conform to the current year’s presentation.

		These consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2007.

		*Recent Accounting Pronouncements*

		In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement No. 141 (revised), “Business Combinations.” This Statement replaces FASB Statement No. 141, and applies to all business entities, including mutual entities that previously used the pooling-of-interests method of accounting for certain business combinations. Under Statement No. 141 (revised) an acquirer is required to recognize at fair value the assets acquired, liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date. This replaces the cost allocation process under Statement No. 141, which resulted in the non-recognition of some assets and liabilities at the acquisition date and in measuring some assets and liabilities at amounts other than their fair values at the acquisition date. This Statement requires that acquisition costs and expected restructuring costs be recognized separately from the acquisition, and that the acquirer in a business combination achieved in stages recognize the identifiable assets and liabilities, as well as the non-controlling interest in the acquiree, at the full amounts of their fair values. This Statement also requires an acquirer to recognize assets acquired and liabilities assumed arising from contractual contingencies as of the acquisition date, while Statement 141 allowed for the deferred recognition of pre-acquisition contingencies until certain recognition criteria were met, and an acquirer is only required to recognize assets or liabilities arising from all other contingencies if it is more likely than not that they meet the definition of an asset or a liability. Under this Statement, an acquirer is required to recognize contingent consideration at the acquisition date, whereas contingent consideration obligations usually were not recognized at the acquisition date under Statement 141. Further, this Statement eliminates the concept of negative goodwill and requires gain recognition in instances in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any non-controlling interest in the acquiree. This Statement makes significant amendments to other Statements and other authoritative guidance, and applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date.

		In December 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51.” This Statement establishes accounting and

		reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This Statement is effective for fiscal years beginning on or after December 15, 2008, and is not expected to have a material impact on the consolidated financial statements.

		On October 10, 2008, the FASB issued Staff Position No. SFAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, which clarifies the application of SFAS 157, Fair Value Measurements, in an inactive market and illustrates how an entity would determine fair value when the market for a financial asset is not active. The Staff Position states that an entity should not automatically conclude that a particular transaction price is determinative of fair value. In a dislocated market, judgment is required to evaluate whether individual transactions are forced liquidations or distressed sales. When relevant observable market information is not available, a valuation approach that incorporates management’s judgments about the assumptions that market participants would use in pricing the asset in a current sale transaction would be acceptable. The Staff Position also indicates that quotes from brokers or pricing services may be relevant inputs when measuring fair value, but are not necessarily determinative in the absence of an active market for the asset. The Staff Position is effective immediately and applies to prior periods for which financial statements have not been issued, including interim or annual periods ending on or before September 30, 2008. Its adoption did not have a material impact on the Company’s financial results or fair value determinations.

2.		*Commitments*

		Outstanding loan commitments totaled $122.1 million at September 30, 2008, compared to $116.4 million as of December 31, 2007. Loan commitments consist of commitments to originate new loans as well as undrawn portions of lines of credit. Commitments to originate new loans totaled $15.1 million at September 30, 2008, while commitments under unused lines and letters of credit were $107.0 million.

3.		*Earnings per share*

		Basic earnings per share (“EPS”) excludes dilution and is calculated by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted EPS is computed in a manner similar to that of basic EPS except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares (computed using the treasury stock method) that would have been outstanding if all potentially dilutive common stock equivalents (such as stock options and unvested restricted stock) were issued during the period. For the three and nine month periods ending September 30, 2008, potentially dilutive common stock equivalents totaled 69,455 and 69,366 shares, respectively, representing the effect of dilutive common stock equivalents. For the three and nine month periods ending September 30, 2007, potentially dilutive common stock equivalents totaled 44,498 and 36,185 shares, respectively. Unallocated common shares held by the ESOP are shown as a reduction in stockholders’ equity and are not included in the weighted-average number of common shares outstanding for either basic or diluted earnings per share calculations.

4.		*Fair Values of Assets and Liabilities*

		Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157 (“SFAS 157”), “Fair Value Measurements”, which provides a framework for measuring fair value under generally accepted accounting principles.

		The Company also adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115.” SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial

		assets and liabilities on a contract-by-contract basis. The Company did not elect fair value treatment for any financial assets or liabilities upon adoption.

		In accordance with SFAS 157, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

		Level 1 — Quoted prices in active markets for identical assets or liabilities.

		Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

		Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

		Assets measured at fair value on a recurring basis are summarized below. There are no liabilities measured at fair value on a recurring basis at September 30, 2008:


	September 30, 2008
							Assets at
	Level 1		Level 2		Level 3		Fair Value
	(Dollars in thousands)
Assets
Securities available for sale	$	—	$	181,376	$	—	$	181,376

Total assets	$	—	$	181,376	$	—	$	181,376

Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service that subscribes to multiple third-party pricing vendors. The pricing service conducts a series of quality assurance activities on a monthly basis to select the most appropriate pricing vendor for each sector of the bond market. The fair value measurements consider observable market data that may include, among other data, benchmark yields and spread relationships, cash flows, collateral attributes, market consensus prepayment speeds, and credit risk information as well as terms and conditions relevant to the individual bond (such as issuer, coupon, maturity and credit rating). Also, the Company may be required, from time to time, to measure certain other financial assets on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. The following table summarizes the fair value hierarchy used to determine each adjustment and the carrying value of the related individual assets as of September 30, 2008:


								Quarter ended
	September 30, 2008							September 30, 2008
								Total
	Level 1		Level 2		Level 3			Gains/(Losses)
	(Dollars in thousands)
Assets
Impaired loans	$	—	$	—	$	7,104	(A)	$	(341	)

Total assets	$	—	$	—	$	7,104		$	(341	)


(A)		Represents impaired loans totaling $7,687, net of specific valuation reserves for those loans totaling $583. There were no specific valuation reserves allocated to the remainder of the Bank’s impaired loans ($2.1 million) as of September 30 , 2008.

The amount of loans represents the carrying value (loan balance net of related allocated reserves) for impaired loans, for which adjustments are based on the appraised value of the collateral. Appraised values are typically based on a blend of (a) an income approach using unobservable cash flows to measure fair value, and (b) a market approach using observable market comparables. These appraised values may be discounted based on management’s historical knowledge, expertise or changes in market conditions from the time of valuation. For these reasons, impaired loans are categorized as Level 3 assets.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following analysis discusses the changes in financial position and results of operations of the Company, and should be read in conjunction with the Company’s unaudited consolidated interim financial statements and the notes thereto, appearing in Part I, Item 1 of this document.

Forward-Looking Statements

Certain statements herein constitute “forward-looking statements” and actual results may differ from those contemplated by these statements. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like “believe,” “expect,” “anticipate,” “estimate,” and “intend” or future or conditional verbs such as “will,” “would,” “should,” “could” or “may.” Certain factors that could cause actual results to differ materially from expected results include changes in the interest rate environment, changes in general economic conditions, legislative and regulatory changes that adversely affect the businesses in which the Company is engaged and changes in the securities market.

Recent Developments

There have been disruptions of historic proportions in the financial system in the United States and globally during the past year. Dramatic declines in the national housing market, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. In response to the crisis affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, the following is a summary of recently enacted laws and regulations.

Emergency Economic Stabilization Act of 2008

On October 3, 2008, Congress passed the Emergency Economic Stabilization Act of 2008 (EESA), which provides the U. S. Treasury with broad authority to implement certain actions to help restore stability and liquidity to U.S. markets. Under the EESA, the basic limit on federal deposit insurance coverage was temporarily increased from $100,000 to $250,000 per depositor, until December 31, 2009.

On October 14, 2008, the Department of the Treasury announced it would purchase equity stakes in a wide variety of banks and thrifts. Under this program, known as the Troubled Asset Relief Program Capital Purchase Program, or CPP, from the $700 billion authorized by the EESA, the Treasury will make $250 billion of capital available to U.S. financial institutions in the form of perpetual preferred stock. The preferred stock would qualify as Tier 1 capital. In conjunction with the purchase of preferred stock, the Treasury will receive warrants to purchase common stock with a ten-year term and an aggregate market price equal to 15% of the preferred stock investment.

The CPP program is voluntary and requires an institution to comply with a number of restrictions and provisions. Participants will be required to adopt the Treasury’s standards for executive compensation and corporate governance for the period during which the Treasury holds equity issued under the CPP. These standards generally apply to the Chief Executive Officer, Chief Financial Officer, and the next three highest compensated officers. Plan participation also results in certain restrictions on the institution’s dividend and stock repurchase activities. These restrictions remain in place until the Treasury no longer holds any equity or debt securities of the institution.

