##### 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 JUNE 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
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    04-3336598
(I.R.S. Employer
Identification No.)58 Main Street, Franklin, MA
(Address of Principal Executive Offices)
    
    02038
(Zip Code)
 (617) 528-7000
 
 þ o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o  o þ




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##### 



PagePART I  FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets at June 30, 2008 and December 31, 2007
    
    
    3Consolidated Statements of Income for the three and six months ended
June 30, 2008 and 2007
    
    
    4Consolidated Statements of Changes in Stockholders Equity for the six months ended
June 30, 2008 and 2007
    
    
    5Consolidated Statements of Cash Flows for the six months ended
June 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
    
    
    28Item 4. Controls and Procedures
    
    
    29PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    30Item 1A Risk Factors
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3. Defaults on Senior Securities
    
    
    30Item 4. Submission of Matters to a Vote of Security Holders
    
    
    30Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    31SIGNATURES
    
    
    34EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
  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)
 June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)
    
    
    (Audited)ASSETSCash and due from banks
    
    $
    12,235
    
    
    $
    12,226Cash supplied to ATM customers
    
    
    25,970
    
    
    
    42,002Short-term investments
    
    
    9,474
    
    
    
    10,363Total cash and cash equivalents
    
    
    47,679
    
    
    
    64,591Securities available for sale, at fair value
    
    
    178,920
    
    
    
    156,761Restricted equity securities, at cost
    
    
    12,908
    
    
    
    11,591Total securities
    
    
    191,828
    
    
    
    168,352LoansResidential real estate
    
    
    224,665
    
    
    
    188,654Commercial real estate
    
    
    175,135
    
    
    
    168,649Construction
    
    
    50,307
    
    
    
    55,763Commercial business
    
    
    179,982
    
    
    
    159,233Consumer
    
    
    40,453
    
    
    
    40,436Total loans, gross
    
    
    670,542
    
    
    
    612,735Allowance for loan losses
    
    
    (6,431
    )
    
    
    (5,789
    )Loans, net
    
    
    664,111
    
    
    
    606,946Premises and equipment, net
    
    
    5,156
    
    
    
    5,410Accrued interest receivable
    
    
    3,641
    
    
    
    3,648Bank-owned life insurance
    
    
    10,903
    
    
    
    10,700Goodwill
    
    
    33,763
    
    
    
    33,763Other intangible assets
    
    
    2,209
    
    
    
    2,474Other assets
    
    
    7,739
    
    
    
    7,394$
    967,029
    
    
    $
    903,278LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Regular savings accounts
    
    $
    82,219
    
    
    $
    79,167Money market accounts
    
    
    126,119
    
    
    
    110,544NOW accounts
    
    
    65,415
    
    
    
    52,000Demand deposit accounts
    
    
    118,182
    
    
    
    113,023Time deposit accounts
    
    
    262,980
    
    
    
    262,634Total deposits
    
    
    654,915
    
    
    
    617,368Short-term borrowings
    
    
    1,200
    
    
    
    2,500Long-term debt
    
    
    191,169
    
    
    
    162,784Deferred gain on sale of premises
    
    
    3,405
    
    
    
    3,531Other liabilities
    
    
    10,276
    
    
    
    9,651Total liabilities
    
    
    860,965
    
    
    
    795,834Common stock, no par value; 75,000,000 shares authorized;
7,840,415 shares issued and 7,666,172 shares outstanding
at June 30, 2008; 8,030,415 shares issued and
7,856,172 shares outstanding at December 31,
2007
    
    
    
    
    
    
    Additional paid-in capital
    
    
    74,985
    
    
    
    77,370Retained earnings
    
    
    39,663
    
    
    
    38,515Unearned compensation
    
    
    (6,699
    )
    
    
    (7,094
    )Accumulated other comprehensive loss
    
    
    (1,885
    )
    
    
    (1,347
    )Total stockholders equity
    
    
    106,064
    
    
    
    107,444$
    967,029
    
    
    $
    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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited)
    
    
    (Unaudited)Interest and dividend income:Loans, including fees
    
    $
    9,962
    
    
    $
    9,712
    
    
    $
    19,853
    
    
    $
    19,418Debt securities
    
    
    1,917
    
    
    
    1,953
    
    
    
    3,924
    
    
    
    3,639Dividends
    
    
    124
    
    
    
    165
    
    
    
    284
    
    
    
    331Short-term investments
    
    
    96
    
    
    
    222
    
    
    
    338
    
    
    
    503Total interest and dividend income
    
    
    12,099
    
    
    
    12,052
    
    
    
    24,399
    
    
    
    23,891Interest expense:Interest on deposits
    
    
    3,410
    
    
    
    4,308
    
    
    
    7,269
    
    
    
    8,464Interest on short-term borrowings
    
    
    10
    
    
    
    18
    
    
    
    39
    
    
    
    147Interest on long-term debt
    
    
    2,183
    
    
    
    1,674
    
    
    
    4,289
    
    
    
    3,402Total interest expense
    
    
    5,603
    
    
    
    6,000
    
    
    
    11,597
    
    
    
    12,013Net interest income
    
    
    6,496
    
    
    
    6,052
    
    
    
    12,802
    
    
    
    11,878Provision for loan losses
    
    
    368
    
    
    
    230
    
    
    
    682
    
    
    
    412Net interest income, after provision for loan
losses
    
    
    6,128
    
    
    
