##### 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 MARCH 31, 2005ORo
    
    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
(Address of Principal Executive Offices)
    
    02038
(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 an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).
Yes o No þ Shares outstanding of the registrants common stock (par value $0.01) at May 10, 2005:
8,488,898   1




---



PagePART I  FINANCIAL INFORMATION
    
    
    
    3Item 1. Consolidated Financial Statements
    
    
    
    3Consolidated Balance Sheets at March 31, 2005 and December 31, 2004
    
    
    
    3Consolidated Statements of Income for the three months ended
March 31, 2005 and 2004
    
    
    
    4Consolidated Statements of Changes in Retained Earnings for the three months ended
March 31, 2005 and 2004
    
    
    
    5Consolidated Statements of Cash Flows for the three months ended
March 31, 2005 and 2004
    
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    
    10Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    
    24Item 4. Controls and Procedures
    
    
    
    25PART II  OTHER INFORMATION
    
    
    
    26Item 1. Legal Proceedings
    
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    
    26Item 3. Defaults on Senior Securities
    
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    
    26Item 5. Other Information
    
    
    
    27Item 6. Exhibits
    
    
    
    27SIGNATURES
    
    
    
    29Ex-31.1 Section 302 Certification of CEOEx-31.2 Section 302 Certification of CFOEx-32.1 Section 906 Certification of CEOEx-32.2 Section 906 Certification of CFO
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements BENJAMIN FRANKLIN BANCORP, M.H.C. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS (Unaudited) March 31,
    
    
    December 31,2005
    
    
    2004(In thousands)ASSETSCash and due from banks
    
    $
    9,394
    
    
    $
    8,691Short-term investments
    
    
    59,618
    
    
    
    5,513Total cash and cash equivalents
    
    
    69,012
    
    
    
    14,204Securities available for sale, at fair value
    
    
    84,679
    
    
    
    86,070Securities held to maturity, at amortized cost
    
    
    187
    
    
    
    217Restricted equity securities, at cost
    
    
    6,975
    
    
    
    6,975Total securities
    
    
    91,841
    
    
    
    93,262Loans
    
    
    397,719
    
    
    
    386,545Allowance for loan losses
    
    
    (3,351
    )
    
    
    (3,172
    )Loans, net
    
    
    394,368
    
    
    
    383,373Premises and equipment, net
    
    
    11,194
    
    
    
    11,147Accrued interest receivable
    
    
    1,592
    
    
    
    1,490Goodwill
    
    
    4,248
    
    
    
    4,248Bank-owned life insurance
    
    
    7,244
    
    
    
    7,182Other assets
    
    
    3,292
    
    
    
    2,487$
    582,791
    
    
    $
    517,393LIABILITIES AND RETAINED EARNINGSDeposits
    
    $
    414,733
    
    
    $
    396,499Short-term borrowings
    
    
    
    
    
    
    4,250Long-term debt
    
    
    81,000
    
    
    
    81,000Other liabilities
    
    
    56,258
    
    
    
    4,316Total liabilities
    
    
    551,991
    
    
    
    486,065Retained earnings
    
    
    33,327
    
    
    
    32,997Accumulated other comprehensive loss
    
    
    (2,527
    )
    
    
    (1,669
    )Total retained earnings
    
    
    30,800
    
    
    
    31,328$
    582,791
    
    
    $
    517,393
 See accompanying notes to condensed consolidated financial statements 3




---



##### Table of Contents



BENJAMIN FRANKLIN BANCORP, M.H.C. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31,2005
    
    
    2004(In thousands)Interest and dividend incomeLoans, including fees
    
    $
    4,892
    
    
    $
    3,916Debt securities
    
    
    661
    
    
    
    843Dividends
    
    
    68
    
    
    
    52Short-term investments
    
    
    93
    
    
    
    49Total interest and dividend income
    
    
    5,714
    
    
    
    4,860Interest expenseInterest on deposits
    
    
    1,232
    
    
    
    1,042Interest on short-term borrowings
    
    
    1
    
    
    
    Interest on long-term debt
    
    
    852
    
    
    
    565Total interest expense
    
    
    2,085
    
    
    
    1,607Net interest income
    
    
    3,629
    
    
    
    3,253Provision for loan losses
    
    
    168
    
    
    
    170Net interest income, after provision for loan losses
    
    
    3,461
    
    
    
    3,083Other income:Deposit service fees
    
    
    207
    
    
    
    254Loan servicing fees
    
    
    72
    
    
    
    145Gain on sale of loans, net
    
    
    15
    
    
    
    66Gain on sales of securities, net
    
    
    
    
    
    
    9Income from bank-owned life insurance
    
    
    59
    
    
    
    48Miscellaneous
    
    
    140
    
    
    
    172Total other income
    
    
    492
    
    
    
    694Operating expenses:Salaries and employee benefits
    
    
    2,014
    
    
    
    1,851Occupancy and equipment
    
    
    440
    
    
    
    379Data processing
    
    
    337
    
    
    
    336Professional fees
    
    
    129
    
    
    
    65Other general and administrative
    
    
    545
    
    
    
    496Total operating expenses
    
    
    3,465
    
    
    
    3,127Income before income taxes
    
    
    489
    
    
    
    650Provision for income taxes
    
    
    159
    
    
    
    196Net income
    
    $
    330
    
    
    $
    454
 See accompanying notes to condensed consolidated financial statements 4




---



##### Table of Contents



BENJAMIN FRANKLIN BANCORP, M.H.C. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS (Unaudited) AccumulatedOther
    
    
    TotalRetained
    
    
    Comprehensive
    
    
    RetainedEarnings
    
    
    Loss
    
    
    Earnings(In thousands)Balance at December 31, 2003
    
    $
    31,308
    
    
    $
    (2,007
    )
    