The CPP provides for a minimum investment of 1% of risk-weighted assets, with a maximum investment equal to the smaller of 3% of total risk-weighted assets or $25 billion The perpetual preferred stock investment will have a dividend rate of 5% per year, until the fifth anniversary of the Treasury investment, and a dividend of 9%, thereafter. The preferred stock can be called after three years, or beforehand if it is replaced with common or other perpetual preferred stock. Participation in the program is subject to approval by the Treasury department. Applications must be submitted by November 14, 2008.

The Bank currently exceeds minimum regulatory capital standards by substantial margins. However, the Company is currently assessing the benefit of participation in the CPP and has not yet made a final decision as to whether it will apply.

FDIC Temporary Liquidity Guarantee Program

On October 14, 2008, the systemic risk exception to the FDIC Improvement Act of 1991 was invoked enabling the FDIC to temporarily provide a 100% guarantee of the senior unsecured debt of all FDIC-insured institutions and their holding companies, as well as deposits in noninterest bearing transaction deposit accounts under a Temporary Liquidity Guarantee Program (TLGP).

The TLGP is a voluntary and time-limited program that will be funded through special fees charged to participating financial institutions. For the first 30 days of the program, the guarantees provided by the program have been offered at no cost to the Company. Unless the Company opts out of either or both of the TLGP programs before December 5, 2008, the Company will thereafter be assessed fees for its participation in either or both of the programs.

The TLGP program consists of two components: a temporary guarantee of newly issued senior unsecured debt (the Debt Guarantee Program or “DGP”) and a temporary unlimited guarantee of funds in noninterest-bearing transaction accounts at FDIC-insured institutions (the Transaction Account Guarantee Program or “TAGP”). The Company is eligible to participate in either or both components of the TLGP.

The DGP is designed primarily to provide liquidity to the bank-to-bank lending market and to help banks roll over unsecured debt. The program specifies that the FDIC will temporarily guarantee (through June 30, 2012) all new senior unsecured debt up to prescribed limits issued by participating financial institutions from October 14, 2008 through June 30, 2009. Coverage under the DGP is available for 30 days without charge and thereafter at a cost of 75 basis points per year multiplied by the amount of debt covered by the program. The Company has not previously issued senior unsecured debt, and has not made a decision relative to its continued participation in the DGP.

Under the TAGP, the FDIC will provide an unlimited guarantee for noninterest-bearing transaction accounts in excess of the existing deposit insurance limit of $250,000 per account. This coverage is effective on October 14, 2008, and will continue through December 31, 2009. Coverage under the TAGP is available for 30 days without charge and thereafter at a cost of 10 basis points per year for the affected noninterest bearing transaction deposits.

The Company is currently assessing the benefit of participation in the TLGP after the December 5, 2008 opt-out date. Although management has not made a final decision relative to the Bank’s participation in the TAGP, management does not believe any assessments under the TAGP would be material to the Bank’s future operating results.

It is not clear at present whether these programs, along with other recently announced liquidity and funding initiatives of the Federal Reserve and other agencies, will result in significant improvement in national financial and economic conditions, including those affecting the banking industry. If the significant levels of volatility and disruption in the credit markets were to continue, and if U.S. economy were to remain in a recessionary condition for an extended period, this would likely have an adverse effect on all financial institutions, including the Company.

Critical Accounting Policies

Critical accounting policies are those that involve significant judgments and assessments by management, and which could potentially result in materially different results under different assumptions and conditions. As discussed in the Company’s 2007 Annual Report on Form 10-K, the Company considers its critical accounting policies to be those associated with the allowance for loan losses, the valuation of goodwill and other intangible assets and the valuation of deferred tax assets. The Company’s critical accounting policies have not changed since December 31, 2007.

Comparison of Financial Condition at September 30, 2008 and December 31, 2007

Overview

Total assets increased by $77.5 million, or 8.6%, to $980.7 million at September 30, 2008 from $903.3 million at December 31, 2007. The increase in assets was primarily attributable to increases in net loans (up $65.1 million or 10.7%) and securities (up $26.0 million or 15.4%), offset in part by a decrease in cash and cash equivalents (down $13.5 million or 21.0%). The increase in total assets was funded principally by growth in deposits, which increased by $43.4 million or 7.0%, and in borrowed funds, which increased by $31.8 million or 19.3%.

Investment Activities

Cash and cash equivalent balances, comprised of $13.5 million in cash and correspondent bank balances, $12.8 million in short-term investments, and $24.8 million in cash supplied to ATMs owned by ATM customers decreased by $13.5 million to $51.1 million at September 30, 2008, compared to $64.6 million at December 31, 2007. This decrease was primarily a result of a $17.2 million decrease in cash supplied to ATM customers over the nine-month period, and is primarily attributable to the loss of three large customers.

At September 30, 2008, the Company’s securities portfolio amounted to $194.4 million, or 19.8% of total assets. When compared to year-end 2007, securities increased by $26.0 million, or 15.4%. The increase primarily consisted of increases in government-sponsored enterprise (“GSE”) insured mortgage-backed securities, which grew by $19.9 million or 28.7% in the first nine months of 2008. All of the Company’s holdings of mortgage-backed securities are issued by a GSE (FHLMC and FNMA), or by GNMA, which bears full and explicit credit backing by the federal government. The following table sets forth certain information regarding the amortized cost and fair values of the Company’s securities at the dates indicated:


	September 30,				December 31,
	2008				2007
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
			(Dollars in thousands)
Securities available for sale:
Government-sponsored enterprise obligations	$	92,141	$	92,072	$	85,972	$	86,178
Municipal obligations		—		—		1,206		1,202

		92,141		92,072		87,178		87,380
Mortgage-backed securities		91,671		89,304		70,839		69,381


Total debt securities		183,812		181,376		158,017		156,761


Total available for sale securities	$	183,812	$	181,376	$	158,017	$	156,761


Restricted equity securities:
Federal Home Loan Bank of Boston stock	$	10,505	$	10,505	$	9,110	$	9,110
Access Capital Strategies Community Investment Fund		1,965		1,965		1,965		1,965
SBLI & DIF stock		516		516		516		516


Total restricted equity securities	$	12,986	$	12,986	$	11,591	$	11,591

The following supplemental table provides information regarding the issuers of the Company’s available for sale securities as of September 30, 2008:


	September 30,
	2008
	Amortized		Fair
	Cost		Value
	(Dollars in thousands)
Securities available for sale:
Federal Home Loan Banks	$	45,890	$	45,848
Federal Farm Credit Banks		10,915		10,922
Federal National Mortgage Association		15,559		15,541
Federal Home Loan Mortgage Corporation		19,777		19,761

Government-sponsored enterprise obligations		92,141		92,072

Government National Mortgage Association	$	38	$	38
Federal National Mortgage Association		47,018		46,320
Federal Home Loan Mortgage Corporation		44,615		42,946

Mortgage-backed securities		91,671		89,304

Total debt securities		183,812		181,376


Total available for sale securities	$	183,812	$	181,376

Lending Activities

The Company’s net loan portfolio aggregated $672.1 million on September 30, 2008, or 68.5% of total assets on that date. As of December 31, 2007, the net loan portfolio totaled $606.9 million, or 67.2% of total assets. The main components of the growth of $65.1 million in the first nine months of 2008 were a $41.3 million (21.9%) increase in residential mortgage loans, a $19.5 million (12.2%) increase in commercial business loans and a $10.9 million (6.4%) increase in commercial real estate loans. Offsetting these increases was a reduction of $6.8 million (12.3%) in construction loans. The growth in residential mortgage loans reflects the Company’s strategic decision in late 2007 to retain most new residential originations (fixed-rate and adjustable-rate) in its portfolio, due to the widening of market interest rate spreads available on most residential mortgage products. Previously, for much of 2006 and 2007, the Company had sold most fixed-rate residential loan production in the secondary market. While demand for commercial loans have been strong for much of this year, management believes that commercial loan demand may lessen in future quarters as a result of the current economic downturn occurring in New England and nationally. The following table sets forth the composition of the loan portfolio at the dates indicated:


	September 30, 2008						December 31, 2007
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Mortgage loans on real estate:
Residential	$	229,253			33.82	%	$	187,991			30.73	%
Commercial		179,298			26.45	%		168,463			27.54	%
Construction		48,919			7.22	%		55,763			9.11	%
Home equity		38,982			5.75	%		37,768			6.17	%