    5,822
    
    
    
    12,120
    
    
    
    11,466Other income:ATM servicing fees
    
    
    321
    
    
    
    622
    
    
    
    664
    
    
    
    1,319Deposit servicing fees
    
    
    475
    
    
    
    369
    
    
    
    838
    
    
    
    709Other loan-related fees
    
    
    170
    
    
    
    141
    
    
    
    423
    
    
    
    472Gain on sale of loans, net
    
    
    82
    
    
    
    193
    
    
    
    186
    
    
    
    296Gain on sale of bank-owned premises, net
    
    
    63
    
    
    
    63
    
    
    
    126
    
    
    
    313Gain on sale of CSSI customer list
    
    
    92
    
    
    
    100
    
    
    
    92
    
    
    
    100Income from bank-owned life insurance
    
    
    94
    
    
    
    99
    
    
    
    195
    
    
    
    195Miscellaneous
    
    
    207
    
    
    
    206
    
    
    
    458
    
    
    
    361Total other income
    
    
    1,504
    
    
    
    1,793
    
    
    
    2,982
    
    
    
    3,765Operating expenses:Salaries and employee benefits
    
    
    3,405
    
    
    
    3,829
    
    
    
    6,636
    
    
    
    7,442Occupancy and equipment
    
    
    842
    
    
    
    836
    
    
    
    1,786
    
    
    
    1,744Data processing
    
    
    569
    
    
    
    598
    
    
    
    1,169
    
    
    
    1,202Professional fees
    
    
    182
    
    
    
    235
    
    
    
    357
    
    
    
    472Marketing and advertising
    
    
    103
    
    
    
    201
    
    
    
    181
    
    
    
    329Amortization of intangible assets
    
    
    161
    
    
    
    205
    
    
    
    332
    
    
    
    422Other general and administrative
    
    
    648
    
    
    
    521
    
    
    
    1,229
    
    
    
    1,601Total operating expenses
    
    
    5,910
    
    
    
    6,425
    
    
    
    11,690
    
    
    
    13,212Income before income taxes
    
    
    1,722
    
    
    
    1,190
    
    
    
    3,412
    
    
    
    2,019Provision for income taxes
    
    
    551
    
    
    
    361
    
    
    
    1,129
    
    
    
    599Net income
    
    $
    1,171
    
    
    $
    829
    
    
    $
    2,283
    
    
    $
    1,420Weighted-average shares outstanding:Basic
    
    
    7,271,431
    
    
    
    7,663,634
    
    
    
    7,306,789
    
    
    
    7,739,036Diluted
    
    
    7,352,265
    
    
    
    7,699,363
    
    
    
    7,381,938
    
    
    
    7,768,666Earnings per share:Basic
    
    $
    0.16
    
    
    $
    0.11
    
    
    $
    0.31
    
    
    $
    0.19Diluted
    
    $
    0.16
    
    
    $
    0.11
    
    
    $
    0.31
    
    
    $
    0.18
  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)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    Unearned
    
    
    Comprehensive
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,420
    
    
    
    
    
    
    
    
    
    
    
    1,420Net unrealized loss on
securities available for
sale, net of reclassification
adjustment and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,127
    )
    
    
    (1,127
    )Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    293Common stock repurchased
    
    
    (163,850
    )
    
    
    
    
    
    
    (2,449
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,449
    )Restricted stock expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    330
    
    
    
    
    
    
    
    330Stock option expense
    
    
    
    
    
    
    
    
    
    
    413
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    413Release of ESOP stock
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    92
    
    
    
    
    
    
    
    119FASB Statement No. 158 tax
effect adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    101Dividends declared ($.10 per
share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (844
    )
    
    
    
    
    
    
    
    
    
    
    (844
    )Balance at June 30, 2007
    
    
    8,085,952
    
    
    $
    
    
    
    $
    80,900
    
    
    $
    37,210
    
    
    $
    (7,516
    )
    
    $
    (3,226
    )
    
    $
    107,368Balance at December 31, 2007
    
    
    7,856,172
    
    
    $
    
    
    
    $
    77,370
    
    
    $
    38,515
    
    
    $
    (7,094
    )
    
    $
    (1,347
    )
    
    $
    107,444Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,283
    
    
    
    
    
    
    
    
    
    
    
    2,283Net unrealized gain on
securities available
for sale, net of tax
effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (538
    )
    
    
    (538
    )Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,745Common stock repurchased
    
    
    (190,000
    )
    
    
    
    
    
    
    (2,608
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,608
    )Restricted stock expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    303
    
    
    
    
    
    
    
    303Stock option expense
    
    
    
    
    
    
    
    
    
    
    207
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    207Release of ESOP stock
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    92
    
    
    
    
    
    
    
    108Dividends declared ($.14 per
share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,135
    )
    
    
    
    
    
    
    
    
    
    
    (1,135
    )Balance at June 30, 2008
    
    
    7,666,172
    
    
    $
    
    
    
    $
    74,985
    
    
    $
    39,663
    
    
    $
    (6,699
    )
    
    $
    (1,885
    )
    
    $
    106,064
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##### Table of Contents



BENJAMIN FRANKLIN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 (Unaudited)
 Six Months Ended June 30,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    2,283
    
    
    $
    1,420Adjustments to reconcile net income to net cash
provided by operating activities:Amortization (accretion) of securities, net
    
