##### Table of Contents



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
 OR
 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.
  Massachusetts
    
    04-3336598(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)58 Main Street, Franklin, MA
    
    02038(Address of Principal Executive Offices)
    
    (Zip Code)
 (617) 528-7000
 
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
    
    Smaller Reporting Company o
 o þ




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##### 



PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Consolidated Balance Sheets at September 30, 2008 and December 31, 2007
    
    
    3Consolidated Statements of Income for the three and nine months ended
September 30, 2008 and 2007
    
    
    4Consolidated Statements of Changes in Stockholders Equity for the nine months ended
September 30, 2008 and 2007
    
    
    5Consolidated Statements of Cash Flows for the nine months ended
September 30, 2008 and 2007
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    31PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    32Item 1A Risk Factors
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults on Senior Securities
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    32Item 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    32SIGNATURES
    
    
    35EX-31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002EX-31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002EX-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 2002EX-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
  2




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##### Table of Contents



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)ASSETSCash and due from banks
    
    $
    13,450
    
    
    $
    12,226Cash supplied to ATM customers
    
    
    24,784
    
    
    
    42,002Short-term investments
    
    
    12,818
    
    
    
    10,363Total cash and cash equivalents
    
    
    51,052
    
    
    
    64,591Securities available for sale, at fair value
    
    
    181,376
    
    
    
    156,761Restricted equity securities, at cost
    
    
    12,986
    
    
    
    11,591Total securities
    
    
    194,362
    
    
    
    168,352Loans:Residential real estate
    
    
    229,981
    
    
    
    188,654Commercial real estate
    
    
    179,521
    
    
    
    168,649Construction
    
    
    48,919
    
    
    
    55,763Commercial
    
    
    178,704
    
    
    
    159,233Consumer
    
    
    41,783
    
    
    
    40,436Total loans, gross
    
    
    678,908
    
    
    
    612,735Allowance for loan losses
    
    
    (6,853
    )
    
    
    (5,789
    )Loans, net
    
    
    672,055
    
    
    
    606,946Premises and equipment, net
    
    
    5,049
    
    
    
    5,410Accrued interest receivable
    
    
    3,803
    
    
    
    3,648Bank-owned life insurance
    
    
    11,016
    
    
    
    10,700Goodwill
    
    
    33,763
    
    
    
    33,763Other intangible assets
    
    
    2,057
    
    
    
    2,474Other assets
    
    
    7,580
    
    
    
    7,394$
    980,737
    
    
    $
    903,278LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Regular savings accounts
    
    $
    81,338
    
    
    $
    79,167Money market accounts
    
    
    141,566
    
    
    
    110,544NOW accounts
    
    
    70,618
    
    
    
    52,000Demand deposit accounts
    
    
    112,786
    
    
    
    113,023Time deposit accounts
    
    
    254,437
    
    
    
    262,634Total deposits
    
    
    660,745
    
    
    
    617,368Short-term borrowings
    
    
    8,000
    
    
    
    2,500Long-term debt
    
    
    189,109
    
    
    
    162,784Deferred gain on sale of premises
    
    
    3,355
    
    
    
    3,531Other liabilities
    
    
    13,014
    
    
    
    9,651Total liabilities
    
    
    874,223
    
    
    
    795,834Common 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
    
    
    
    77,370Retained earnings
    
    
    40,256
    
    
    
    38,515Unearned compensation
    
    
    (6,515
    )
    
    
    (7,094
    )Accumulated other comprehensive loss
    
    
    (2,292
    )
    
    
    (1,347
    )Total stockholders equity
    
    
    106,514
    
    
    
    107,444$
    980,737
    
    
    $
    903,278
  3




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##### Table of Contents



BENJAMIN FRANKLIN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Dollars in thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited)
    
    
    (Unaudited)Interest and dividend income:Loans, including fees
    
    $
    10,299
    
    
    $
    9,856
    
    
    $
    30,152
    
    
    $
    29,273Debt securities
    
    
    1,884
    
    
    
    1,904
    
    
    
    5,808
    
    
    
    5,543Dividends
    
    
    121
    
    
    
    180
    
    
    
    405
    
    
    
    512Short-term investments
    
    
    59
    
    
    
    141
    
    
    
    397
    
    
    