    $
    29,301Comprehensive income:Net income
    
    
    454
    
    
    
    
    
    
    
    454Net unrealized gain on securities available for
sale, net of reclassification adjustment
and tax effects of $390
    
    
    
    
    
    
    982
    
    
    
    982Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    1,436Balance at March 31, 2004
    
    $
    31,762
    
    
    $
    (1,025
    )
    
    $
    30,737Balance at December 31, 2004
    
    $
    32,997
    
    
    $
    (1,669
    )
    
    $
    31,328Comprehensive loss:Net income
    
    
    330
    
    
    
    
    
    
    
    330Net unrealized loss on securities available for
sale, net of tax effects of $416
    
    
    
    
    
    
    (858
    )
    
    
    (858
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    (528
    )Balance at March 31, 2005
    
    $
    33,327
    
    
    $
    (2,527
    )
    
    $
    30,800
 See accompanying notes to condensed consolidated financial statements 5




---



##### Table of Contents



BENJAMIN FRANKLIN BANCORP, M.H.C. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31,2005
    
    
    2004(In thousands)Cash flows from operating activities:Net income
    
    $
    330
    
    
    $
    454Adjustments to reconcile net income to net cash
provided by (used for) operating activities:Net amortization of securities
    
    
    118
    
    
    
    214Amortization of deferred loan costs, net
    
    
    39
    
    
    
    65Gain on sales of securities, net
    
    
    
    
    
    
    (9
    )Provision for loan losses
    
    
    168
    
    
    
    170Amortization of core deposit intangible
    
    
    
    
    
    
    45Amortization of mortgage servicing rights
    
    
    76
    
    
    
    82Depreciation expense
    
    
    184
    
    
    
    165Deferred income tax benefit
    
    
    (22
    )
    
    
    (27
    )Income from bank-owned life insurance
    
    
    (59
    )
    
    
    (48
    )Gains on sales of loans, net
    
    
    (15
    )
    
    
    (66
    )Loans originated for sale
    
    
    (4,425
    )
    
    
    (16,187
    )Proceeds from sales of loans
    
    
    4,440
    
    
    
    16,253Decrease (increase) in accrued interest
receivable
    
    
    (102
    )
    
    
    54Other, net
    
    
    (120
    )
    
    
    (627
    )Net cash provided by operating activities
    
    
    612
    
    
    
    538Cash flows from investing activities:Activity in available-for-sale securities:Sales
    
    
    
    
    
    
    1,000Maturities, calls, and principal repayments
    
    
    4,477
    
    
    
    9,654Purchases
    
    
    (3,647
    )
    
    
    (11,831
    )Maturities of and principal repayments on
held-to-maturity securities
    
    
    30
    
    
    
    33Net change in restricted equity securities
    
    
    
    
    
    
    1,000Purchases of mortgage loans
    
    
    (288
    )
    
    
    (8,860
    )Loan originations, net
    
    
    (10,884
    )
    
    
    (5,592
    )Additions to premises and equipment
    
    
    (231
    )
    
    
    (269
    )Net cash used for investing activities
    
    
    (10,543
    )
    
    
    (14,865
    )
 (Continued) See accompanying notes to condensed consolidated financial statements 6




---



##### Table of Contents



BENJAMIN FRANKLIN BANCORP, M.H.C. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded) (Unaudited) Three Months Ended March 31,2005
    
    
    2004(In thousands)Cash flows from financing activities:Net increase in deposits
    
    
    18,211
    
    
    
    11,314Funds received in stock subscription offering, net of
costs incurred in connection with stock offering and
impending merger (included in other assets)
    
    
    50,778
    
    
    
    Repayments of short-term borrowings
    
    
    (4,250
    )
    
    
    Net cash provided by financing activities
    
    
    64,739
    
    
    
    11,314Net change in cash and cash equivalents
    
    
    54,808
    
    
    
    (3,013
    )Cash and cash equivalents at beginning of period
    
    
    14,204
    
    
    
    35,485Cash and cash equivalents at end of period
    
    $
    69,012
    
    
    $
    32,472Supplemental cash flow information:Interest paid on deposits
    
    $
    1,231
    
    
    $
    1,042Interest paid on short-term borrowings
    
    
    1
    
    
    
    Interest paid on long-term debt
    
    
    849
    
    
    
    563Income taxes paid
    
    
    193
    
    
    
    17
 See accompanying notes to condensed consolidated financial statements 7




---



##### Table of Contents



BENJAMIN FRANKLIN BANCORP, M.H.C. AND SUBSIDIARIES 
 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, M.H.C. and subsidiaries (the Company) including its main
wholly-owned subsidiary, Benjamin Franklin Bank (the Bank). These financial statements
have been prepared in accordance with generally accepted accounting principles (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.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, 2004.Stock Conversion and Merger
The Company completed its mutual-to-stock conversion and related stock offering with the
issuance of 5,977,419 shares (including 400,000 shares contributed to the Benjamin Franklin
Bank Charitable Foundation) on April 4, 2005. An additional 2,511,479 shares were issued in
connection with the acquisition of Chart Bank, which was consummated immediately following
the stock conversion. The cash portion of the consideration paid to Chart Bank shareholders
totaled $21,392,960 (net of amounts received by Chart Bank upon the exercise of stock
options prior to the merger). The Companys stock began trading on April 5, 2005, on the
Nasdaq National Market, under the symbol BFBC.Recent Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued SFAS No.
123R, Share-Based Payment, which is an amendment of FASB Statement Nos. 123 and 95. SFAS
No. 123R changes, among other things, the manner in which share-based compensation, such as
stock options, will be accounted for by both public and non-public companies, and will be
effective beginning with the first interim or annual reporting period of the Companys first
fiscal year that begins after June 15, 2005, which would be January 1, 2006 for the Company.
For public companies, the cost of employee services received in exchange for equity
instruments including options and restricted stock awards generally will be measured at fair
value at the grant date. The grant date fair value will be estimated using option-pricing
models adjusted for the unique characteristics of those options and instruments, unless
observable market prices for the same or similar options are available. The cost will be
recognized over the requisite service period, often the vesting period, and will be
re-measured subsequently at each reporting date through settlement date. On March 29, 2005,
the SEC staff issued Staff Accounting Bulletin No. 107 (SAB 107). SAB 107 expresses the
views of the SEC staff regarding SFAS No. 123R and certain rules and regulations and
provides the SECs view regarding the valuation of share-based payment arrangements for
public companies. The provisions of SFAS No. 123R and SAB 107 do not have an impact on the
Companys results of operations at this time.2.
    Loan CommitmentsOutstanding loan commitments totaled $30.6 million at March 31, 2005 compared to $15.5
million as of December 31, 2004. Commitments to grant loans are extended to customers for up
to 180 days, after which they expire.3.
    Short-term Investments and Other LiabilitiesAs of March 31, 2005, short-term investment balances of $59.6 million included $51.6 million
of subscription funds received during the Companys stock offering in March. The
mutual-to-stock 8