    
    55
    
    
    
    (341
    )Amortization of loans, net
    
    
    167
    
    
    
    64Amortization of deferred gain on sale of premises
    
    
    (126
    )
    
    
    (126
    )Gain on sale of premises, net
    
    
    
    
    
    
    (187
    )Provision for loan losses
    
    
    682
    
    
    
    412Accretion of deposits and borrowing discounts, net
    
    
    (6
    )
    
    
    (6
    )Amortization of mortgage servicing rights
    
    
    144
    
    
    
    152Depreciation expense
    
    
    415
    
    
    
    465Amortization of intangible assets
    
    
    332
    
    
    
    422Stock-based compensation and ESOP
    
    
    618
    
    
    
    862Income from bank-owned life insurance
    
    
    (195
    )
    
    
    (195
    )Gains on sales of loans, net
    
    
    (186
    )
    
    
    (296
    )Loans originated for sale
    
    
    (1,353
    )
    
    
    (26,560
    )Proceeds from sales of loans
    
    
    1,539
    
    
    
    26,856Decrease (increase) in accrued interest receivable
    
    
    7
    
    
    
    (19
    )Other, net
    
    
    386
    
    
    
    (963
    )Net cash provided by operating activities
    
    
    4,762
    
    
    
    1,960Cash flows from investing activities:Activity in available-for-sale securities:Maturities, calls, and principal repayments
    
    
    56,119
    
    
    
    30,224Purchases
    
    
    (79,130
    )
    
    
    (56,342
    )Net change in restricted equity securities
    
    
    (1,317
    )
    
    
    (233
    )Loan originations, net
    
    
    (58,014
    )
    
    
    (20,036
    )Proceeds from sales of loans held for sale
    
    
    
    
    
    
    62,122Proceeds from sales of premises and equipment
    
    
    
    
    
    
    821Purchases of identifiable intangible assets
    
    
    (67
    )
    
    
    (180
    )Additions to premises and equipment
    
    
    (161
    )
    
    
    (692
    )Net cash provided by (used for) investing activities
    
    
    (82,570
    )
    
    
    15,684
   6




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BENJAMIN FRANKLIN BANCORP,INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
 (Dollars in thousands)
 (Unaudited)
 Six Months Ended June 30,2008
    
    
    2007Cash flows from financing activities:Net increase in deposits
    
    
    37,559
    
    
    
    1,726Net change in short-term borrowings
    
    
    (1,300
    )
    
    
    (7,000
    )Proceeds from long-term debt
    
    
    44,500
    
    
    
    10,000Repayment of long-term debt
    
    
    (16,120
    )
    
    
    (20,097
    )Common stock repurchased
    
    
    (2,608
    )
    
    
    (2,449
    )Dividends paid on common stock
    
    
    (1,135
    )
    
    
    (844
    )Net cash provided by (used for) financing activities
    
    
    60,896
    
    
    
    (18,664
    )Net change in cash and cash equivalents
    
    
    (16,912
    )
    
    
    (1,020
    )Cash and cash equivalents at beginning of period
    
    
    64,591
    
    
    
    72,595Cash and cash equivalents at end of period
    
    $
    47,679
    
    
    $
    71,575Supplemental cash flow information:Interest paid on deposits
    
    $
    7,304
    
    
    $
    8,591Interest paid on borrowings
    
    
    4,293
    
    
    
    3,576Income taxes paid
    
    
    2,044
    
    
    
    989Loans held for sale transferred to loans, net
    
    
    
    
    
    
    1,063Loans held for sale transferred to other assets
    
    
    
    
    
    
    545
  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




---



##### 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, 2008.2.
    
    CommitmentsOutstanding loan commitments totaled $115.0 million at June 30, 2008, compared to $116.4
million as of December 31, 2007. Loan commitments consist of commitments to originate new
loans as well as the outstanding undrawn portions of lines of credit.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 six month
periods ending June 30, 2008, potentially dilutive common stock equivalents totaled 80,834
and 75,149 shares, respectively, representing the effect of dilutive common stock
equivalents. For the three and six month periods ending June 30, 2007, potentially dilutive
common stock equivalents totaled 35,729 and 29,630 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 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.
 9




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##### Table of Contents



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 June 30, 2008:
 June 30, 2008Assets atLevel 1
    
    Level 2
    
    Level 3
    
    Fair Value(Dollars in thousands)AssetsSecurities available for sale
    
    $
    
    
    
    $
    178,920
    
    
    $
    
    
    
    $
    178,920Total assets
    
    $
    
    
    
    $
    178,920
    
    
    $
    
    
    
    $
    178,920
 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 June
30, 2008.
 Quarter endedJune 30, 2008
    
    June 30, 2008TotalLevel 1
    
    Level 2
    
    Level 3
    
    Gains/(Losses)(Dollars in thousands)AssetsImpaired loans
    
    $
    
    
    
    $
    
    
    
    $
    1,187
    (A)
    
    $
    (178
    )Total assets
    
    $
    
    
    
    $
    
    
    
    $
    1,187
    
    
    $
    (178
    )
 
 (A)
    
    Represents
impaired loans
totaling $1,429,
net of specific
valuation reserves
for those loans
totaling $242. There were no specific valuation reserves allocated to the remainder of the Banks
impaired loans ($8.7 million) as of June 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.
 10