    644Total interest and dividend income
    
    
    12,363
    
    
    
    12,081
    
    
    
    36,762
    
    
    
    35,972Interest expense:Interest on deposits
    
    
    3,193
    
    
    
    4,367
    
    
    
    10,462
    
    
    
    12,832Interest on short-term borrowings
    
    
    4
    
    
    
    75
    
    
    
    43
    
    
    
    222Interest on long-term debt
    
    
    2,241
    
    
    
    1,873
    
    
    
    6,531
    
    
    
    5,274Total interest expense
    
    
    5,438
    
    
    
    6,315
    
    
    
    17,036
    
    
    
    18,328Net interest income
    
    
    6,925
    
    
    
    5,766
    
    
    
    19,726
    
    
    
    17,644Provision for loan losses
    
    
    447
    
    
    
    57
    
    
    
    1,128
    
    
    
    469Net interest income, after provision for loan losses
    
    
    6,478
    
    
    
    5,709
    
    
    
    18,598
    
    
    
    17,175Other income:ATM servicing fees
    
    
    272
    
    
    
    663
    
    
    
    937
    
    
    
    1,982Deposit servicing fees
    
    
    467
    
    
    
    385
    
    
    
    1,305
    
    
    
    1,093Other loan-related fees
    
    
    98
    
    
    
    297
    
    
    
    521
    
    
    
    770Gain on sale of loans, net
    
    
    30
    
    
    
    217
    
    
    
    216
    
    
    
    514Gain on sale of premises, net
    
    
    63
    
    
    
    63
    
    
    
    189
    
    
    
    377Gain on trading assets
    
    
    
    
    
    
    138
    
    
    
    
    
    
    
    138Gain on sale of CSSI customer list
    
    
    
    
    
    
    
    
    
    
    92
    
    
    
    100Income from bank-owned life insurance
    
    
    101
    
    
    
    105
    
    
    
    295
    
    
    
    300Miscellaneous
    
    
    255
    
    
    
    211
    
    
    
    713
    
    
    
    571Total other income
    
    
    1,286
    
    
    
    2,079
    
    
    
    4,268
    
    
    
    5,845Operating expenses:Salaries and employee benefits
    
    
    3,327
    
    
    
    3,631
    
    
    
    9,963
    
    
    
    11,073Occupancy and equipment
    
    
    871
    
    
    
    844
    
    
    
    2,657
    
    
    
    2,587Data processing
    
    
    559
    
    
    
    601
    
    
    
    1,728
    
    
    
    1,803Professional fees
    
    
    184
    
    
    
    179
    
    
    
    541
    
    
    
    651Marketing and advertising
    
    
    205
    
    
    
    159
    
    
    
    386
    
    
    
    488Amortization of intangible assets
    
    
    151
    
    
    
    197
    
    
    
    483
    
    
    
    619Other general and administrative
    
    
    704
    
    
    
    639
    
    
    
    1,933
    
    
    
    2,240Total operating expenses
    
    
    6,001
    
    
    
    6,250
    
    
    
    17,691
    
    
    
    19,461Income before income taxes
    
    
    1,763
    
    
    
    1,538
    
    
    
    5,175
    
    
    
    3,559Provision for income taxes
    
    
    541
    
    
    
    467
    
    
    
    1,670
    
    
    
    1,067Net income
    
    $
    1,222
    
    
    $
    1,071
    
    
    $
    3,505
    
    
    $
    2,492Weighted-average shares outstanding:Basic
    
    
    7,286,451
    
    
    
    7,622,441
    
    
    
    7,300,010
    
    
    
    7,700,171Diluted
    
    
    7,355,906
    
    
    
    7,666,939
    
    
    
    7,369,376
    
    
    
    7,736,356Earnings per share:Basic
    
    $
    0.17
    
    
    $
    0.14
    
    
    $
    0.48
    
    
    $
    0.32Diluted
    
    $
    0.17
    
    
    $
    0.14
    
    
    $
    0.48
    
    
    $
    0.31
  4




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##### Table of Contents



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
    
    
    EquityBalance at December 31, 2006
    
    
    8,249,802
    
    
    $
    
    
    
    $
    82,909
    
    
    $
    36,634
    
    
    $
    (7,938
    )
    
    $
    (2,200
    )
    
    $
    109,405Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,492
    
    
    