---



##### Table of Contents



conversion was completed on April 4, 2005; in the interim subscription funds received were
recorded in other liabilities on the Companys balance sheet. 9




---



##### Table of Contents



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. 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 2004 Annual Report on Form 10-K, the
Company considers its critical accounting policies to be those associated with income taxes,
intangible assets and the determination of the allowance for loan losses. The Companys critical
accounting policies have not changed since December 31, 2004. Comparison of Financial Condition at March 31, 2005 and December 31, 2004 Total assets increased by $65.4 million, or 12.6%, from $517.4 million at December 31, 2004 to
$582.8 million at March 31, 2005. The largest increases were in short-term investments (primarily
attributable to the $51.6 million of subscription funds received during the Companys stock
offering in March) and loans, offset by a modest decline in investment securities. Funding the
growth in the balance sheet were increases in deposits and an increase in other liabilities, the
latter increase consisting primarily of the $51.6 million of stock offering subscription funds that
were invested in short-term investments. Investment Activities At March 31, 2005, the Companys short-term investments totaled $59.6 million, consisting of $57.7
million in overnight fed funds sold and $1.9 million in money market funds. The increase of $54.1
million when compared with the aggregate balance of $5.5 million at December 31, 2004, was caused
primarily by a $51.6 million influx of funds in the month of March, 2005 related to the Companys
common stock offering. 10




---



##### Table of Contents



At March 31, 2005, the Companys investment portfolio amounted to $91.8 million, or 15.8% of
total assets. The following table sets forth certain information regarding the amortized cost and
market values of the Companys investment securities at the dates indicated: At March 31, 2005
    
    
    At December 31, 2004Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueSecurities available for sale:U.S. Government and agency
obligations
    
    $
    35,031
    
    
    $
    34,616
    
    
    $
    33,607
    
    
    $
    33,306Corporate bonds and other obligations
    
    
    6,707
    
    
    
    6,662
    
    
    
    5,056
    
    
    
    5,014Mortgage-backed securities
    
    
    45,733
    
    
    
    43,401
    
    
    
    49,246
    
    
    
    47,750Total available for sale securities
    
    $
    87,470
    
    
    $
    84,679
    
    
    $
    87,909
    
    
    $
    86,070Securities held to maturity:Mortgage-backed securities
    
    $
    187
    
    
    $
    189
    
    
    $
    217
    
    
    $
    221Restricted equity securities:Federal Home Loan Bank of Boston stock
    
    $
    4,459
    
    
    $
    4,459
    
    
    $
    4,459
    
    
    $
    4,459Access Capital Strategies
Community Investment Fund
    
    
    2,000
    
    
    
    2,000
    
    
    
    2,000
    
    
    
    2,000SBLI & DIF stock
    
    
    516
    
    
    
    516
    
    
    
    516
    
    
    
    516Total equity securities
    
    $
    6,975
    
    
    $
    6,975
    
    
    $
    6,975
    
    
    $
    6,975
 Overall, the securities portfolio declined by $1.4 million over the first three months of 2005.
Increases in U.S. Government and agency obligations (increase of $1.3 million) and corporate bonds
(increase of $1.6 million) were offset by a $4.4 million reduction in mortgage-backed securities.
This decrease was the result of scheduled payments and prepayments during the quarter aggregating
$3.6 million coupled with an $800,000 increase in market value depreciation on these securities. Lending Activities The Companys net loan portfolio aggregated $394.4 million on March 31, 2005, or 67.7% of total
assets on that date. The following table sets forth the composition of the loan portfolio at the
dates indicated: 11




---



##### Table of Contents



At March 31, 2005
    
    
    At December 31, 2004Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentMortgage loans on real estate:Residential
    
    $
    240,511
    
    
    
    60.65
    %
    
    $
    241,090
    
    
    
    62.56
    %Commercial
    
    
    98,649
    
    
    
    24.88
    %
    
    
    85,911
    
    
    
    22.29
    %Construction
    
    
    27,109
    
    
    
    6.84
    %
    
    
    28,651
    
    
    
    7.43
    %Home equity
    
    
    23,548
    
    
    
    5.94
    %
    
    
    23,199
    
    
    
    6.02
    %389,817
    
    
    
    98.30
    %
    
    
    378,852
    
    
    
    98.30
    %Other loans:Commercial
    
    
    4,649
    
    
    
    1.17
    %
    
    
    4,375
    
    
    
    1.14
    %Consumer
    
    
    2,084
    
    
    
    0.53
    %
    
    
    2,170
    
    
    
    0.56
    %6,733
    
    
    
    1.70
    %
    
    
    6,545
    
    
    
    1.70
    %Total loans
    
    
    396,550
    
    
    