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-Looking Statements
  Critical Accounting Policies
  Comparison of Financial Condition at June 30, 2008 and December 31, 2007
 Overview
  Investment Activities
   11




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##### Table of Contents



June 30,
    
    
    December 31,2008
    
    
    2007Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value(Dollars in thousands)Securities available for sale:Government-sponsored
enterprise obligations
    
    $
    89,025
    
    
    $
    89,182
    
    
    $
    85,972
    
    
    $
    86,178Municipal obligations
    
    
    885
    
    
    
    885
    
    
    
    1,206
    
    
    
    1,20289,910
    
    
    
    90,067
    
    
    
    87,178
    
    
    
    87,380Mortgage-backed securities
    
    
    91,063
    
    
    
    88,853
    
    
    
    70,839
    
    
    
    69,381Total debt securities
    
    
    180,973
    
    
    
    178,920
    
    
    
    158,017
    
    
    
    156,761Total available for sale securities
    
    $
    180,973
    
    
    $
    178,920
    
    
    $
    158,017
    
    
    $
    156,761Restricted equity securities:Federal Home Loan Bank of Boston stock
    
    $
    10,427
    
    
    $
    10,427
    
    
    $
    9,110
    
    
    $
    9,110Access Capital StrategiesCommunity Investment Fund
    
    
    1,965
    
    
    
    1,965
    
    
    
    1,965
    
    
    
    1,965SBLI & DIF stock
    
    
    516
    
    
    
    516
    
    
    
    516
    
    
    
    516Total restricted equity securities
    
    $
    12,908
    
    
    $
    12,908
    
    
    $
    11,591
    
    
    $
    11,591
 Lending Activities
  12




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##### Table of Contents



June 30, 2008
    
    
    December 31, 2007Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)Mortgage loans on real estate:Residential
    
    $
    223,921
    
    
    
    33.45
    %
    
    $
    187,991
    
    
    
    30.73
    %Commercial
    
    
    174,934
    
    
    
    26.13
    %
    
    
    168,463
    
    
    
    27.54
    %Construction
    
    
    50,307
    
    
    
    7.51
    %
    
    
    55,763
    
    
    
    9.11
    %Home equity
    
    
    37,988
    
    
    
    5.67
    %
    
    
    37,768
    
    
    
    6.17
    %487,150
    
    
    
    72.76
    %
    
    
    449,985
    
    
    
    73.55
    %Other loans:Commercial business
    
    
    179,982
    
    
    
    26.89
    %
    
    
    159,233
    
    
    
    26.03
    %Consumer
    
    
    2,356
    
    
    
    0.35
    %
    
    
    2,592
    
    
    
    0.42
    %182,338
    
    
    
    27.24
    %
    
    
    161,825
    
    
    
    26.45
    %Total loans
    
    
    669,488
    
    
    
    100.00
    %
    
    
    611,810
    
    
    
    100.00
    %Other items:Net deferred loan costs
    
    
    1,054
    
    
    
    
    
    
    
    925Allowance for loan losses
    
    
    (6,431
    )
    
    
    
    
    
    
    (5,789
    )Total loans, net
    
    $
    664,111
    
    
    
    
    
    
    $
    606,946
 Non-performing Assets
  13




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##### Table of Contents



June 30, 2008
    
    
    December 31, 2007(Dollars in thousands)Non-accrual loans:Residential mortgage
    
    $
    958
    
    
    $
    712Commercial mortgage
    
    
    4,980
    
    
    
    658Construction
    
    
    1,945
    
    
    
    Commercial
    
    
    575
    
    
    
    Consumer and other
    
    
    173
    
    
    
    228Total non-accrual loans
    
    $
    8,631
    
    
    $
    1,598Loans greater than 90 days delinquent
and still accruing:
    
    $
    
    
    
    $
    $
    
    
    
    $
    Total non-performing loans and assets
    
    $
    8,631
    
    
    $
    1,598Total restructured loans
    
    $
    1,186
    
    
    $
    Ratios:Non-performing loans to total loans
    
    
    1.29
    %
    
    
    0.26
    %Non-performing assets to total assets
    
    
    0.89
    %
    
    
    0.18
    %
 ;
  Allowance for Loan Losses
  14




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##### Table of Contents



At June 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
    
    $
    733
    
    
    $
    223,921
    
    
    
    33.45
    %
    
    $
    499
    
    
    $
    187,991
    
    
    
    30.73
    %Commercial
    
    
    2,085
    
    
    
    174,934
    
    
    
    26.13
    %
    
    
    1,959
    
    
    
    168,463
    
    
    
    27.54
    %Construction
    
    
    854
    
    
    
    50,307
    
    
    
    7.51
    %
    
    
    850
    
    
    
    55,763
    
    
    
    9.11
    %Home equity
    
    
    142
    
    
    
    37,988
    
    
    
    5.67
    %
    
    
    142
    
    
    
    37,768
    
    
    
    6.17
    %3,814
    
    
    
    487,150
    
    
    
    72.76
    %
    
    
    3,450
    
    
    
    449,985
    
    
    
    73.55
    %Other loans:Commercial
    
    
    2,168
    
    
    
    179,982
    
    
    
    26.89
    %
    
    
    1,874
    
    
    
    159,233
    
    
    
    26.03
    %Consumer
    
    
    63
    
    
    
    2,356
    
    
    
    0.35
    %
    
    
    80
    
    
    
    2,592
    
    
    