    
    
    
    
    
    
    
    
    2,492Net unrealized loss on securities
available for
sale, net of reclassification
adjustment and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (160
    )
    
    
    (160
    )FASB Statement No. 158 tax effect
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    101Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,433Common stock repurchased
    
    
    (326,200
    )
    
    
    
    
    
    
    (4,628
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,628
    )Restricted stock expense
    
    
    47,615
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    487
    
    
    
    
    
    
    
    487Stock option expense
    
    
    
    
    
    
    
    
    
    
    547
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    547Release of ESOP stock
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    139
    
    
    
    
    
    
    
    174Dividends declared ($.16 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,353
    )
    
    
    
    
    
    
    
    
    
    
    (1,353
    )Balance at September 30, 2007
    
    
    7,971,217
    
    
    $
    
    
    
    $
    78,863
    
    
    $
    37,773
    
    
    $
    (7,312
    )
    
    $
    (2,259
    )
    
    $
    107,065Balance at December 31, 2007
    
    
    7,856,172
    
    
    $
    
    
    
    $
    77,370
    
    
    $
    38,515
    
    
    $
    (7,094
    )
    
    $
    (1,347
    )
    
    $
    107,444Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,505
    
    
    
    
    
    
    
    
    
    
    
    3,505Net unrealized loss on securities
available for
sale, net of tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (945
    )
    
    
    (945
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,560Common 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
    
    
    
    
    
    
    
    461Forfeiture of restricted stock
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    Stock option expense
    
    
    
    
    
    
    
    
    
    
    265
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    265Release of ESOP stock
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    138
    
    
    
    
    
    
    
    156Dividends 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
  5




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##### Table of Contents



BENJAMIN FRANKLIN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 (Unaudited)
 Nine Months Ended September 30,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    3,505
    
    
    $
    2,492Adjustments 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
    
    
    
    91Amortization of deferred gain on sale of premises
    
    
    (189
    )
    
    
    (190
    )Gain on sale of premises, net
    
    
    
    
    
    
    (187
    )Provision for loan losses
    
    
    1,128
    
    
    
    469Accretion of deposit and borrowing discounts, net
    
    
    (12
    )
    
    
    (7
    )Amortization of mortgage servicing rights
    
    
    199
    
    
    
    225Depreciation expense
    
    
    611
    
    
    
    688Amortization of intangible assets
    
    
    483
    
    
    
    619Stock-based compensation and ESOP
    
    
    882
    
    
    
    1,208Income 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
    
    
    
    41,818Increase 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
    
    
    
    48,182Purchases
    
    
    (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
    
    
    
    
    
    
    62,122Proceeds from sales of premises and equipment
    
    
    
    
    
    
    821Purchases 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
   6




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##### Table of Contents



BENJAMIN FRANKLIN BANCORP, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
 (Dollars in thousands)
 (Unaudited)
 Nine Months Ended September 30,2008
    
    
    2007Cash 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
    
    
    
    27,000Repayment 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
    
    
    
    72,595Cash and cash equivalents at end of period
    
    $
    51,052
    
    
    $
    70,559Supplemental cash flow information:Interest paid on deposits
    
    $
    10,492
    
    
    $
    12,977Interest paid on borrowings
    
    
    6,522
    
    
    
    5,429Income taxes paid
    
    
    2,476
    
    
    
    970Loans held for sale transferred to loans, net
    
    
    
    
    
    
    1,063Loans held for sale transferred to other assets
    
    
    
    
    
    
    545Loans transferred to other assets
    
    
    
    
    
    
    225Securities transferred from held-to-maturity to available for sale
    
    
    
    
    
    
    26
  7




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##### Table of Contents



BENJAMIN FRANKLIN BANCORP, INC. AND SUBSIDIARY
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1.
    
    Basis of presentation and consolidationThe 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 PronouncementsIn 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
 8




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##### Table of Contents



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.
    