		496,452			73.24	%		449,985			73.55	%


Other loans:
Commercial		178,704			26.37	%		159,233			26.03	%
Consumer		2,674			0.39	%		2,592			0.42	%

		181,378			26.76	%		161,825			26.45	%


Total loans		677,830			100.00	%		611,810			100.00	%


Other items:
Net deferred loan costs		1,078						925
Allowance for loan losses		(6,853	)					(5,789	)

Total loans, net	$	672,055					$	606,946

Non-performing Assets

The table below sets forth the amounts and categories of the Company’s non-performing assets at the dates indicated:


	September 30, 2008			December 31, 2007
	(Dollars in thousands)
Non-accrual loans:
Residential mortgage	$	1,208		$	712
Commercial mortgage		4,972			658
Construction		1,945			—
Commercial		567			—
Consumer and other		116			228

Total non-accrual loans	$	8,808		$	1,598


Loans greater than 90 days delinquent and still accruing:	$	—		$	—

	$	—		$	—


Total non-performing loans and assets	$	8,808		$	1,598


Total restructured loans	$	1,182		$	—


Ratios:
Non-performing loans to total loans		1.30	%		0.26	%
Non-performing assets to total assets		0.90	%		0.18	%

Loans are placed on non-accrual status either when reasonable doubt exists as to the full and timely collection of interest and principal, or when a loan becomes 90 days past due, unless an evaluation by the management Credit Committee clearly indicates that the loan is well-secured and in the process of collection.

The $7.2 million increase in non-performing loans since year-end 2007 is primarily due to the addition of one $6.4 million loan relationship to non-performing status during the second quarter of 2008. Within this loan relationship, two loans totaling $5.9 million (one for $4.0 million in the commercial mortgage category and one for $1.9 million reported within the construction loan category; construction on the building is complete with the exception of tenant fit-up in some areas) are secured by a mixed-use building located in Boston, MA. The remainder of this relationship consists of two commercial business loans aggregating $492,000, both of which were underwritten under the Massachusetts Capital Access Program (“MCAP”). These loans are secured primarily by equipment and the Bank’s specific reserves accumulated as a result of its participation in the MCAP program. Based on a review of all relevant factors, including the collateral securing these loans, specific loan loss reserves of $277,000 have been allocated for this loan relationship.

Restructured loans represent performing loans for which concessions (such as extension of repayment terms or reductions of interest rates to below market rates) are granted due to a borrower’s financial condition. The balance of $1.2 million in restructured loans at September 30, 2008 represents one residential real estate mortgage loan that was modified to lengthen the borrower’s repayment period. This loan was performing in accordance with its modified terms at September 30, 2008.

Allowance for Loan Losses

In originating loans, the Company recognizes that losses will be experienced on loans and that the risk of loss will vary with many factors, including the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a secured loan, the quality of the security for the loan

over the term of the loan. The Company maintains an allowance for loan losses to absorb losses inherent in the loan portfolio, and as such, this allowance represents management’s best estimate of the probable known and inherent credit losses in the loan portfolio as of the date of the financial statements.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, portfolio volume and mix, geographic and large borrower concentrations, estimated credit losses based on internal and external portfolio reviews, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for qualitative factors. Qualitative factors considered include general business and economic conditions, the level of real estate values in our market area, the tenure and experience of the Company’s lending staff, the seasoning of the loan portfolio, and delinquency trends in the loan portfolio. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

The following tables set forth Benjamin Franklin Bank’s allowance by loan category and the percent of the loans to total loans in each of the categories listed at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories:


	At September 30,							At December 31,
	2008							2007
					Percent							Percent
					of Loans							of Loans
			Loan		in Each					Loan		in Each
	Allowance		Balances		Category to			Allowance		Balances		Category to
	for Loan		by		to Total			for Loan		by		to Total
	Losses		Category		Loans			Losses		Category		Loans
					(Dollars in thousands)
Mortgage loans on real estate:
Residential	$	1,027	$	229,253		33.82	%	$	499	$	187,991		30.73	%
Commercial		2,342		179,298		26.45	%		1,959		168,463		27.54	%
Construction		791		48,919		7.22	%		850		55,763		9.11	%
Home equity		146		38,982		5.75	%		142		37,768		6.17	%

		4,306		496,452		73.24	%		3,450		449,985		73.55	%

Other loans:
Commercial		2,178		178,704		26.37	%		1,874		159,233		26.03	%
Consumer		69		2,674		0.39	%		80		2,592		0.42	%
Unallocated ⁽¹⁾		300		0		0.00	%		385		0		0.00	%

		2,547		181,378		26.76	%		2,339		161,825		26.45	%


Total	$	6,853	$	677,830		100.00	%	$	5,789	$	611,810		100.00	%


⁽¹⁾		The unallocated portion of the allowance for loan losses is intended to capture the exposure, if any, that may exist as a result of a number of qualitative factors that are difficult to quantify with precision.

The Massachusetts economy has slowed, as labor market conditions and residential real estate values have deteriorated. Unemployment in Massachusetts over the past twelve months has increased from 4.4% to 5.3% (Federal Reserve New England Economic Indicators, October 2008). In addition, the median home price in September declined 15.6% from a year earlier, and now represents a six-year low. Sales of single-family homes in Massachusetts also decreased in the third quarter to the lowest sales pace for the three-month period since 1991 (The Warren Group). Management monitors these trends closely, as well as many portfolio characteristics, including the level of delinquencies, charge-offs, and other measures of risk within the loan portfolio. Several of the key elements of that analysis are:

	•		Loan delinquency: At September 30, 2008, portfolio delinquency (percentage of total loans greater than 30 days past due) stood at 1.66%, compared to 1.55% at June 30, 2008 and an average of 1.07% for all of 2007. The increase compared to December 31, 2007 was primarily caused by the addition of one $6.4 million commercial relationship, discussed earlier in “Non-performing Assets”. For all other loans, delinquency at September 30, 2008 was 0.71% of total loans.

	•		Level of charge-offs: Net charge-offs have been nominal in both 2008 and 2007. For the three and nine months ended September 30, 2008, net charge-offs were $25,000 and $64,000, respectively. For the comparable 2007 periods, net charge-offs were $154,000 and $193,000, respectively. For the 2008 and 2007 year-to-date periods, net charge-offs represented a negligible 0.1% and 0.3% of average loans outstanding, respectively.

	•		Real estate collateral values: Management monitors loan-to-value ratios for its residential mortgage loan portfolio, as well as for its construction portfolio, which is a mix of commercial and residential construction credits. At September 30, 2008, the weighted average loan-to-value ratio of the Bank’s construction loan portfolio was approximately 67%, and the weighted average loan-to value ratio of the Bank’s residential mortgage loan portfolio was approximately 55%. Loan-to-value ratios are computed using the appraised value of collateral on the date of loan origination.

	•		Underwriting criteria: The Bank has not originated and does not hold any sub-prime mortgages in its loan portfolio.

At September 30, 2008, the allowance for loan losses was 1.01% of total loans, compared to 0.94% at both December 31, 2007 and September 30, 2007. To some extent, the increase in this ratio (the “coverage” ratio) reflects an increase in the general loss reserve for residential mortgage loans. Higher risks are now evident in the general marketplace relating to the declining value of collateral securing these loans and recent increases in unemployment rates. The coverage ratio also increased (in part) pursuant to additional reserves for impaired commercial and commercial real estate loans.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Impairment is measured on a loan-by-loan basis for commercial loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and home equity loans for impairment disclosures. At September 30, 2008 and December 31, 2007, the Company’s impaired loans totaled $9.8 million and $880,000 respectively. The increase in impaired loans as of September 30, 2008 is primarily the result of the additions of one $6.4 million commercial loan relationship (see “Non-performing Assets” on pages 14-15 for further discussion of this loan), and one $1.2 million restructured residential mortgage loan that is performing in accordance with its modified terms. The specific valuation allowances for impaired

loans carried within the allowance for loan losses at September 30, 2008 and December 31, 2007 were $597,000 and $37,000, respectively.

While the Company believes that it has established adequate specific and general allowances for losses on loans, adjustments to the allowance may be necessary if future conditions differ substantially from the information used in making the evaluations. In addition, as an integral part of their examination process, the Company’s regulators periodically review the allowance for loan losses.