    0.42
    %Unallocated (1)
    
    
    386
    
    
    
    0
    
    
    
    0.00
    %
    
    
    385
    
    
    
    0
    
    
    
    0.00
    %2,617
    
    
    
    182,338
    
    
    
    27.24
    %
    
    
    2,339
    
    
    
    161,825
    
    
    
    26.45
    %Total
    
    $
    6,431
    
    
    $
    669,488
    
    
    
    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.  15




---



##### Table of Contents




    
    Loan delinquency: At June 30, 2008, portfolio delinquency (percentage of total loans
greater than 30 days past due) stood at 1.55%, compared to 0.91% at March 31, 2008, and an
average of 1.07% for all of 2007. The increase in delinquency at June 30, 2008 was caused
by the addition of one $6.4 million commercial relationship, discussed earlier in
Non-performing Assets. For all other loans, delinquency at June 30, 2008 was 0.63% of
total loans.
    
    Level of charge-offs: Net charge-offs are little changed in 2008 to date, compared to
2007. For the three and six months ended June 30, 2008, net charge-offs were $27,000 and
$40,000, respectively. For the comparable 2007 periods, net charge-offs were $18,000 and
$39,000, respectively. For both the 2007 and 2008 periods, net charge-offs represented a
negligible 0.1% (or less) of average loans outstanding.
    
    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 June 30, 2008, the weighted
average loan-to-value ratio of the Banks construction loan portfolio was approximately
72%. The weighted average loan-to value ratio of the Banks residential mortgage loan
portfolio on that date 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.
  :
   16




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)Balance at beginning of period
    
    $
    6,090
    
    
    $
    5,498
    
    
    $
    5,789
    
    
    $
    5,337Charge-offs:Residential mortgage loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial loans
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (7
    )Consumer loans
    
    
    (30
    )
    
    
    (29
    )
    
    
    (67
    )
    
    
    (61
    )Total charge-offs
    
    
    (30
    )
    
    
    (31
    )
    
    
    (67
    )
    
    
    (68
    )Recoveries:Commercial loans
    
    
    
    
    
    
    2
    
    
    
    12
    
    
    
    4Consumer loans
    
    
    3
    
    
    
    11
    
    
    
    15
    
    
    
    25Total recoveries
    
    
    3
    
    
    
    13
    
    
    
    27
    
    
    
    29Net charge-offs
    
    
    (27
    )
    
    
    (18
    )
    
    
    (40
    )
    
    
    (39
    )Provision for loan losses
    
    
    368
    
    
    
    230
    
    
    
    682
    
    
    
    412Balance at end of period
    
    $
    6,431
    
    
    $
    5,710
    
    
    $
    6,431
    
    
    $
    5,710Ratios:Net (charge-offs)/recoveries to average loans
outstanding
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    -0.01
    %
    
    
    -0.01
    %Allowance for loan losses to
non-performing loans at end of period
    
    
    74.51
    %
    
    
    158.74
    %
    
    
    74.51
    %
    
    
    158.74
    %Allowance for loan losses to
total loans at end of period
    
    
    0.96
    %
    
    
    0.95
    %
    
    
    0.96
    %
    
    
    0.95
    %
 Deposits
  17




---



##### Table of Contents



June 30,
    
    
    % of
    
    
    December 31,
    
    
    % of2008
    
    
    Total
    
    
    2007
    
    
    Total(Dollars in thousands)Deposit type:Demand deposits
    
    $
    118,182
    
    
    
    18.0
    %
    
    $
    113,023
    
    
    
    18.3
    %NOW accounts
    
    
    65,415
    
    
    
    10.0
    %
    
    
    52,000
    
    
    
    8.4
    %Regular and other savings
    
    
    82,219
    
    
    
    12.6
    %
    
    
    79,167
    
    
    
    12.8
    %Money market deposits
    
    
    126,119
    
    
    
    19.2
    %
    
    
    110,544
    
    
    
    17.9
    %Total non-certificate accounts
    
    
    391,935
    
    
    
    59.8
    %
    
    
    354,734
    
    
    
    57.4
    %Term certificates less than $100,000
    
    
    158,938
    
    
    
    24.3
    %
    
    
    159,272
    
    
    
    25.8
    %Term certificates of $100,000 or more
    
    
    104,042
    
    
    
    15.9
    %
    
    
    103,362
    
    
    
    16.8
    %Total certificate accounts
    
    
    262,980
    
    
    
    40.2
    %
    
    
    262,634
    
    
    
    42.6
    %Total deposits
    
    $
    654,915
    
    
    
    100.0
    %
    
    $
    617,368
    
    
    
    100.0
    %
  Borrowed Funds
  Stockholders Equity
  Comparison of Operating Results for the Three and Six Months Ended June 30, 2008 and 2007
  18




---



##### Table of Contents



Analysis of Net Interest Income
   Three Months Ended June 30,2008
    
    
    2007Average
    
    
    
    
    
    
    
    
    
    
    AverageOutstanding
    
    
    
    
    
    
    
    
    
    
    OutstandingBalance
    
    
    Interest
    
    
    Yield/Rate(1)
    
    
    Balance
    
    
    Interest
    
    
    Yield/Rate(1)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    659,601
    
    
    $
    9,962
    
    
    
    6.00
    %
    
    $
    604,459
    
    
    $
    9,712
    
    
    
    6.38
    %Securities
    
    
    188,621
    
    
    