    CommitmentsOutstanding 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 shareBasic 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 LiabilitiesEffective 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
 9




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##### Table of Contents



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, 2008Assets atLevel 1
    
    Level 2
    
    Level 3
    
    Fair Value(Dollars in thousands)AssetsSecurities available for sale
    
    $
    
    
    
    $
    181,376
    
    
    $
    
    
    
    $
    181,376Total 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:
 10




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##### Table of Contents



Quarter endedSeptember 30, 2008
    
    September 30, 2008TotalLevel 1
    
    Level 2
    
    Level 3
    
    Gains/(Losses)(Dollars in thousands)AssetsImpaired 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
  Forward-Looking Statements
  Recent Developments
  Emergency Economic Stabilization Act of 2008
      FDIC Temporary Liquidity Guarantee Program
  11




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##### Table of Contents



12




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##### Table of Contents



Critical Accounting Policies
  Comparison of Financial Condition at September 30, 2008 and December 31, 2007
 Overview
  Investment Activities
   13




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##### Table of Contents



September 30,
    
    
    December 31,2008
    
    
    2007Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value(Dollars in thousands)Securities available for sale:Government-sponsored
enterprise obligations
    
    $
    92,141
    
    
    $
    92,072
    
    
    $
    85,972
    
    
    $
    86,178Municipal obligations
    
    
    
    
    
    
    
    
    
    
    1,206
    
    
    
    1,20292,141
    
    
    
    92,072
    
    
    
    87,178
    
    
    
    87,380Mortgage-backed securities
    
    
    91,671
    
    
    
    89,304
    
    
    
    70,839
    
    
    
    69,381Total debt securities
    
    
    183,812
    
    
    
    181,376
    
    
    
    158,017
    
    
    
    156,761Total available for sale securities
    
    $
    183,812
    
    
    $
    181,376
    
    
    $
    158,017
    
    
    $
    156,761Restricted equity securities:Federal Home Loan Bank of Boston stock
    
    $
    10,505
    
    
    $
    10,505
    
    
    $
    9,110
    
    
    $
    9,110Access Capital Strategies
Community Investment Fund
    
    
    1,965
    
    
    
    1,965
    
    
    
    1,965
    
    
    
    1,965SBLI & DIF stock
    
    
    516
    
    
    
    516
    
    
    
    516
    
    
    
    516Total restricted equity securities
    
    $
    12,986
    
    
    $
    12,986
    
    
    $
    11,591
    
    
    $
    11,591
  September 30,2008Amortized
    
    
    FairCost
    
    
    Value(Dollars in thousands)Securities available for sale:Federal Home Loan Banks
    
    $
    45,890
    
    
    $
    45,848Federal Farm Credit Banks
    
    
    10,915
    
    
    
    10,922Federal National Mortgage Association
    
    
    15,559
    
    
    
    15,541Federal Home Loan Mortgage Corporation
    
    
    19,777
    
    
    
    19,761Government-sponsored enterprise obligations
    
    
    92,141
    
    
    
    92,072Government National Mortgage Association
    
    $
    38
    
    
    $
    38Federal National Mortgage Association
    
    
    47,018
    
    
    
    46,320Federal Home Loan Mortgage Corporation
    
    
    44,615
    
    
    
    42,946Mortgage-backed securities
    
    
    91,671
    
    
    
    89,304Total debt securities
    
    
    183,812
    
    
    
    181,376Total available for sale securities
    
    $
    183,812
    
    
    $
    181,376
 14




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##### Table of Contents



Lending Activities
  September 30, 2008
    
    
    December 31, 2007Amount
    
    
    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
    
    
    
    
    
    
    
    925Allowance for loan losses
    
    
    (6,853
    )
    
    
    
    
    
    
    (5,789
    )Total loans, net
    
    $
    672,055
    
    
    
    
    
    
    $
    606,946
 Non-performing Assets
  15




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##### Table of Contents



September 30, 2008
    
    
    December 31, 2007(Dollars in thousands)Non-accrual loans:Residential mortgage
    
    $
    1,208
    
    
    $
    712Commercial mortgage
    
    
    4,972
    
    
    
    658Construction
    
    
    1,945
    
    
    
    Commercial
    
    
    567
    
    
    
    Consumer and other
    
    
    116
    
    
    
    228Total non-accrual loans
    
    $
    8,808
    
    
    $
    1,598Loans greater than 90 days delinquent
and still accruing:
    
    $
    
    
    
    $
    $
    
    
    
    $
    Total non-performing loans and assets
    
    $
    8,808
    
    
    $
    1,598Total 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
    %
  ;
  Allowance for Loan Losses
  16