    100.00
    %
    
    
    385,397
    
    
    
    100.00
    %Other items:Deferred loan origination costs
    
    
    1,169
    
    
    
    
    
    
    
    1,149Allowance for loan losses
    
    
    (3,351
    )
    
    
    
    
    
    
    (3,172
    )Total loans, net
    
    $
    394,368
    
    
    
    
    
    
    $
    383,373
 The gross loan portfolio increased by $11.2 million, or 2.8%, over the first quarter of 2005.
Commercial real estate lending activities were responsible for virtually all of that increase, as
commercial real estate loans grew by $12.7 million during the quarter, offset by small declines in
residential mortgage loans and construction loans. The lack of growth in residential lending and
construction lending was in part seasonal, and in the case of residential mortgage lending, a
reflection of the recent rise in market interest rates and aggressive pricing by the Banks local
competition. The growth in commercial real estate loans is a result of the Banks increased focus
on commercial lending generally, and the addition to staff of two new commercial lenders in January
of 2005. Non-performing Assets The table below sets forth the amounts and categories of the Companys non-performing assets at the
dates indicated. At each date presented, the Company had no troubled debt restructurings (loans for
which a portion of interest or principal has been forgiven and loans modified at interest rates
materially less than current market rates): 12




---



##### Table of Contents



At March 31, 2005
    
    
    At December 31, 2004Non-accrual loans:Residential mortgage
    
    $
    
    
    
    $
    Commercial mortgage
    
    
    
    
    
    
    Construction
    
    
    
    
    
    
    Commercial
    
    
    292
    
    
    
    334Consumer and other
    
    
    
    
    
    
    Total non-performing loans
    
    
    292
    
    
    
    334Loans greater than 90 days delinquent
and still accruing:Residential mortgage
    
    
    52
    
    
    
    Commercial mortgage
    
    
    
    
    
    
    Construction
    
    
    
    
    
    
    Commercial
    
    
    1
    
    
    
    Consumer and other
    
    
    0
    
    
    
    3Total loans 90 days and still accruing
    
    
    53
    
    
    
    3Total non-performing assets
    
    $
    345
    
    
    $
    337Ratios:Non-performing loans to total loans
    
    
    0.09
    %
    
    
    0.09
    %Non-performing assets to total assets
    
    
    0.06
    %
    
    
    0.07
    %
 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 classified as doubtful, substandard or special mention. The general
component covers non-classified loans and is based on historical loss experience adjusted for
qualitative factors. 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. 13




---



##### Table of Contents



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
residential loans for impairment disclosures. At March 31, 2005, impaired loans totaled $ 292,000
and in the aggregate carried a specific reserve allocation of $170,000, as compared to $334,000 of
impaired loans with a specific reserve allocation of $210,000 at December 31, 2004 and $279,000 of
impaired loans with a specific reserve allocation of $220,000 at March 31, 2004. 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. These regulatory agencies may require the Company to recognize additions to the
allowance based on their judgments of information available to them at the time of their
examination, thereby negatively affecting the Companys financial condition and earnings. The following table sets forth activity in the Companys allowance for loan losses for the periods
indicated: 14




---



##### Table of Contents



At or For theThree Months EndedMarch 31,2005
    
    
    2004Balance at beginning of period
    
    $
    3,172
    
    
    $
    2,523Charge-offs:Mortgage loans on real estate
    
    
    
    
    
    
    Other loans:Commercial
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    (4
    )
    
    
    
    (4
    )Total charge-offs
    
    
    
    
    
    
    (4
    )Recoveries:Mortgage loans on real estateOther loans:Commercial
    
    
    8
    
    
    
    9Consumer
    
    
    3
    
    
    
    511
    
    
    
    14Total recoveries
    
    
    11
    
    
    
    14Net (charge-offs) recoveries
    
    
    11
    
    
    
    10Provision for loan losses
    
    
    168
    
    
    
    170Balance at end of period
    
    $
    3,351
    
    
    $
    2,704Ratios:Net charge-offs to average loans
outstanding (annualized)
    
    
    0.01
    %
    
    
    0.01
    %Allowance for loan losses to
non-performing loans at end of period
    
    
    1147.60
    %
    
    
    627.47
    %Allowance for loan losses to
total loans at end of period
    
    
    0.85
    %
    
    
    0.89
    %
 15




---



##### Table of Contents



Deposits The following table sets forth the Companys deposit accounts for the periods indicated: March 31,
    
    
    % of
    
    
    Dec 31,
    
    
    % of2005
    
    
    Total
    
    
    2004
    
    
    TotalDemand deposits
    
    $
    90,577
    
    
    
    22
    %
    
    $
    87,776
    
    
    
    22
    %NOW
    
    
    23,240
    
    
    
    6
    %
    
    
    22,460
    
    
    
    6
    %Regular and other savings
    
    
    96,438
    
    
    
    23
    %
    
    
    95,875
    
    
    
    24
    %Money market deposits
    
    
    56,835
    
    
    
    14
    %
    
    
    53,167
    
    
    
    13
    %Total non-certificate accounts
    
    
    267,090
    
    
    
    64
    %
    
    
    259,278
    
    
    
    65
    %Term certificates less than $100,000
    
    
    103,237
    
    
    
    25
    %
    
    
    97,114
    
    
    
    24
    %Term certificates of $100,000 or more
    
    
    44,406
    
    
    
    11
    %
    
    
    40,107
    
    
    
    10
    %Total certificate accounts
    
    
    147,643
    
    
    
    36
    %
    
    
    137,221
    
    
    
    35
    %Total deposits
    
    $
    414,733
    
    
    
    100
    %
    
    $
    396,499
    
    
    