The following table sets forth activity in the Company’s allowance for loan losses for the periods indicated:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
				(Dollars in thousands)
Balance at beginning of period	$	6,431		$	5,710		$	5,789		$	5,337

Charge-offs:
Residential mortgage loans		—			(143	)		—			(143	)
Commercial loans		—			—			—			(7	)
Consumer loans		(31	)		(24	)		(98	)		(85	)

Total charge-offs		(31	)		(167	)		(98	)		(235	)


Recoveries:
Commercial loans		1			6			13			11
Consumer loans		5			7			21			31

Total recoveries		6			13			34			42


Net charge-offs		(25	)		(154	)		(64	)		(193	)

Provision for loan losses		447			57			1,128			469

Balance at end of period	$	6,853		$	5,613		$	6,853		$	5,613


Ratios:
Net charge-offs to average loans outstanding		0.00	%		0.03	%		0.01	%		0.03	%
Allowance for loan losses to non-performing loans at end of period		77.80	%		172.87	%		77.80	%		172.87	%
Allowance for loan losses to total loans at end of period		1.01	%		0.94	%		1.01	%		0.94	%

The reserve for unfunded lending commitments, included in other liabilities, was reduced by a credit of $17,000 to the provision for unfunded lending commitments during the nine months ended September 30, 2008 and was reduced by a credit of $259,000 to the provision for unfunded lending commitments during the nine months ended September 30, 2007. These provisions are included in other general and administrative expenses. The total reserve was $167,000 at September 30, 2008 and $183,000 at December 31, 2007.

Deposits

The following table sets forth the Company’s deposit accounts at the dates indicated:


	September 30,		% of			December 31,		% of
	2008		Total			2007		Total
			(Dollars in thousands)
Deposit type:
Demand deposits	$	112,786		17.1	%	$	113,023		18.3	%
NOW accounts		70,618		10.7	%		52,000		8.4	%
Regular and other savings		81,338		12.3	%		79,167		12.8	%
Money market deposits		141,566		21.4	%		110,544		17.9	%

Total non-certificate accounts		406,308		61.5	%		354,734		57.4	%


Term certificates less than $100,000		154,880		23.4	%		159,272		25.8	%
Term certificates of $100,000 or more		99,557		15.1	%		103,362		16.8	%

Total certificate accounts		254,437		38.5	%		262,634		42.6	%


Total deposits	$	660,745		100.0	%	$	617,368		100.0	%

The Company’s “core” accounts (demand, NOW, savings, and money market) increased by $51.6 million or 14.5% during the nine-month period ended September 30, 2008, while term certificates decreased $8.2 million or 3.1% over that time frame. The “core” account increase was attributable, in part, to the growth of two branch locations opened over the past two years. Deposit growth over the nine months ended September 30, 2008 included $11.3 million in “core” accounts at the new Wellesley, MA branch (opened August 2006) and the new Watertown, MA branch (opened August 2007). Combined, these two branches had $34.1 million in total deposits at September 30, 2008, including $25.3 million in “core” accounts. “Core” accounts held by commercial customers and municipalities also increased by over $36 million, or 26.8%, during the first nine months of 2008.

Borrowed Funds

The Company’s borrowed funds increased by $31.8 million, or 19.3%, to a total of $197.1 million at September 30, 2008, compared to December 31, 2007. These additional borrowed funds (which were primarily a blend of two-to-seven year Federal Home Loan Bank of Boston term advances) were used principally to fund growth in fixed rate residential mortgage loans during the nine-month period.

Stockholder’s Equity

Total stockholders’ equity was $106.5 million as of September 30, 2008, a decrease of $0.9 million when compared to December 31, 2007. While net earnings contributed $3.5 million of capital, the overall decrease was primarily attributable to the repurchase (in the first five months of 2008) of 190,000 common shares ($2.6 million), dividends paid ($1.8 million), and a $945,000 decrease in the fair value of securities available for sale (net of tax).

Comparison of Operating Results for the Three and Nine Months Ended September 30, 2008 and 2007

The Company earned net income of $1.2 million for the quarter ended September 30, 2008, an increase of $151,000, or 14.1%, compared to net income of $1.1 million earned in the third quarter of 2007. The increased earnings largely reflected higher net interest income and lower operating expenses, partially offset by an increase in the provision for loan losses and a drop in other income.

The Company’s net income for the nine months ended September 30, 2008 was $3.5 million, an increase of $1.0 million, or 40.7%, over the $2.5 million earned in the first nine months of 2007. Similar to the quarterly results, the increased earnings primarily reflected lower operating expenses and growth in net interest income, partially offset by an increase in the provision for loan losses and a reduction in other income.

Analysis of Net Interest Income

Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income also depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them.

The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. Most average balances are daily average balances. Non-accrual loans are included in the computation of average balances, but are reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense:


	Three Months Ended September 30,
	2008							2007
	Average							Average
	Outstanding							Outstanding
	Balance		Interest		Yield/Rate⁽¹⁾			Balance		Interest		Yield/Rate⁽¹⁾
	(Dollars in thousands)

Interest-earning assets:
Loans	$	674,239	$	10,299		6.02	%	$	599,107	$	9,856		6.48	%
Securities		191,558		2,005		4.19	%		165,391		2,084		5.04	%
Short-term investments		14,450		59		1.60	%		17,089		141		3.24	%

Total interest-earning assets		880,247		12,363		5.55	%		781,587		12,081		6.11	%

Non-interest-earning assets		95,533							126,353

Total assets	$	975,780						$	907,940


Interest-bearing liabilities:
Savings accounts	$	82,404		83		0.40	%	$	80,416		100		0.50	%
Money market accounts		139,461		618		1.76	%		111,259		798		2.85	%
NOW accounts		64,292		287		1.78	%		46,876		314		2.66	%
Certificates of deposit		261,632		2,205		3.35	%		275,601		3,155		4.54	%

Total deposits		547,789		3,193		2.32	%		514,152		4,367		3.37	%
Borrowings		195,149		2,245		4.50	%		156,256		1,948		4.88	%

Total interest-bearing liabilities		742,938		5,438		2.89	%		670,408		6,315		3.72	%

Non-interest bearing liabilities		126,323							129,842

Total liabilities		869,261							800,250
Equity		106,519							107,690

Total liabilities and equity	$	975,780						$	907,940


Net interest income			$	6,925						$	5,766

Net interest rate spread ⁽²⁾						2.66	%						2.39	%
Net interest-earning assets ⁽³⁾	$	137,309						$	111,179

Net interest margin ⁽⁴⁾						3.13	%						2.93	%
Average interest-earning assets to interest-bearing liabilities						118.48	%						116.58	%


⁽¹⁾		Yields and rates for the three months ended September 30, 2008 and 2007 are annualized.

⁽²⁾		Net interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities.

⁽³⁾		Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

⁽⁴⁾		Net interest margin represents net income divided by average total interest-earning assets.


	Nine Months Ended September 30,
	2008							2007
	Average							Average
	Outstanding							Outstanding
	Balance		Interest		Yield/Rate⁽¹⁾			Balance		Interest		Yield/Rate⁽¹⁾
	(Dollars in thousands)

Interest-earning assets:
Loans	$	652,489	$	30,152		6.10	%	$	609,710	$	29,273		6.36	%
Securities		185,335		6,213		4.47	%		161,963		6,055		4.99	%
Short-term investments		23,470		397		2.22	%		17,428		644		4.88	%

Total interest-earning assets		861,294		36,762		5.65	%		789,101		35,972		6.04	%
Non-interest-earning assets		97,793							114,858

Total assets	$	959,087						$	903,959


Interest-bearing liabilities:
Savings accounts	$	80,863		242		0.40	%	$	82,338		306		0.50	%
Money market accounts		129,557		1,797		1.85	%		106,243		2,167		2.73	%
NOW accounts		60,061		847		1.88	%		37,935		621		2.19	%
Certificates of deposit		264,523		7,576		3.83	%		285,655		9,738		4.56	%

Total deposits		535,004		10,462		2.61	%		512,171		12,832		3.35	%
Borrowings		190,102		6,574		4.54	%		151,535		5,496		4.78	%

Total interest-bearing liabilities		725,106		17,036		3.12	%		663,706		18,328		3.68	%
Non-interest bearing liabilities		126,752							131,359

Total liabilities		851,858							795,065
Equity		107,229							108,894

Total liabilities and equity	$	959,087						$	903,959


Net interest income			$	19,726						$	17,644

Net interest rate spread ⁽²⁾						2.53	%						2.36	%
Net interest-earning assets ⁽³⁾	$	136,188						$	125,395

Net interest margin ⁽⁴⁾						3.06	%						2.99	%
Average interest-earning assets to interest-bearing liabilities						118.78	%						118.89	%


⁽¹⁾		Yields and rates for the nine months ended September 30, 2008 and 2007 are annualized.