    2,041
    
    
    
    4.33
    %
    
    
    169,543
    
    
    
    2,118
    
    
    
    5.00
    %Short-term investments
    
    
    22,504
    
    
    
    96
    
    
    
    1.69
    %
    
    
    12,891
    
    
    
    222
    
    
    
    6.81
    %Total interest-earning assets
    
    
    870,726
    
    
    
    12,099
    
    
    
    5.53
    %
    
    
    786,893
    
    
    
    12,052
    
    
    
    6.09
    %Non-interest-earning assets
    
    
    96,330
    
    
    
    
    
    
    
    
    
    
    
    109,495Total assets
    
    $
    967,056
    
    
    
    
    
    
    
    
    
    
    $
    896,388Interest-bearing liabilities:Savings accounts
    
    $
    81,338
    
    
    
    81
    
    
    
    0.40
    %
    
    $
    83,086
    
    
    
    103
    
    
    
    0.50
    %Money market accounts
    
    
    132,152
    
    
    
    557
    
    
    
    1.70
    %
    
    
    108,825
    
    
    
    748
    
    
    
    2.76
    %NOW accounts
    
    
    60,599
    
    
    
    265
    
    
    
    1.76
    %
    
    
    38,269
    
    
    
    217
    
    
    
    2.27
    %Certificates of deposit
    
    
    265,260
    
    
    
    2,507
    
    
    
    3.80
    %
    
    
    284,314
    
    
    
    3,240
    
    
    
    4.57
    %Total deposits
    
    
    539,349
    
    
    
    3,410
    
    
    
    2.54
    %
    
    
    514,494
    
    
    
    4,308
    
    
    
    3.36
    %Borrowings
    
    
    191,849
    
    
    
    2,193
    
    
    
    4.52
    %
    
    
    140,225
    
    
    
    1,692
    
    
    
    4.77
    %Total interest-bearing liabilities
    
    
    731,198
    
    
    
    5,603
    
    
    
    3.06
    %
    
    
    654,719
    
    
    
    6,000
    
    
    
    3.66
    %Non-interest bearing liabilities
    
    
    128,334
    
    
    
    
    
    
    
    
    
    
    
    132,490Total liabilities
    
    
    859,532
    
    
    
    
    
    
    
    
    
    
    
    787,209Equity
    
    
    107,524
    
    
    
    
    
    
    
    
    
    
    
    109,179Total liabilities and equity
    
    $
    967,056
    
    
    
    
    
    
    
    
    
    
    $
    896,388Net interest income
    
    
    
    
    
    $
    6,496
    
    
    
    
    
    
    
    
    
    
    $
    6,052Net interest rate spread (2)
    
    
    
    
    
    
    
    
    
    
    2.47
    %
    
    
    
    
    
    
    
    
    
    
    2.43
    %Net interest-earning assets (3)
    
    $
    139,528
    
    
    
    
    
    
    
    
    
    
    $
    132,174Net interest margin (4)
    
    
    
    
    
    
    
    
    
    
    3.00
    %
    
    
    
    
    
    
    
    
    
    
    3.08
    %Average interest-earning assets to
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    119.08
    %
    
    
    
    
    
    
    
    
    
    
    120.19
    %
 
 (1)
    
    Yields and rates for the three months ended June 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 interest income divided by average total interest-earning assets. 19




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##### Table of Contents



Six Months Ended June 30,2008
    
    
    2007Average
    
    
    
    
    
    
    
    
    
    
    AverageOutstanding
    
    
    
    
    
    
    
    
    
    
    OutstandingBalance
    
    
    Interest
    
    
    Yield/Rate(1)
    
    
    Balance
    
    
    Interest
    
    
    Yield/Rate(1)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    641,495
    
    
    $
    19,853
    
    
    
    6.15
    %
    
    $
    615,099
    
    
    $
    19,418
    
    
    
    6.30
    %Securities
    
    
    182,189
    
    
    
    4,208
    
    
    
    4.62
    %
    
    
    160,220
    
    
    
    3,970
    
    
    
    4.96
    %Short-term investments
    
    
    28,030
    
    
    
    338
    
    
    
    2.39
    %
    
    
    17,600
    
    
    
    503
    
    
    
    5.69
    %Total interest-earning assets
    
    
    851,714
    
    
    
    24,399
    
    
    
    5.70
    %
    
    
    792,919
    
    
    
    23,891
    
    
    
    6.01
    %Non-interest-earning assets
    
    
    98,935
    
    
    
    
    
    
    
    
    
    
    
    109,016Total assets
    
    $
    950,649
    
    
    
    
    
    
    
    
    
    
    $
    901,935Interest-bearing liabilities:Savings accounts
    
    $
    80,084
    
    
    
    159
    
    
    
    0.40
    %
    
    $
    83,315
    
    
    
    205
    
    
    
    0.50
    %Money market accounts
    
    
    124,550
    
    
    
    1,178
    
    
    
    1.90
    %
    
    
    103,693
    
    
    
    1,368
    
    
    
    2.66
    %NOW accounts
    
    
    57,922
    
    
    
    560
    
    
    
    1.94
    %
    
    
    33,390
    
    
    
    307
    
    
    
    1.86
    %Certificates of deposit
    
    
    265,985
    
    
    
    5,372
    
    
    
    4.06
    %
    
    
    290,765
    
    
    