    100
    %
 Overall, deposits increased by $18.2 million, or 4.6%, during the first quarter of 2005. The
largest increases came in certificates of deposit ($10.5 million), money market accounts ($3.7
million) and demand deposit accounts ($2.8 million). The deposit increases were the result of the
Banks continued marketing and promotional efforts in its market area, including efforts to remain
competitive in all of its deposit offerings. Borrowed Funds Funds borrowed from the Federal Home Loan Bank of Boston (FHLBB) decreased during the first
quarter by $4.3 million to $72.0 million at March 31, 2005. This decrease occurred as the Bank paid
off short-term FHLBB advances using funds provided by increases in deposit accounts. The $9.0
million balance in subordinated debt remained unchanged during the first quarter of 2005. Retained Earnings Retained earnings decreased by $528,000 during the quarter, as net income of $330,000 was offset by
an increase of $858,000 in the net unrealized loss on marketable securities. This decline in market
value of the Companys investments was centered primarily in the portfolio of mortgage-backed
securities, which have declined in value as market interest rates have risen. It remains the
intention of the Company to hold its portfolio of mortgage-backed securities until their respective
final maturities. Comparison of Operating Results for the Three Months Ended March 31, 2005 and 2004 Net income declined to $330,000 in the first quarter of 2005 from $454,000 in the year-earlier
quarter, primarily as a result of lower levels of fee income earned and higher operating expenses,
offset in part by an increase in net interest income. 16




---



##### Table of Contents



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. All average balances are daily average balances.
Non-accrual loans were included in the computation of average balances, but have been 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: 17




---



##### Table of Contents



Three Months Ended March 31, 2005
    
    
    Three Months Ended March 31, 2004Average
    
    
    
    
    
    
    
    
    
    
    AverageOutstanding
    
    
    
    
    
    
    Yield/
    
    
    Outstanding
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate(1)
    
    
    Balance
    
    
    Interest
    
    
    Rate(1)(Dollars in thousands)
    
    
    (Dollars in thousands)Interest-earning assets:Loans
    
    $
    388,346
    
    
    $
    4,892
    
    
    
    5.11
    %
    
    $
    293,997
    
    
    $
    3,916
    
    
    
    5.36
    %Investment securities
    
    
    91,636
    
    
    
    729
    
    
    
    3.23
    %
    
    
    110,710
    
    
    
    895
    
    
    
    3.25
    %Short-term investments
    
    
    16,115
    
    
    
    94
    
    
    
    2.36
    %
    
    
    22,486
    
    
    
    50
    
    
    
    0.89
    %Total interest-earning assets
    
    
    496,097
    
    
    
    5,714
    
    
    
    4.67
    %
    
    
    427,192
    
    
    
    4,861
    
    
    
    4.58
    %Non-interest-earning assets
    
    
    35,717
    
    
    
    
    
    
    
    
    
    
    
    35,259Total assets
    
    $
    531,814
    
    
    
    
    
    
    
    
    
    
    $
    462,451Interest-bearing liabilities:Savings deposits
    
    $
    95,036
    
    
    
    116
    
    
    
    0.50
    %
    
    $
    96,698
    
    
    
    119
    
    
    
    0.50
    %Money market
    
    
    57,267
    
    
    
    210
    
    
    
    1.49
    %
    
    
    51,227
    
    
    
    103
    
    
    
    0.81
    %NOW accounts
    
    
    22,081
    
    
    
    9
    
    
    
    0.16
    %
    
    
    23,327
    
    
    
    9
    
    
    
    0.15
    %Certificates of deposits
    
    
    142,409
    
    
    
    897
    
    
    
    2.55
    %
    
    
    128,230
    
    
    
    811
    
    
    
    2.54
    %Total deposits
    
    
    316,793
    
    
    
    1,232
    
    
    
    1.58
    %
    
    
    299,481
    
    
    
    1,042
    
    
    
    1.40
    %Short-term borrowings
    
    
    112
    
    
    
    1
    
    
    
    2.59
    %
    
    
    
    
    
    
    
    
    
    
    0.00
    %Long-term debt
    
    
    81,000
    
    
    
    853
    
    
    
    4.27
    %
    
    
    45,000
    
    
    
    565
    
    
    
    5.05
    %Total interest-bearing liabilities
    
    
    397,905
    
    
    
    2,085
    
    
    
    2.13
    %
    
    
    344,481
    
    
    
    1,607
    
    
    
    1.88
    %Non-interest bearing liabilities
    
    
    102,270
    
    
    
    
    
    
    
    
    
    
    
    87,956Total liabilities
    
    
    500,175
    
    
    
    
    
    
    
    
    
    
    
    432,438Equity
    
    
    31,639
    
    
    
    
    
    
    
    
    
    
    
    30,014Total liabilities and equity
    
    $
    531,814
    
    
    
    
    
    
    
    
    
    
    $
    462,451Net interest income
    
    
    
    
    
    $
    3,629
    
    
    
    
    
    
    
    
    
    
    $
    3,254Net interest rate spread (2)
    
    
    
    
    
    
    
    
    
    
    2.54
    %
    
    
    
    
    
    
    
    
    
    
    2.70
    %Net interest-earning assets (3)
    
    $
    98,192
    
    
    
    
    
    
    
    
    
    
    $
    82,711Net interest margin (4)
    
    
    
    
    
    
    
    
    
    
    2.97
    %
    
    
    
    
    
    
    
    
    
    
    3.06
    %Average interest-earning assets to
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    124.68
    %
    
    
    
    
    
    
    
    
    
    
    124.01
    %
   (1)
    
    Yields and rates for the three months ended March 31, 2005 and 2004 are annualized.(2)
    
    Net interest rate spread represents the difference between the yield on average interest-earning assets
and the cost of average interest-bearing liabilities.(3)
    
    Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.(4)
    
    Net interest margin represents net interest income divided by average total interest-earning assets. 18




---



##### Table of Contents



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 March 31,2005 vs. 2004Increase (Decrease)
    