---



##### Table of Contents



At September 30,
    
    

At
December 31,2008
    
    
    2007Percent
    
    
    
    
    
    
    
    
    
    
    Percentof Loans
    
    
    
    
    
    
    
    
    
    
    of LoansLoan
    
    
    in Each
    
    
    
    
    
    
    Loan
    
    
    in EachAllowance
    
    
    Balances
    
    
    Category to
    
    
    Allowance
    
    
    Balances
    
    
    Category tofor Loan
    
    
    by
    
    
    to Total
    
    
    for Loan
    
    
    by
    
    
    to TotalLosses
    
    
    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. 17




---



##### Table of Contents




    
    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.
   18




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Balance at beginning of period
    
    $
    6,431
    
    
    $
    5,710
    
    
    $
    5,789
    
    
    $
    5,337Charge-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
    
    
    
    11Consumer loans
    
    
    5
    
    
    
    7
    
    
    
    21
    
    
    
    31Total recoveries
    
    
    6
    
    
    
    13
    
    
    
    34
    
    
    
    42Net charge-offs
    
    
    (25
    )
    
    
    (154
    )
    
    
    (64
    )
    
    
    (193
    )Provision for loan losses
    
    
    447
    
    
    
    57
    
    
    
    1,128
    
    
    
    469Balance at end of period
    
    $
    6,853
    
    
    $
    5,613
    
    
    $
    6,853
    
    
    $
    5,613Ratios: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
    %
  Deposits
  19




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##### Table of Contents



September 30,
    
    
    % of
    
    
    December 31,
    
    
    % of2008
    
    
    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
    %
  Borrowed Funds
  Stockholders Equity
  Comparison of Operating Results for the Three and Nine Months Ended September 30, 2008 and 2007
  20




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##### Table of Contents



Analysis of Net Interest Income
   Three Months Ended September 30,2008
    
    
    2007Average
    
    
    
    
    
    
    
    
    
    
    AverageOutstanding
    
    
    
    
    
    
    
    
    
    
    OutstandingBalance
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    126,353Total assets
    
    $
    975,780
    
    
    
    
    
    
    
    
    
    
    $
    907,940Interest-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
    
    
    
    
    
    
    
    
    
    
    
    129,842Total liabilities
    
    
    869,261
    
    
    
    
    
    
    
    
    
    
    
    800,250Equity
    
    
    106,519
    
    
    
    
    
    
    
    
    
    
    
    107,690Total liabilities and equity
    
    $
    975,780
    
    
    
    
    
    
    
    
    
    
    $
    907,940Net interest income
    
    
    
    
    
    $
    6,925
    
    
    
    
    
    
    
    
    
    
    $
    5,766Net interest rate spread (2)
    
    
    
    
    
    
    
    
    
    
    2.66
    %
    
    
    
    
    
    
    
    
    
    
    2.39
    %Net interest-earning assets (3)
    
    $
    137,309
    
    
    
    
    
    
    
    
    
    
    $
    111,179Net 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. 21




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##### Table of Contents



Nine Months Ended September 30,2008
    
    
    2007Average
    
    
    
    
    
    
    
    
    
    
    AverageOutstanding
    
    
    
    
    
    
    
    
    
    
    OutstandingBalance
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    114,858Total assets
    
    $
    959,087
    
    
    
    
    
    
    
    
    
    
    $
    903,959Interest-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
    
    
    
    
    
    
    
    
    
    
    
    131,359Total liabilities
    
    
    851,858
    
    
    
    
    
    
    
    
    
    
    
    795,065Equity
    
    
    107,229
    
    
    
    
    
    
    
    
    
    
    
    108,894Total liabilities and equity
    
    $
    959,087
    
    
    
    
    
    
    
    
    
    
    $
    903,959Net interest income
    
    
    
    
    
    $
    19,726
    
    
    
    
    
    
    
    
    
    
    $
    17,644Net interest rate spread (2)
    
    
    
    
    
    
    
    
    
    
    2.53
    %
    
    
    
    
    
    
    
    
    
    
    2.36
    %Net interest-earning assets (3)
    
    $
    136,188
    
    
    
    
    
    
    
    
    
    
    $
    125,395Net 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.  22




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Three Months Ended September 30,2008 vs. 2007Increase (Decrease)Due to
    