    6,585
    
    
    
    4.57
    %Total deposits
    
    
    528,541
    
    
    
    7,269
    
    
    
    2.77
    %
    
    
    511,163
    
    
    
    8,465
    
    
    
    3.34
    %Borrowings
    
    
    187,551
    
    
    
    4,328
    
    
    
    4.56
    %
    
    
    149,136
    
    
    
    3,548
    
    
    
    4.73
    %Total interest-bearing liabilities
    
    
    716,092
    
    
    
    11,597
    
    
    
    3.24
    %
    
    
    660,299
    
    
    
    12,013
    
    
    
    3.65
    %Non-interest bearing liabilities
    
    
    126,969
    
    
    
    
    
    
    
    
    
    
    
    132,130Total liabilities
    
    
    843,061
    
    
    
    
    
    
    
    
    
    
    
    792,429Equity
    
    
    107,588
    
    
    
    
    
    
    
    
    
    
    
    109,506Total liabilities and equity
    
    $
    950,649
    
    
    
    
    
    
    
    
    
    
    $
    901,935Net interest income
    
    
    
    
    
    $
    12,802
    
    
    
    
    
    
    
    
    
    
    $
    11,878Net interest rate spread (2)
    
    
    
    
    
    
    
    
    
    
    2.46
    %
    
    
    
    
    
    
    
    
    
    
    2.36
    %Net interest-earning assets (3)
    
    $
    135,622
    
    
    
    
    
    
    
    
    
    
    $
    132,620Net interest margin (4)
    
    
    
    
    
    
    
    
    
    
    3.02
    %
    
    
    
    
    
    
    
    
    
    
    3.02
    %Average interest-earning assets to
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    118.94
    %
    
    
    
    
    
    
    
    
    
    
    120.08
    %
 
 (1)
    
    Yields and rates for the six months ended June 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 interest income divided by average total interest-earning assets.  20




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##### Table of Contents



Three Months Ended June 30,2008 vs. 2007Increase (Decrease)
    
    
    TotalDue to
    
    
    IncreaseVolume
    
    
    Rate
    
    
    (Decrease)(In thousands)Interest-earning assets:Loans
    
    $
    854
    
    
    $
    (604
    )
    
    $
    250Securities
    
    
    224
    
    
    
    (301
    )
    
    
    (77
    )Short-term investments
    
    
    104
    
    
    
    (230
    )
    
    
    (126
    )Total interest-earning assets
    
    
    1,182
    
    
    
    (1,135
    )
    
    
    47Interest-bearing liabilities:Savings accounts
    
    
    (2
    )
    
    
    (20
    )
    
    
    (22
    )Money market accounts
    
    
    138
    
    
    
    (329
    )
    
    
    (191
    )NOW accounts
    
    
    106
    
    
    
    (58
    )
    
    
    48Certificates of deposit
    
    
    (207
    )
    
    
    (526
    )
    
    
    (733
    )Total deposits
    
    
    35
    
    
    
    (933
    )
    
    
    (898
    )Borrowings
    
    
    594
    
    
    
    (93
    )
    
    
    501Total interest-bearing liabilities
    
    
    629
    
    
    
    (1,026
    )
    
    
    (397
    )Change in net interest income
    
    $
    553
    
    
    $
    (109
    )
    
    $
    444
 Six Months Ended June 30,2008 vs. 2007Increase (Decrease)
    
    
    TotalDue to
    
    
    IncreaseVolume
    
    
    Rate
    
    
    (Decrease)(In thousands)Interest-earning assets:Loans
    
    $
    822
    
    
    $
    (387
    )
    
    $
    435Securities
    
    
    520
    
    
    
    (282
    )
    
    
    238Short-term investments
    
    
    211
    
    
    
    (376
    )
    
    
    (165
    )Total interest-earning assets
    
    
    1,553
    
    
    
    (1,045
    )
    
    
    508Interest-bearing liabilities:Savings accounts
    
    
    (8
    )
    
    
    (38
    )
    
    
    (46
    )Money market accounts
    
    
    243
    
    
    
    (433
    )
    
    
    (190
    )NOW accounts
    
    
    236
    
    
    
    17
    
    
    
    253Certificates of deposit
    
    
    (533
    )
    
    
    (679
    )
    
    
    (1,212
    )Total deposits
    
    
    (62
    )
    
    
    (1,133
    )
    
    
    (1,195
    )Borrowings
    
    
    888
    
    
    
    (109
    )
    
    
    779Total interest-bearing liabilities
    
    
    826
    
    
    
    (1,242
    )
    
    
    (416
    )Change in net interest income
    
    $
    727
    
    
    $
    197
    
    
    $
    924
  21




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22




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##### Table of Contents



Provision for Loan Losses
  :
 Non-interest Income
    23




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##### Table of Contents



Non-interest Expense
     Income Taxes
  24




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##### Table of Contents



Liquidity and Capital Resources
     Contractual Obligations:
 25




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##### Table of Contents



June 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)
    
    $
    192,369
    
    
    $
    25,200
    
    
    $
    136,200
    
    
    $
    16,500
    
    
    $
    14,469Operating leases (2)
    
    
    13,743
    
    
    
    1,187
    
    
    
    2,324
    
    
    
    2,189
    
    
    
    8,043Non-qualified pension (3)
    
    
    11,695
    
    
    
    2,842
    
    
    
    2,098
    
    
    