    
    TotalDue to
    
    
    IncreaseVolume
    
    
    Rate
    
    
    (Decrease)Interest-earning assets:Loans
    
    $
    1,257
    
    
    $
    (282
    )
    
    $
    975Investment securities
    
    
    (154
    )
    
    
    (12
    )
    
    
    (166
    )Interest-earning deposits
    
    
    (14
    )
    
    
    58
    
    
    
    44Total interest-earning assets
    
    
    1,089
    
    
    
    (236
    )
    
    
    853Interest-bearing liabilities:Savings deposits
    
    
    (2
    )
    
    
    (1
    )
    
    
    (3
    )Money Market
    
    
    13
    
    
    
    94
    
    
    
    107NOW accounts
    
    
    
    
    
    
    
    
    
    
    Certificates of deposits
    
    
    90
    
    
    
    (4
    )
    
    
    86Total deposits
    
    
    101
    
    
    
    89
    
    
    
    190Short-term borrowings and long-term
debt
    
    
    451
    
    
    
    (163
    )
    
    
    288Total interest-bearing liabilities
    
    
    552
    
    
    
    (74
    )
    
    
    478Change in net interest income
    
    $
    537
    
    
    $
    (162
    )
    
    $
    375
 The Company earned net interest income of $3.6 million and $3.3 million in the three months ended
March 31, 2005 and 2004, respectively. The increase between the two periods of $375,000, or 11.5%,
is due to a $68.9 million, or 16.1%, increase in average interest-earning assets, offset in part by
a 9 basis point decrease in the net interest margin. Interest income rose by $853,000, or 17.5%, between periods, to $5.7 million for the quarter
ended March 31, 2005. The increase was due primarily to a $94.3 million increase in average loan
balances outstanding, offset in part by declines in the average balances outstanding of investment
securities (down $19.1 million) and short-term investments (down $6.4 million). Although the yield
on loans declined from 5.36% in the first three months of 2004 to 5.11% in the first quarter of
2005, the overall yield on interest earning assets rose to 4.67% in the first quarter of 2005 from
4.58% in the year-earlier period, due to a higher percentage of loans in the mix of interest
earning assets in the first quarter of 2005 when compared to the same period in 2004. 19




---



##### Table of Contents



Interest expense for the three months ended March 31, 2005 increased $478,000, or 29.7%, to $2.1 million from $1.6 million in the first quarter of 2004. The increase was due to increases in the average balances outstanding of deposits (up $17.3 million) and borrowed funds (up $36.1 million), as well as to an increase
in the average cost of deposits, which rose from 1.40% in the first three months of 2004 to 1.58%
in the quarter ended March 31, 2005. The increase in deposit rates was caused primarily
by increases in rates paid by the Bank on its money market deposit accounts, which
have proven to be the most sensitive to increases in short-term market interest rates such as
have occurred in the past year. Offsetting these factors was a decline in the weighted average
cost of long-term debt, which fell from 5.05% in the first three months of 2004 to 4.27% in the
first quarter of 2005. This decline was the result of the addition of
$36.0 million of 2  3 year
FHLBB borrowings in the second half of 2004 bearing lower interest rates than the existing longer-term borrowings already held by the Company. Provision for Loan Losses The Company recorded provisions for loan losses of $168,000 and $170,000 for the three months ended March 31, 2005 and 2004, respectively. The provisions were reflective of growth in the loan portfolio and a small amount of net recoveries recorded in each period. At March 31, 2005, the allowance for loan losses totaled $3.4 million, or .85% of the loan portfolio, as compared to $3.2 million, or .89% of total loans, at December 31, 2004 and $2.7 million, or .88% of total loans, at March 31, 2004. Non-interest Income Non-interest income for the three month period ended March 31, 2005 declined to $493,000, a reduction of $201,000, or 29.0%, when compared to non-interest income of $694,000 earned during the first quarter of 2004. A $73,000 decline in loan servicing fees, a $51,000 decrease in gains on loan sales, a $47,000 decrease in deposit service fees and a $32,000 reduction in miscellaneous income accounted for the decline. The decline in loan servicing fee income and in gains realized on loan sales was attributable to the rise in market interest rates in 2004 and early 2005, which in turn caused a decline in the origination of fixed rate residential mortgage loans that the Bank typically sells at a small gain in the secondary market, with servicing rights retained. Deposit service fees have declined as the Bank has reduced or eliminated service charges on certain transaction accounts as a result of competitive pressures. Miscellaneous income decreased from period to period due primarily to a lower level of fees on investment product sales in the first quarter of 2005 when compared to the same period in 2004. Non-interest Expense Non-interest expense increased $337,000, or 10.8%, to $3.5 million in the first three months of 2005 as compared to $3.1 million in the first quarter of 2004. Nearly half of this increase was in salaries and employee benefits, which rose due to increases in staffing levels over the past year as the Company moved to convert to a stock institution, accomplish the acquisition of Chart Bank and make the staffing investments necessary to continue the growth of its loan portfolio. Occupancy and equipment expenses increased by $61,000, or 16.1%, due to the unusually high snow removal costs incurred in the first quarter of 2005. Other increases in operating expenses were incurred in the areas of audit and legal expense (up $76,000) and in marketing costs (up $21,000), as the Bank increased its promotional efforts for both loans and deposits in the first quarter of 2005. Income Taxes Income tax expense was $159,000 for the three months ended March 31, 2005, representing a decline of $37,000, or 18.9%, when compared to $196,000 recorded for the first quarter of 2004. The effective tax rates for the 2005 and 2004 periods were 32.4% and 30.1%, respectively. The higher rate in the 2005 period was due largely to a decrease in income recorded in the Banks securities corporation, which is subject to a significantly lower rate of state tax than is the Bank. 20