    
    TotalIncreaseVolume
    
    
    Rate
    
    
    (Decrease)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    1,180
    
    
    $
    (737
    )
    
    $
    443Securities
    
    
    303
    
    
    
    (382
    )
    
    
    (79
    )Short-term investments
    
    
    (19
    )
    
    
    (63
    )
    
    
    (82
    )Total interest-earning assets
    
    
    1,464
    
    
    
    (1,182
    )
    
    
    282Interest-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
    )
    
    
    297Total interest-bearing liabilities
    
    
    572
    
    
    
    (1,449
    )
    
    
    (877
    )Change in net interest income
    
    $
    892
    
    
    $
    267
    
    
    $
    1,159
 Nine Months Ended September 30,2008 vs. 2007Increase (Decrease)Due to
    
    
    TotalIncreaseVolume
    
    
    Rate
    
    
    (Decrease)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    2,004
    
    
    $
    (1,125
    )
    
    $
    879Securities
    
    
    821
    
    
    
    (663
    )
    
    
    158Short-term investments
    
    
    176
    
    
    
    (423
    )
    
    
    (247
    )Total interest-earning assets
    
    
    3,001
    
    
    
    (2,211
    )
    
    
    790Interest-bearing liabilities:Savings accounts
    
    
    (5
    )
    
    
    (59
    )
    
    
    (64
    )Money market accounts
    
    
    414
    
    
    
    (784
    )
    
    
    (370
    )NOW accounts
    
    
    322
    
    
    
    (96
    )
    
    
    226Certificates of deposit
    
    
    (684
    )
    
    
    (1,478
    )
    
    
    (2,162
    )Total deposits
    
    
    47
    
    
    
    (2,417
    )
    
    
    (2,370
    )Borrowings
    
    
    1,344
    
    
    
    (266
    )
    
    
    1,078Total interest-bearing liabilities
    
    
    1,391
    
    
    
    (2,683
    )
    
    
    (1,292
    )Change in net interest income
    
    $
    1,610
    
    
    $
    472
    
    
    $
    2,082
   23




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24




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##### Table of Contents



Provision for Loan Losses
   Non-interest Income
    25




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##### Table of Contents



Non-interest Expense
     26




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##### Table of Contents



Income Taxes
   Liquidity and Capital Resources
     27




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##### Table of Contents



Contractual Obligations:
 September 30, 2008More than
    
    
    More thanOne Year
    
    
    Three YearsOne Year
    
    
    through Three
    
    
    through Five
    
    
    Over FiveTotal
    
    
    or Less
    
    
    Years
    
    
    Years
    
    
    Years(Dollars in thousands)Federal Home Loan Bank advances(1)
    
    $
    197,109
    
    
    $
    43,000
    
    
    $
    116,700
    
    
    $
    21,500
    
    
    $
    15,909Operating leases (2)
    
    
    13,553
    
    
    
    1,218
    
    
    
    2,359
    
    
    
    2,208
    
    
    
    7,768Non-qualified pension (3)
    
    
    12,212
    
    
    
    2,945
    
    
    
    2,139
    
    
    
    1,683
    
    
    
    5,445Other 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, 2008More than
    
    
    More thanOne Year
    
    
    Three YearsOne Year
    
    
    through Three
    
    
    through Five
    
    
    Over FiveTotal
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,680Unused portion of construction loans (3)
    
    
    17,487
    
    
    
    17,334
    
    
    
    153
    
    
    
    
    
    
    
    Unused portion of personal lines of credit (4)
    
    
    2,411
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,411Commercial 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. 28




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Minimum Regulatory Capital Requirements:
  MinimumTo Be WellMinimum
    
    Capitalized UnderCapital
    
    Prompt CorrectiveActual
    
    Requirements
    
    Action ProvisionsAmount
    
    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/ABank
    
    
    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/ABank
    
    
    64,879
    
    
    
    9.5
    
    
    
    27,266
    
    
    
    4.0
    
    
    
    40,899
    
    
    
    6.0Tier 1 capital to average assets:Consolidated
    
    
    72,987
    
    
    
    7.8
    
    
    
    37,598
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    64,879
    
    
    
    6.9
    
    
    
    37,596
    
    
    
    4.0
    
    
    
    46,995
    
    
    