    1,774
    
    
    
    4,981Other contractual obligations(4)
    
    
    8,503
    
    
    
    2,855
    
    
    
    4,746
    
    
    
    902
    
    
    
    Total contractual obligations
    
    $
    226,310
    
    
    $
    32,084
    
    
    $
    145,368
    
    
    $
    21,365
    
    
    $
    27,493
 
 (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:
 June 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)
    
    $
    8,311
    
    
    $
    8,311
    
    
    $
    
    
    
    $
    
    
    
    $
    Unused portion of commercial loan lines of credit
    
    
    37,325
    
    
    
    31,233
    
    
    
    6,092
    
    
    
    
    
    
    
    Unused portion of home equity lines of credit (2)
    
    
    45,024
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,024Unused portion of construction loans (3)
    
    
    20,805
    
    
    
    18,505
    
    
    
    2,300
    
    
    
    
    
    
    
    Unused portion of personal lines of credit (4)
    
    
    2,451
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,451Commercial letters of credit
    
    
    1,038
    
    
    
    1,038
    
    
    
    
    
    
    
    
    
    
    
    Total loan commitments
    
    $
    114,954
    
    
    $
    59,087
    
    
    $
    8,392
    
    
    $
    
    
    
    $
    47,475
 
 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. 26




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##### Table of Contents



Minimum Regulatory Capital Requirements:
  MinimumTo Be WellMinimum
    
    Capitalized UnderCapital
    
    Prompt CorrectiveActual
    
    Requirements
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)June 30, 2008:Total capital to risk weighted assets:Consolidated
    
    $
    78,547
    
    
    
    11.7
    %
    
    $
    53,854
    
    
    
    8.0
    %
    
    
    N/A
    
    
    
    N/ABank
    
    
    70,689
    
    
    
    10.5
    
    
    
    53,804
    
    
    
    8.0
    
    
    $
    67,256
    
    
    
    10.0
    %Tier 1 capital to risk weighted assets:Consolidated
    
    
    71,978
    
    
    
    10.7
    
    
    
    26,927
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    64,120
    
    
    
    9.5
    
    
    
    26,902
    
    
    
    4.0
    
    
    
    40,353
    
    
    
    6.0Tier 1 capital to average assets:Consolidated
    
    
    71,978
    
    
    
    7.7
    
    
    
    37,243
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/ABank
    
    
    64,120
    
    
    
    6.9
    
    
    
    37,269
    
    
    
    4.0
    
    
    
    46,587
    
    
    
    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
 27




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##### Table of Contents



Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk.
   Percentage Change in EstimatedNet Interest Income over 12 months (1)200 basis point increase in rates
    
    
    (7.64
    )%100 basis point increase in rates
    
    
    (3.22
    )%Flat interest rates
    
    
    100 basis point decrease in rates
    
    
    0.51
    %200 basis point decrease in rates
    
    
    (3.08
    )%
 
 (1)
    
    For purposes of income simulation analysis only, the Company includes cash supplied to ATM
customers as an interest-earning asset and related ATM servicing fees as a component of net
interest income. ATM servicing income is based on average cash balances outstanding and a floating
interest rate that is tied to the prime rate index.    28




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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
 29




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors That May Affect Future Results
  
 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. As of July 31, 2008, total repurchases under the plan were
219,400 at an average price of $13.62 per share. In the second quarter of 2008, the
Company purchased 4,400 shares, as follows:
 (d) Maximum number(or approximate(c) Total Number of
    
    
    dollar value) ofShares Purchased as
    
    
    shares that may yetPart of Publicly
    
    
    be purchased under(a) Total Number of
    
    
    (b) Average Price
    
    
    Announced Plans or
    
    
    the Plans orPeriod
    
    Shares Purchased
    
    
    Paid per Share
    
    
    Programs
    
    
    ProgramsApril 1-30
    
    
    4,400
    
    
    $
    13.55
    
    
    
    4,400
    
    
    
    174,800May 1-31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    174,800June 1-30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    174,800Total
    
    
    4,400
    
    
    $
    13.55
    
    
    
    4,400
    
    
    
    174,800
 
 Item 3. Defaults on Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  Name
    
    For
    
    WithheldDr. Mary Ambler
    
    
    6,559,249
    
    
    
    318,749Richard E. Bolton, Jr.
    
    
    6,704,427
    
    
    
    173,571Daniel F. OBrien
    
    
    6,575,413
    
    
    
    302,585Charles F. Oteri
    
    
    6,563,987
    
    
    
    314,011
  30




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##### Table of Contents



Ratification of Wolf & Co.For
    
    
    6,816,454Against
    
    
    58,489Abstentions
    
    
    3,055Broker Non-Votes
    
    
    0
 
 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.
    
    
    74.1
    
    
    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. *
    
    
    2
 31




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##### Table of Contents



Exhibit No.
    
    Description
    
    Footnotes10.7.1
    
    
    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
 
 *
    
    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.
 32




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##### Table of Contents



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.
 33




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##### Table of Contents



SIGNATURES
  Benjamin Franklin Bancorp, Inc.Date:  August 11, 2008
    By:
    /s/ Thomas R. VenablesThomas R. VenablesPresident and Chief Executive OfficerDate:  August 11, 2008
    By:
    /s/ Claire S. BeanClaire S. BeanTreasurer and Chief Financial Officer 34




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##### 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.
 35