---



##### Table of Contents



Liquidity and Capital Resources The Companys primary sources of funds are from deposits, amortization of loans, loan prepayments
and the maturity of loans, mortgage-backed securities and other investments, and other funds
provided by operations. 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 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 March 31, 2005, cash and due from
banks, short-term investments (excluding $51.6 million of
subscription funds related to the Companys common stock
offering) and debt securities maturing within one year totaled $53.0 million or
9.1% of total assets. The Company also relies on outside borrowings from the Federal Home Loan Bank of Boston, as an
additional funding source. As of March 31, 2005, the Company had the ability to borrow an
additional $91.2 million from the Federal Home Loan Bank of Boston. The Company uses its liquidity 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: At March 31, 2005More 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)
    
    $
    72,000
    
    
    
    
    
    
    $
    30,000
    
    
    $
    12,000
    
    
    $
    30,000Subordinated Debt
    
    
    9,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,000Other (2)
    
    
    4,248
    
    
    
    1,197
    
    
    
    2,259
    
    
    
    792
    
    
    
    Total Contractual Obligations
    
    $
    85,248
    
    
    $
    1,197
    
    
    $
    32,259
    
    
    $
    12,792
    
    
    $
    39,000
   (1)
    
    Secured under a blanket security agreement on qualifying assets, principally 1-4 Family Residential mortgage loans.
Advances shown with maturities of greater than three years may be called by the FHLB during the period remaining
to maturity.(2)
    
    Represents contracts for technology services and employee compensation. 21




---



##### Table of Contents



Loan Commitments At March 31, 2005More 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)
    
    $
    30,571
    
    
    $
    30,571
    
    
    $
    
    
    
    $
    
    
    
    $
    Commercial loan lines of credit
    
    
    4,674
    
    
    
    4,674
    
    
    
    
    
    
    
    
    
    
    
    Unused portion of home equity loans (3)
    
    
    28,642
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,642Unused portion of construction loans (4)
    
    
    22,396
    
    
    
    18,601
    
    
    
    3,795
    
    
    
    
    
    
    
    Unused portion of personal lines of credit (2)
    
    
    2,056
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,056Total Loan Commitments
    
    $
    88,339
    
    
    $
    53,846
    
    
    $
    3,795
    
    
    $
    
    
    
    $
    30,698
 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 date or other termination clauses.   (1)
    
    Commitments for loans are extended to customers for up to 180 days after which they expire.(2)
    
    Unused portion of checking overdraft lines of credit are available to customers in good standing indefinitely.(3)
    
    Unused portions of home equity loans are available to the borrower for up to 10 years.(4)
    
    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. 22




---



##### Table of Contents



Minimum Regulatory Capital Requirements: As of March 31, 2005, 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. The Companys and the Banks actual capital amounts and ratios as of March 31, 2005 and
December 31, 2004 are also presented in this table: MinimumTo Be WellMinimum
    
    
    Capitalized UnderCapital
    
    
    Prompt CorrectiveActual
    
    
    Requirements
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioMarch 31, 2005:Total capital to risk weighted assets:Consolidated
    
    $
    41,430
    
    
    
    11.7
    %
    
    $
    28,233
    
    
    
    8.0
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    40,520
    
    
    
    11.5
    
    
    
    28,169
    
    
    
    8.0
    
    
    $
    35,211
    
    
    
    10.0
    %Tier 1 capital to risk weighted assets:Consolidated
    
    
    38,079
    
    
    
    10.8
    
    
    
    14,117
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    37,169
    
    
    
    10.6
    
    
    
    14,084
    
    
    
    4.0
    
    
    
    21,127
    
    
    
    6.0Tier 1 capital to average assets:Consolidated
    
    
    38,079
    
    
    
    7.2
    
    
    
    21,103
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    37,169
    
    
    
    7.1
    
    
    
    21,070
    
    
    
    4.0
    
    
    
    26,338
    
    
    
    5.0December 31, 2004:Total capital to risk weighted assets:Consolidated
    
    $
    40,875
    
    
    
    12.5
    %
    
    $
    26,200
    
    
    
    8.0
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    40,022
    
    
    
    12.3
    
    
    
    26,125
    
    
    
    8.0
    
    
    $
    32,656
    
    
    
    10.0
    %Tier 1 capital to risk weighted assets:Consolidated
    
    
    37,703
    
    
    
    11.5
    
    
    
    13,100
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    36,850
    
    
    
    11.3
    
    
    
    13,062
    
    
    
    4.0
    
    
    
    19,594
    
    
    
    6.0Tier 1 capital to average assets:Consolidated
    
    
    37,703
    
    
    
    7.3
    
    
    
    20,545
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    36,850
    
    
    
    7.2
    
    
    
    20,513
    
    
    
    4.0
    
    
    
    25,641
    
    
    
    5.0
 23




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk. Information regarding quantitative and qualitative disclosures about market risk is presented in
the Form 10-K filed by the Company for the year ended December 31, 2004. Following is a discussion
of material changes to the Companys market risk disclosures since December 31, 2004. 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 repricing
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, rate ramps over a one year period, and static (or flat) 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 table below sets forth, as of March 31, 2005 the estimated changes in Benjamin Franklins net
interest income that would result from the designated instantaneous changes in the U.S. Treasury
yield curve. Computations of prospective effects of hypothetical interest rate changes are based
on numerous assumptions including relative levels of market interest rates, loan prepayments and
deposit decay, and should not be relied upon as indicative of actual results. Percentage Change in EstimatedNet Interest Income over 12months200 basis point increase in rates
    