⁽²⁾		Net interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities.

⁽³⁾		Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

⁽⁴⁾		Net interest margin represents net income divided by average total interest-earning assets.

The following table presents the dollar amount of changes in interest income and interest expense for the major categories of the Company’s interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to changes in volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.


	Three Months Ended September 30,
	2008 vs. 2007
	Increase (Decrease)
	Due to						Total
							Increase
	Volume			Rate			(Decrease)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	1,180		$	(737	)	$	443
Securities		303			(382	)		(79	)
Short-term investments		(19	)		(63	)		(82	)

Total interest-earning assets		1,464			(1,182	)		282

Interest-bearing liabilities:
Savings accounts		2			(19	)		(17	)
Money market accounts		171			(351	)		(180	)
NOW accounts		96			(123	)		(27	)
Certificates of deposit		(153	)		(797	)		(950	)

Total deposits		116			(1,290	)		(1,174	)
Borrowings		456			(159	)		297

Total interest-bearing liabilities		572			(1,449	)		(877	)

Change in net interest income	$	892		$	267		$	1,159


	Nine Months Ended September 30,
	2008 vs. 2007
	Increase (Decrease)
	Due to						Total
							Increase
	Volume			Rate			(Decrease)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	2,004		$	(1,125	)	$	879
Securities		821			(663	)		158
Short-term investments		176			(423	)		(247	)

Total interest-earning assets		3,001			(2,211	)		790

Interest-bearing liabilities:
Savings accounts		(5	)		(59	)		(64	)
Money market accounts		414			(784	)		(370	)
NOW accounts		322			(96	)		226
Certificates of deposit		(684	)		(1,478	)		(2,162	)

Total deposits		47			(2,417	)		(2,370	)
Borrowings		1,344			(266	)		1,078

Total interest-bearing liabilities		1,391			(2,683	)		(1,292	)

Change in net interest income	$	1,610		$	472		$	2,082

Net interest income for the quarter ended September 30, 2008 was $6.9 million, an increase of $1.2 million or 20.1% as compared to net interest income of $5.8 million for the three months ended September 30, 2007. The $1.2 million increase reflected a $98.7 million increase in average interest-earning assets between the two quarterly periods as well as a 20 basis point improvement in the net interest margin.

The Company’s net interest margin was 3.13% for the three months ended September 30, 2008, comparing favorably to the 2.93% in the year-earlier quarterly period. As market interest rates, particularly short-term

rates, declined substantially in the past twelve months, the Company was able to offset the ensuing reduction in earning-asset yields with even greater decreases in its deposit costs. The net interest margin improvement also reflected generally favorable changes in asset and liability mix toward more profitable lines of business; the Company continued to produce commercial and residential mortgage loan growth at a faster pace than several other types of earning assets and was successful in shifting its deposit base to a higher proportion of “core” accounts.

Interest income for the quarter ended September 30, 2008 was $12.4 million, representing a $282,000 or 2.3% increase compared to the three months ended September 30, 2007. This increase resulted from a $98.7 million or 12.6% increase in average interest-earning assets between the two periods, partially offset by a 56 basis points (or 9.2%) decrease in the yield earned on those assets. The largest growth in average interest-earning assets between the two quarterly periods was in loans, at $75.1 million, while securities increased on average by $26.2 million. Average loan growth was concentrated in higher-yielding commercial loans and commercial mortgages, which increased by $41.3 million, or 11.4%, and in residential mortgages, which grew by $33.3 million, or 17.1%. The growth in securities was entirely represented by government-sponsored mortgage-backed securities (“MBS”). The yield decrease between the two periods largely reflected a significant drop in market interest rates since mid-2007, and was more pronounced for asset classes of shorter duration. The decrease in yield earned on loans totaled 46 basis points when comparing the two quarters, while yields on securities and short-term investments declined by 87 basis points on a combined basis.

Interest expense for the three months ended September 30, 2008 was $5.4 million, a decrease of $877,000 or 13.9% from the $6.3 million incurred in the third quarter of 2007. This decrease arose primarily from a 83 basis point (or 22.3%) drop in the cost of average interest-bearing liabilities, which more than offset a $72.5 million increase in the average balance of those liabilities ($38.9 million in borrowings and $33.6 million in deposits). However, within the deposit portfolio, the average balances of interest-bearing ‘core’ accounts (money market, NOW and savings accounts) increased by $47.6 million, while time (certificate) account balances decreased by $14.0 million. This favorable change in deposit mix, coupled with reductions in deposit pricing, helped to reduce the weighted average rate on interest-bearing deposits by 105 basis points quarter over quarter. The growth in borrowings, while bearing higher interest rates than deposits, have provided longer-term sources of funds that management considers useful in mitigating the interest-rate risk associated with the Company’s growth in fixed-rate residential mortgage loans and mortgage-backed securities.

Net interest income earned during the first nine months of 2008 was $19.7 million; an increase of $2.1 million, or 11.8%, over the total earned in the same nine-month period of 2007. This increase reflected a $72.2 million increase in average interest-earning assets between the two periods as well as a seven basis point improvement in the net interest margin. The Company’s net interest margin was 3.06% for the nine months ended September 30, 2008, compared to 2.99% in the year-earlier period. In general, the net interest margin improvement reflected balance sheet growth, generally favorable changes in asset and liability mix, and deposit pricing reductions in response to declines in market interest rates.

Interest income for the nine months ended September 30, 2008 was $36.8 million, an increase of $790,000 or 2.2% compared to $36.0 million earned during the same nine-month period of 2007. The $790,000 increase arose from $72.2 million (or 9.1%) of growth in average interest-earning assets, which more than offset a 39 basis point decline (or 6.5%) in the yield earned on those assets. Average asset growth included $42.8 million in loans, $23.4 million in securities, and $6.0 million in short-term investments. The decline in earning-asset yield included decreases of 26 basis points on loans and 75 basis points for securities and short-term investments on a combined basis. Growth in higher-yielding commercial loans and commercial mortgages ($42.9 million) helped limit the overall decrease in loan yield, despite the year-over-year decline in market interest rates. The Company also increased its security portfolio allocation in MBS, which grew on average by $32.1 million when comparing the two periods. The MBS portfolio has performed well in the downward market rate movement, as the portfolio yield declined by just one basis point when comparing the two nine-month periods.

Interest expense for the nine months ended September 30, 2008 was $17.0 million, a decrease of $1.3 million or 7.0% from a total of $18.3 million in the comparable period of 2007. The $1.3 million decrease resulted from a 56 basis point difference in the cost of average interest-bearing liabilities, including 74 and 24 basis point declines in interest-bearing deposits and borrowings, respectively. The decline in interest cost more than offset additions to expense resulting from a $61.4 million increase in the average balance of these liabilities (including $38.6 million in borrowed funds and $22.8 million in deposits). Changes in deposit mix also contributed to the favorable decline in interest expense between the two nine-month periods; within the deposit portfolio, the average balance of savings, NOW, and money market accounts increased by $44.0 million (or 19.4%) while higher-cost time accounts dropped by $21.1 million, or 7.4%.

Provision for Loan Losses

The Company’s provision for loan losses was $447,000 for the three months ended September 30, 2008, an increase of $390,000 over the $57,000 incurred in the year-earlier quarter. For the first nine months of 2008 and 2007, the provision for loan losses amounted to $1.1 million and $469,000, respectively.

Increased provisions in the 2008 periods largely reflected loan portfolio growth and an increase in specific reserves provided for non-performing residential and commercial business loans. In the first nine months of 2008, total gross loans increased by $66.2 million, as compared to $16.1 million of growth in the first nine months of 2007. At September 30, 2008, the allowance for loan losses totaled $6.9 million, or 1.01% of the loan portfolio, as compared to $5.6 million, or 0.94% of total loans, at September 30, 2007. In part, the higher loan loss coverage ratio reflects an increase in the percentage of reserves for non-impaired residential mortgage loans, as a result of declining economic conditions, and an increase in specific reserves for impaired loans under watch by management.