    5.0December 31, 2007:Total capital to risk weighted assets:Consolidated
    
    $
    78,526
    
    
    
    12.3
    %
    
    $
    50,982
    
    
    
    8.0
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    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/ABank
    
    
    65,182
    
    
    
    10.2
    
    
    
    25,472
    
    
    
    4.0
    
    
    
    38,208
    
    
    
    6.0Tier 1 capital to average assets:Consolidated
    
    
    72,554
    
    
    
    8.3
    
    
    
    34,898
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    65,182
    
    
    
    7.5
    
    
    
    35,006
    
    
    
    4.0
    
    
    
    43,757
    
    
    
    5.0
 29




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
   Percentage Change in EstimatedNet Interest Income over 12months200 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
    )%
    30




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##### Table of Contents



Item 4. Controls and Procedures.
 (a) Evaluation of Disclosure Controls and Procedures.
  Changes in Internal Controls Over Financial Reporting
 31




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A.
Risk Factors That May Affect Future Results.
  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.
   
 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.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
  Exhibit No.
    
    Description
    Footnotes2.1
    
    Plan of Conversion of Benjamin Franklin Bancorp.
    
    
    32.2
    
    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.
    
    
    23.1
    
    Articles of Organization of Benjamin Franklin Bancorp, Inc.
    
    
    23.2
    
    Bylaws of Benjamin Franklin Bancorp, Inc.
    
    
    7
 32




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##### Table of Contents



Exhibit No.
    
    Description
    Footnotes4.1
    
    Form of Common Stock Certificate of Benjamin Franklin Bancorp, Inc.
    
    
    510.1.1
    
    Form of Amended and Restated Employment Agreement with Thomas R.
Venables. *
    
    
    1210.1.2
    
    Form of Amended and Restated Employment Agreement with Claire S.
Bean. *
    
    
    1210.2
    
    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. *
    
    
    1210.3
    
    Form of Benjamin Franklin Bank Benefit Restoration Plan. *
    
    
    210.4.1
    
    Amended and Restated Supplemental Executive Retirement Agreement
between Benjamin Franklin Bank and Thomas R. Venables dated as of
March 26, 2008. *
    
    
    1210.4.2
    
    Amended and Restated Supplemental Executive Retirement Agreement
between Benjamin Franklin Bank and Claire S. Bean dated as of
March 26, 2008. *
    
    
    1210.5
    
    Benjamin Franklin Bancorp Director Fee Continuation Plan. *
    
    
    410.6
    
    Benjamin Franklin Bancorp Employee Salary Continuation Plan. *
    
    
    210.7.1
    
    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.
*
    
    
    210.7.2
    
    Consulting and Noncompetition
Agreement between Richard E. Bolton, Jr. and Benjamin Franklin
Bancorp, M.H.C., dated as of September 1, 2004. *
    
    
    210.8
    
    Benjamin Franklin Bancorp, Inc. 2006 Stock Incentive Plan *
    
    
    910.8.1
    
    Form of Incentive Stock Option Agreement *
    
    
    1010.8.2
    
    Form of Non-Statutory Stock Option Agreement (Officer) *
    
    
    1010.8.3
    
    Form of Non-Statutory Stock Option Agreement (Director) *
    
    
    1010.8.4
    
    Form of Restricted Stock Agreement (Officer) *
    
    
    1010.8.5
    
    Form of Restricted Stock Agreement (Director) *
    
    
    1010.9
    
    Purchase and Sale Agreement dated December 19, 2006.
    
    
    1111
    
    See Note 3 to the Condensed
Consolidated Financial Statements for a discussion of earnings per share.
    
    21
    
    Subsidiaries of Registrant
    
    
    831.1
    
    Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
    
    
    131.2
    
    Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
    
    
    132.1
    
    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.
    
    
    132.2
    
    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
 33




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##### Table of Contents



*
    
    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, 20069.
    
    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.
 34




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##### Table of Contents



SIGNATURES
  Benjamin Franklin Bancorp, Inc.Date:  November 7, 2008
    By:
    /s/ Thomas R. VenablesThomas R. VenablesPresident and Chief Executive OfficerDate:  November 7, 2008
    By:
    /s/ Claire S. BeanClaire S. BeanTreasurer and Chief Financial Officer 35




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    Item31.1
    
    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.
 36