    
    4.17
    %100 basis point increase in rates
    
    
    2.60
    %Flat interest rates
    
    
    100 basis point decrease in rates
    
    
    (2.30
    )%
 As indicated in the table above, the result of an immediate 100 basis point increase in interest
rates is estimated to increase net interest income by 2.60% over a 12-month horizon, when compared
to the flat rate scenario. For an immediate 200 basis point parallel increase in the level of interest rates, net interest income is
estimated to increase by 4.17% over a 12-month horizon, when compared against the flat rate
scenario. Inherent in these estimates is the assumption that transaction and savings account
deposit rates would only increase by 25 basis points and that money market deposit account rates
would only increase by 75 basis points for each 100 basis point increase in market interest rates.
These assumptions are based on the Banks past experience with the changes in rates paid on these
non-maturity deposits coincident with changes in market interest rates. The estimated change in net
interest income from the flat rate scenario for a 100 basis point decline in the level of interest
rates is a decrease of 2.30%, which assumes no decrease in interest-bearing checking rates, a 25
basis point decrease in savings rates and an average decrease in money market rates of 75 basis
points. 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 repricing 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 24




---



##### Table of Contents



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 At March 31, 2005, the
Companys cumulative interest sensitivity position within one year
was a positive gap of $75.0 million, or 12.9% of total assets.
At December 31, 2004, the Company had a positive one year
cumulative gap position of $19.8 million or 3.8% of total
assets. The increase in the Companys positive gap position as
of March 31, 2005 was due primarily to the receipt of
$51.6 million of stock subscription funds in March, all of which
were invested in short-term investments. 
 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 Company, including
its consolidated subsidiaries, in reports that the Company files or submits 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 internal controls, and fraud. 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 the
Companys internal control over financial reporting during the first quarter of 2005 that have
materially affected, or that are reasonably likely to materially affect, its internal controls over
financial reporting. 25




---



##### Table of Contents



PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings. The Company is not involved in any legal proceedings other than routine legal
proceedings occurring in 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 the Company. 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.  (a)
    Unregistered Sale of Equity Securities.Not applicable.(b)
    Use of Proceeds. The Companys Registration Statement on Form S-1 (File No.
333-121154) was declared effective by the SEC on February 11, 2005. 5,577,419 shares
of common stock, no par value, offered in its subscription offering were sold at a
price of $10.00 per share, and the Company contributed an additional 400,000 shares of
common stock to the Benjamin Franklin Bank Charitable Foundation. The offering closed
on April 4, 2005 and raised gross proceeds of $55.8 million for the Company. Ryan,
Beck & Co., Inc. of Florham Park, New Jersey served as Sales Agent for the offering.
The net proceeds of the offering, after deducting the expenses of the offering
(including sales agency commissions and expenses), were $53.7 million. No offering
expenses were paid, either directly or indirectly, to the Companys directors or
officers or their associates, to persons owning ten percent or more of our Common Stock
or to any other affiliates of Benjamin Franklin Bancorp, Inc. Of the net proceeds raised, $21.4 was used to fund the acquisition of Chart Bank, A
Co-operative Bank. Of the remaining net proceeds, the Company retained $23.9 million and
contributed $8.6 million to Benjamin Franklin Bank, its wholly owned subsidiary. The portion of the net proceeds the Company retained at the holding company level are
being used to fund a loan to the employee stock ownership plan, to enable it to purchase
up to 478,194 shares of our common stock in the open market, and for general operating
purposes. The portion of the net proceeds contributed to Benjamin Franklin Bank will be
used to support increased lending and new products and services, and may also be used for
future business expansion by establishing new branches or by acquiring branches or other
whole banks. Some of those proceeds were also used to pay down Federal Home Loan Bank of
Boston borrowings. Initially, a substantial portion of the net proceeds has been invested in short-term
investments and investment-grade debt obligations. The use of proceeds does not represent a material change from the use of proceeds
described in our prospectus.  (c)
    Repurchases of Our Equity Securities.No repurchases were made during the
first quarter of 2005. 
 Item 3. Defaults on Senior Securities. Not applicable. 
 Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. However, the subscription order form signed by all subscribers in the
Companys subscription offering stated that, by subscribing for or purchasing shares of
common stock, each subscriber approved and consented to the consummation of the Companys
acquisition of Chart Bank. 26




---



##### Table of Contents



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
    
    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.
    
    
    24.1
    
    Form of Common Stock Certificate of Benjamin Franklin Bancorp, Inc.
    
    
    510.1.1
    
    Form of Employment Agreement with Thomas R. Venables. *
    
    
    610.1.2
    
    Form of Employment Agreement with Claire S. Bean. *
    
    
    610.2
    
    Form of Change in Control Agreement with five other Executive
Officers, providing one years severance to Brian E. Ledwith,
Michael J. Piemonte and Kathleen P. Sawyer, and two years
severance to Mariane E. Broadhurst and Rose M. Buckley. This form
contains all material information concerning the agreement and the
only differences are the name and contact information of the
executive officer who is party to the agreement and the number of
years of severance provided. *
    
    
    210.3
    
    Form of Benjamin Franklin Bank Benefit Restoration Plan. *
    
    
    210.4.1
    
    Benjamin Franklin Bank Salary
Continuation Agreement with Thomas R. Venables dated as of August 22, 2002. *
    
    
    210.5
    
    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. *
    
    
    211
    
    No statement regarding earnings per share is included because the
Company had no shares outstanding during the first quarter of
2005.31.1
    
    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,
 27




---



##### Table of Contents



Exhibit No.
    
    Description
    
    Footnotesas 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 Forma 10-K,
filed on March 29, 2005. 28




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Benjamin Franklin Bancorp, Inc.Date: May 16, 2005
    
    By:
    
    /s/ Thomas R. VenablesThomas R. VenablesPresident and Chief Executive OfficerDate: May 16, 2005
    
    By:
    
    /s/ Claire S. BeanClaire S. BeanTreasurer and Chief Financial Officer
 29




---



##### Table of Contents



EXHIBIT INDEX Exhibit No.
    
    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.
 30