Non-interest Income

Non-interest income of $1.3 million for the three months ended September 30, 2008 was $793,000, or 38.1% less than the $2.1 million earned in the comparable 2007 quarter. Non-interest income of $4.3 million for the nine-month period ended September 30, 2008 was $1.6 million (or 27.0%) less than the $5.8 million earned in the identical 2007 time frame.

The most significant decline in both the three and nine-month periods was in ATM servicing fees. ATM servicing fees decreased by $391,000, or 59.0% in comparing the third quarter of 2008 to 2007, and by $1.0 million, or 52.7%, in comparing the two nine-month periods for those years. The Company earns ATM servicing fees based on average cash balances supplied to ATMs owned by independent service organizations (“ISO’s”), at a variable rate indexed off the prime rate of interest. Since August 2007, the prime rate has dropped 325 basis points, or 39.4%. In addition, average cash balances supplied (comparing the two nine-month periods) decreased by 34.6% (due largely to the loss of four of the thirteen ISO customers since the sale of the customer list in May 2007). While ATM cash balances supplied have declined, the Company has used the returning funds to generate interest-earning assets, including loans and securities, and thereby augment net interest income.

Excluding the ATM servicing fees, non-interest income for the third quarter of 2008 was $402,000 (or 28.4%) less than the year-earlier quarter. The drop includes $138,000 in income earned on a trading asset in 2007 that was sold before the end of the year. Gains on loan sales decreased $187,000 in comparing the two quarters; in late 2007, management decided to hold most new fixed-rate residential mortgage loan production on its balance sheet rather than sell the loans into the secondary market. In addition, the volume of reverse mortgages originated for sale has declined in 2008, due to economic conditions. Other loan-related fees also decreased by $199,000 comparing the two quarters, primarily due to a reduction in commercial loan prepayment penalties. Deposit service fees, however, increased in this three-month time frame by $82,000 (or 21.3%), largely from higher fees earned for checking products and cash management services provided to business customers.

Excluding the ATM servicing fees, non-interest income for the first nine months of 2008 was $532,000 (or 13.8%) less than the comparable 2007 period. This decline can partially be attributed to a $187,000 non-recurring gain on the sale of land in the first quarter of 2007, as well as $138,000 in income earned on trading assets in 2007. Regarding other items, gains on loan sales declined by $298,000, or 58.0%. Excluding reverse mortgages, the volume of fixed-rate residential mortgage loans sold into the secondary market dropped to $1.5 million in the first nine months of 2008, compared to $34.1 million in the comparable period of 2007. Other loan-related fees also decreased by $249,000 comparing the two year-to-date periods, primarily due to a reduction in commercial loan prepayment penalties. Deposit service fees increased by $212,000, or 19.4%, due primarily to increases in fees earned on checking and cash management products, while miscellaneous income gained $142,000 or 24.9% pursuant largely to an increase in non-deposit investment sales commissions.

Non-interest Expense

Non-interest expenses totaled $6.0 million for the three-month period ended September 30, 2008, a decrease of $249,000, or 4.0%, from the $6.2 million incurred in the same quarter in 2007. Non-interest expenses were $17.7 million in the first nine months of 2008, $1.8 million or 9.1% less than the total for the nine months ended September 30, 2007.

The largest contributor to the $249,000 decline in non-interest expenses between the third quarters of 2008 and 2007 was a $304,000 (or 8.4%) decrease in salaries and employee benefits. The Company instituted a number of benefit cost containment measures in January 2008, resulting in savings for employee retirement and medical insurance costs. In addition, loan origination cost deferrals (credits) under SFAS 91 accounting rules increased by $84,000, while stock incentive plan expense dropped $75,000. Excluding salaries and benefits, all other non-interest expenses for the third quarter of 2008 were $55,000, or 2.1%, greater than the third quarter of 2007. Other general and administrative expenses increased by $65,000, as $82,000 in increased deposit insurance premiums and increases in loan expenses more than offset a $64,000 decrease in insurance costs related to the ATM cash supplied business line. The FDIC covers insured deposits in the event of a bank failure, and maintains its deposit insurance fund by assessing member banks a deposit insurance premium. Recent bank failures have caused the fund to fall below the minimum balance required by law, forcing the FDIC to consider action to rebuild the fund by raising the premiums it assesses on member banks. Depending on the frequency and severity of bank failures, the increase in premiums could be significant and negatively affect our future earnings. Marketing expenses increased by $46,000 or 23.4% in comparing the two quarters, as the Company stepped up its newspaper advertising presence in the third quarter of 2008 in light of deteriorating economic conditions. However, there were reductions of $42,000 in data processing and $46,000 in amortization of intangible assets between the two quarterly periods. The Company reduced its data processing expenses by re-negotiating a contract with its core systems vendor.

Salaries and employee benefits expense represented $1.1 million of the total $1.8 million decrease in non-interest expense when comparing the nine-month periods ended September 30, 2008 and 2007. Overall, salaries and benefits decreased by 10.0% during these periods. In June of 2007, the Company reduced its staff by 8%, contributing significantly to a reduction of 5.9% in base salaries when comparing the two nine-month periods. The Company also instituted a number of benefit cost containment measures in January 2008, leading to nearly $300,000 of savings in employee retirement and medical insurance costs. Stock incentive plan expense also dropped by $307,000 comparing the two nine-month periods; the Company has recognized stock option expense using an accelerated method, which has resulted in lower expenses as the three to five year vesting periods beginning in 2006 are lapsing.

Excluding salaries and benefits, all other non-interest expenses for the nine months ended September 30, 2008 were $660,000, or 7.9%, less than the first nine months of 2007. An $110,000, or 16.9% decrease in professional fees was attributable primarily to declines in audit costs, consulting services and legal fees. Marketing and advertising expenses declined by 20.9% or $102,000; in 2007, the Company brought to market several new deposit and loan products. Amortization of a core deposit intangible asset originating from the 2005 acquisition of Chart Bank fell $136,000 from the comparable nine-month period in 2007, and will continue to decline at a lesser pace in future periods. Finally, other general and administrative expense dropped by $307,000 or 13.7% between the two nine-month periods. Within this category, various costs associated with operating the ATM cash management business decreased by $274,000. In addition, the Company absorbed a $176,000 non-recurring charge in the first quarter of 2007 representing the write-off of capitalized debt issuance costs in advance of its

November 2007 prepayment of $9.0 million of subordinated debt. These savings were offset somewhat by an increase of $242,000 in the provision for losses on unfunded loan commitments.

Income Taxes

Income tax expense of $541,000 recorded for the third quarter of 2008 resulted in an effective tax rate of 30.7%, compared to $467,000 and a 30.4% effective tax rate in the third quarter of 2007. Income tax expense of $1.7 million for the nine months ended September 30, 2008 resulted in an effective tax rate of 32.3%, while income tax expense over the same nine-month period in 2007 was $1.1 million, resulting in an effective tax rate of 30.0%.

The lower effective tax rate in the 2007 and 2008 periods was partially the result of favorable tax treatment of the gain on sale of certain assets, including bank-owned land. The lower effective tax rate in the third quarter of 2008 was offset by the negative effect on the Company’s deferred tax asset of a prospective change in state income tax rates. On July 3, 2008, the Commonwealth of Massachusetts enacted a law that included reducing the tax rate on net income applicable to financial institutions. The rate drops from the current rate of 10.5% to 10% for tax years beginning on January 1, 2010, 9.5% for tax years beginning on or after January 1, 2011, and to 9% for tax years beginning on or after January 1, 2012 and thereafter.

Liquidity and Capital Resources

The Company’s primary sources of funds are from deposits, borrowings, funds provided by operations, and the amortization, prepayments and maturities of loans, mortgage-backed securities and other investments. While scheduled payments from amortization of loans and mortgage-backed securities and maturing loans and investment securities are relatively predictable sources of funds, deposit flows and loan and mortgage-backed security prepayments can be greatly influenced by general interest rates, economic conditions and competition. The Company maintains excess funds in cash and short-term interest-bearing assets that provide additional liquidity. At September 30, 2008, cash and due from banks, short-term investments and debt securities maturing within one year totaled $75.0 million (excluding cash supplied to ATM customers) or 7.7% of total assets. In addition, with 90 days advance notice, the Company can request the return of all cash supplied to ATM customers, which totaled $24.8 million on September 30, 2008.

The Company borrows from the Federal Home Loan Bank of Boston (“FHLBB”) as a source of funds. As of September 30, 2008, based on qualifying collateral calculations as promulgated by the FHLBB, the Company had access to approximately $118.3 million of additional borrowing capacity. The Company also has access to smaller borrowing lines with the Federal Reserve Bank and a large national correspondent bank, aggregating to $13.8 million in total capacity as of September 30, 2008.

The Company uses its liquidity primarily to fund existing and future loan commitments, to fund maturing certificates of deposit and borrowings, to fund other deposit withdrawals, to invest in other interest-earning assets and to meet operating expenses. The Company anticipates that it will continue to have sufficient funds and alternative funding sources to meet its current commitments.

The following tables present information indicating various contractual obligations and commitments of the Company as of the dates indicated and the respective maturity dates:

Contractual Obligations:


	September 30, 2008
					More than		More than
					One Year		Three Years
			One Year		through Three		through Five		Over Five
	Total		or Less		Years		Years		Years
	(Dollars in thousands)
Federal Home Loan Bank advances⁽¹⁾	$	197,109	$	43,000	$	116,700	$	21,500	$	15,909
Operating leases ⁽²⁾		13,553		1,218		2,359		2,208		7,768
Non-qualified pension ⁽³⁾		12,212		2,945		2,139		1,683		5,445
Other contractual obligations⁽⁴⁾		8,114		2,855		4,658		601		—


Total contractual obligations	$	230,988	$	50,018	$	125,856	$	25,992	$	29,122


⁽¹⁾		Secured under a blanket security agreement on qualifying assets, principally 1-4 family residential mortgage loans. One advance in the amount of $10 million maturing in June, 2010 will become immediately payable if 3-month LIBOR rises above 6.0% (measured on a quarterly basis).

⁽²⁾		Represents non-cancelable operating leases for branch offices.

⁽³⁾		Pension obligations include expected payments under the Company’s Director Fee Continuation Plan and expected contributions to the Company’s supplemental executive retirement plans.

⁽⁴⁾		Represents contracts for technology services and employment agreements.

Loan Commitments:


	September 30, 2008
					More than		More than
					One Year		Three Years
			One Year		through Three		through Five		Over Five
	Total		or Less		Years		Years		Years
	(Dollars in thousands)
Commitments to grant loans ⁽¹⁾	$	13,965	$	13,965	$	—	$	—	$	—
Unused portion of commercial loan lines of credit		40,572		31,496		9,076		—		—
Unused portion of home equity lines of credit ⁽²⁾		46,680		—		—		—		46,680
Unused portion of construction loans ⁽³⁾		17,487		17,334		153		—		—
Unused portion of personal lines of credit ⁽⁴⁾		2,411		—		—		—		2,411
Commercial letters of credit		1,022		1,022		—		—		—


Total loan commitments	$	122,137	$	63,817	$	9,229	$	—	$	49,091


General: Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract, and generally have fixed expiration dates or other termination clauses.

⁽¹⁾		Commitments for loans are extended to customers for up to 180 days after which they expire. ⁽²⁾Unused portions of home equity lines of credit are available to the borrower for up to 10 years.

⁽³⁾		Unused portions of construction loans are available to the borrower for up to 2 years for development loans and up to 1 year for other construction loans.

⁽⁴⁾		Unused portion of checking overdraft lines of credit are available to customers in “good standing” indefinitely.

Minimum Regulatory Capital Requirements:

As of September 30, 2008, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since the notification that management believes have changed the Bank’s category. Prompt corrective action provisions are not applicable to bank holding companies. The Company’s and the Bank’s actual capital amounts and ratios as of September 30, 2008 and December 31, 2007 are also presented in this table:


											Minimum
											To Be Well
						Minimum					Capitalized Under
						Capital					Prompt Corrective
	Actual					Requirements					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
September 30, 2008:

Total capital to risk weighted assets:
Consolidated	$	80,007		11.7	%	$	54,529		8.0	%		N/A		N/A
Bank		71,899		10.6			54,532		8.0		$	68,165		10.0	%

Tier 1 capital to risk weighted assets:
Consolidated		72,987		10.7			27,265		4.0			N/A		N/A
Bank		64,879		9.5			27,266		4.0			40,899		6.0

Tier 1 capital to average assets:
Consolidated		72,987		7.8			37,598		4.0			N/A		N/A
Bank		64,879		6.9			37,596		4.0			46,995		5.0

December 31, 2007:

Total capital to risk weighted assets:
Consolidated	$	78,526		12.3	%	$	50,982		8.0	%		N/A		N/A
Bank		71,154		11.2			50,944		8.0		$	63,680		10.0	%

Tier 1 capital to risk weighted assets:
Consolidated		72,554		11.4			25,491		4.0			N/A		N/A
Bank		65,182		10.2			25,472		4.0			38,208		6.0

Tier 1 capital to average assets:
Consolidated		72,554		8.3			34,898		4.0			N/A		N/A
Bank		65,182		7.5			35,006		4.0			43,757		5.0

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The Company’s Asset/Liability Committee’s primary method for measuring and evaluating interest rate risk is income simulation analysis. This analysis considers the maturity and re-pricing characteristics of assets and liabilities, as well as the relative sensitivities of these balance sheet components over a range of interest rate scenarios. Interest rate scenarios tested generally include instantaneous rate shocks compared against static (or unchanged) rates. The simulation analysis is used to measure the exposure of net interest income to changes in interest rates over a specified time horizon, usually a two-year period.

The following table sets forth, as of September 30, 2008, the estimated changes in net interest income over the next twelve months comparing an unchanged (flat) rate scenario to projected results using various parallel shifts in market interest rates. These computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions and should not be relied upon as being indicative of actual future results.


	Percentage Change in Estimated
	Net Interest Income over 12
	months
200 basis point increase in rates		(8.08	)%
100 basis point increase in rates		(3.47	)%
Flat interest rates		—
100 basis point decrease in rates		1.29	%
200 basis point decrease in rates		(0.07	)%

The Company’s income simulation analysis contains important assumptions regarding the rate sensitivity of interest-bearing non-maturity deposit accounts. These assumptions are based on the Company’s past experience with the changes in rates paid on these non-maturity deposits coincident with changes in market interest rates. Rate sensitivities for several product groups are tied to changes in market interest rates and these sensitivities are also assumed to vary between upward and downward rate movements. For example, the Company assumes that rates on certain money market accounts would increase by 40 basis points for each 100 basis point increase in market interest rates, but would decrease by 20 basis points for each 100 basis point decrease in market interest rates. For each major product group, there are also assumptions regarding floors below which rates will not fall. There can be no assurance that the deposit pricing assumptions used in the simulation analysis will actually occur.

As indicated in the table above, the result of an immediate 100 basis point parallel increase in interest rates is estimated to decrease net interest income by 3.47% over a 12-month horizon, when compared to the unchanged rate scenario. For an immediate 200 basis point parallel increase in the level of interest rates, net interest income is estimated to decrease by 8.08% over a 12-month horizon, when compared against the unchanged rate scenario. The exposure of net interest income to rising rates as compared to an unchanged rate scenario results from the difference between anticipated increases in asset yields and somewhat more rapid increases in funding costs. The Company assumes that certain premium-rate NOW and money market deposit products, which have shown strong growth in 2008, bear 75% to 80% sensitivity to increases in market rates for simulation purposes. In addition, much of the Company’s asset growth in 2008 has been in fixed or adjustable rate loans, which by definition bear constraints to re-pricing opportunities should market rates move upward.

Compared to the unchanged rate scenario, the estimated change in net interest income over a 12-month horizon for a 100 basis point parallel decline in the level of interest rates is an increase of 1.29%, while for an immediate 200 basis point parallel decrease in the level of interest rates, net interest income is estimated to decline by 0.07%. Often in the past, interest rate decreases have resulted in a modeled favorable change in net interest income over a 12-month time horizon, because the Company’s funding costs tend to re-price more rapidly than do the yields on its earning assets. However, as short-term market interest rates have declined sharply over the past twelve months, Management believes rate floors on many non-maturity deposit accounts would come into effect for simulation

purposes. In addition, cash flow from prepayments of mortgage-related products and redemption of callable securities could increase significantly as market rates fall, exposing the Company to higher re-investment risk.

There are inherent shortcomings in income simulation, given the number and variety of assumptions that must be made in performing the analysis. The assumptions relied upon in making these calculations of interest rate sensitivity include the level of market interest rates, the shape of the yield curve, the degree to which certain assets and liabilities with similar maturities or periods to re-pricing react to changes in market interest rates, the degree to which non-maturity deposits react to changes in market rates, the expected prepayment rates on loans and mortgage-backed securities, the degree to which early withdrawals occur on certificates of deposit and the volume of other deposit flows. As such, although the analysis shown above provides an indication of the Company’s sensitivity to interest rate changes at a point in time, these estimates are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on the Company’s net interest income and will differ from actual results.

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures. The Company’s President and Chief Executive Officer, its Chief Financial Officer, and other members of its senior management team have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on such evaluation, the President and Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this report, were adequate and effective to provide reasonable assurance that information required to be disclosed by the Benjamin Franklin Bancorp, including its consolidated subsidiaries, in reports that are filed or submitted under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.

The effectiveness of a system of disclosure controls and procedures is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Due to such inherent limitations, there can be no assurance that any system of disclosure controls and procedures will be successful in preventing all errors or fraud, or in making all material information known in a timely manner to the appropriate levels of management.

(b) Changes in Internal Controls Over Financial Reporting. There were no changes in our internal control over financial reporting during the quarter ended September 30, 2008 that have materially affected, or that are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Benjamin Franklin Bancorp is not involved in any legal proceedings other than routine legal proceedings occurring the ordinary course of business. Management believes that those routine legal proceedings involve, in the aggregate, amounts that are immaterial to the financial condition and results of operations of Benjamin Franklin Bancorp.

Item 1A. Risk Factors That May Affect Future Results.

There are no material changes from any of the risk factors previously disclosed in the Company’s 2007 Annual Report on Form 10-K, other than the addition of the following risk factor:

Recent disruptions in the financial markets, particularly if economic conditions worsen considerably, could have an adverse effect on our financial position or results of operations.

There have been disruptions of historic proportions in the financial system in the United States and globally during the past year. Dramatic declines in the national housing market, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. Concerns regarding the financial strength of financial institutions have led to distress in credit markets and issues relating to liquidity amongst financial institutions. Since the beginning of the third quarter of 2008, this situation has worsened significantly.

The United States government has taken unprecedented steps recently to try to stabilize the financial system, including investing in financial institutions under the umbrella of its October 2008 Troubled Asset Relief Program. Our financial condition and results of operations could be adversely effected by further disruptions in financial markets, a prolonged recessionary period, continuing concerns regarding the capital and liquidity positions of financial institutions and uncertainties regarding further governmental action in an effort to stabilize the industry, or provide additional regulation of the industry.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

	(a)		Unregistered Sale of Equity Securities. Not applicable.

	(b)		Use of Proceeds. Not applicable.

	(c)		Repurchases of Our Equity Securities. On November 29, 2007, the Company’s Board of Directors authorized a repurchase plan, permitting the repurchase of up to a maximum of 394,200 shares. To date, total repurchases under the plan were 219,400 shares at an average price of $13.62 per share. The Company repurchased no shares in the third quarter of 2008.

Item 3. Defaults on Senior Securities.

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

The following exhibits, required by Item 601 of Regulation S-K, are filed as part of this Quarterly Report on Form 10-Q. Exhibit numbers, where applicable, in the left column correspond to those of Item 601 of Regulation S-K.


Exhibit No.	Description	Footnotes
2.1	Plan of Conversion of Benjamin Franklin Bancorp.		3

2.2	Agreement and Plan of Merger among Benjamin Franklin Bancorp, M.H.C., Benjamin Franklin Savings Bank and Chart Bank, a Cooperative Bank, dated as of September 1, 2004.		2

3.1	Articles of Organization of Benjamin Franklin Bancorp, Inc.		2

3.2	Bylaws of Benjamin Franklin Bancorp, Inc.		7


Exhibit No.	Description	Footnotes
4.1	Form of Common Stock Certificate of Benjamin Franklin Bancorp, Inc.			5

10.1.1	Form of Amended and Restated Employment Agreement with Thomas R. Venables. *			12

10.1.2	Form of Amended and Restated Employment Agreement with Claire S. Bean. *			12

10.2	Form of Amended and Restated Change in Control Agreement with three Executive Officers and two other officers, providing one year’s severance to Michael J. Piemonte and two other officers, and two years’ severance to Mariane E. Broadhurst and Rose M. Buckley. The only differences among the several agreements are the name and contact information of the officer who is party to the agreement and the number of years of severance provided. *			12

10.3	Form of Benjamin Franklin Bank Benefit Restoration Plan. *			2

10.4.1	Amended and Restated Supplemental Executive Retirement Agreement between Benjamin Franklin Bank and Thomas R. Venables dated as of March 26, 2008. *			12

10.4.2	Amended and Restated Supplemental Executive Retirement Agreement between Benjamin Franklin Bank and Claire S. Bean dated as of March 26, 2008. *			12

10.5	Benjamin Franklin Bancorp Director Fee Continuation Plan. *			4

10.6	Benjamin Franklin Bancorp Employee Salary Continuation Plan. *			2

10.7.1	Payments and Waiver Agreement among Richard E. Bolton, Jr., Benjamin Franklin Bancorp, M.H.C., Benjamin Franklin Savings Bank and Chart Bank, a Cooperative Bank, dated as of September 1, 2004. *			2

10.7.2	Consulting and Noncompetition Agreement between Richard E. Bolton, Jr. and Benjamin Franklin Bancorp, M.H.C., dated as of September 1, 2004. *			2

10.8	Benjamin Franklin Bancorp, Inc. 2006 Stock Incentive Plan *			9

10.8.1	Form of Incentive Stock Option Agreement *			10

10.8.2	Form of Non-Statutory Stock Option Agreement (Officer) *			10

10.8.3	Form of Non-Statutory Stock Option Agreement (Director) *			10

10.8.4	Form of Restricted Stock Agreement (Officer) *			10

10.8.5	Form of Restricted Stock Agreement (Director) *			10

10.9	Purchase and Sale Agreement dated December 19, 2006.			11

11	See Note 3 to the Condensed Consolidated Financial Statements for a discussion of earnings per share.		—

21	Subsidiaries of Registrant			8

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.			1

31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.			1

32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.			1

32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.			1

Relates to compensation.

	1.		Filed herewith.

	2.		Incorporated by reference to the Registrant’s Registration Statement on Form S-1, File No. 333-121154, filed on December 10, 2004.

	3.		Incorporated by reference to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1, File No. 333-121154, filed on January 24, 2005.

	4.		Incorporated by reference to the Registrant’s Registration Statement on Form S-4, File No. 333-121608, filed on December 23, 2004.

	5.		Incorporated by reference to the Registrant’s Registration Statement on Form 8-A, File No. 000-51194, filed on March 9, 2005.

	6.		Incorporated by reference to the Registrant’s Annual Report on Form 10-K, filed on March 29, 2005.

	7.		Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on March 3, 2006.

	8.		Incorporated by reference to the Registrant’s Annual Report on Form 10-K, filed on March 28, 2006

	9.		Incorporated by reference to Appendix B to the Registrant’s Proxy Statement for the 2006 Annual Meeting of Stockholders, filed on March 28, 2006.

	10.		Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q/A, filed on August 18, 2006.

	11.		Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on December 26, 2006.

	12.		Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, filed on May 8, 2008.


	Benjamin Franklin Bancorp, Inc.
Date: November 7, 2008	By:	/s/ Thomas R. Venables
		Thomas R. Venables
		President and Chief Executive Officer


Date: November 7, 2008	By:	/s/ Claire S. Bean
		Claire S. Bean
		Treasurer and Chief Financial Officer

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	Page
PART I – FINANCIAL INFORMATION

Item 1. Financial Statements		3

Consolidated Balance Sheets at September 30, 2008 and December 31, 2007		3

Consolidated Statements of Income for the three and nine months ended September 30, 2008 and 2007		4

Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2008 and 2007		5

Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007		6

Notes to Condensed Consolidated Financial Statements		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		11

Item 3. Quantitative and Qualitative Disclosures about Market Risk		30

Item 4. Controls and Procedures		31

PART II – OTHER INFORMATION

Item 1. Legal Proceedings		32

Item 1A Risk Factors		32

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		32

Item 3. Defaults on Senior Securities		32

Item 4. Submission of Matters to a Vote of Security Holders		32

Item 5. Other Information		32

Item 6. Exhibits		32

SIGNATURES		35
EX-31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EX-31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EX-32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


Exhibit
No.		Item
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.