##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q



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

For the Quarterly period ended June 30, 2007

OR



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

For the transition period from  to

Commission file number 33-22224-B



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Beverly National Corporation

(Name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Massachusetts                                                  |  | 04-2832201                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|240 Cabot Street Beverly, Massachusetts  |  | 01915     
|(Address of principal executive offices) |  | (Zip Code)

Registrants telephone number, including area code (978) 922-2100



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Indicate by check mark whether registrant
(l) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of 1934 during the preceding l2 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  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).

Large Accelerated Filer ̈Accelerated Filer ̈Non-Accelerated Filer  x

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

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of August 13, 2007.
2,779,250.



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##### Table of Contents

BEVERLY NATIONAL CORPORATION

INDEX



|                                                                                                                  |  |   
|----------------------------------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION                                                                                     |  |   
|                                                                                                                  | 
|Item 1.                                                                                                           |  |   
|                                                                                                                  | 
|Financial Statements                                                                                              |  |   
|                                                                                                                  | 
|Condensed Consolidated Balance Sheets at June 30, 2007 (Unaudited) and December 31, 2006                          |  | 3 
|                                                                                                                  | 
|Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2007 and 2006 (Unaudited) |  | 4 
|                                                                                                                  | 
|Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006 (Unaudited)       |  | 5 
|                                                                                                                  | 
|Notes to Condensed Consolidated Financial Statements (Unaudited)                                                  |  | 6 
|                                                                                                                  | 
|Item 2.                                                                                                           |  |   
|                                                                                                                  | 
|Managements Discussion and Analysis of Financial Condition and Results of Operations                             |  | 8 
|                                                                                                                  | 
|Item 3.                                                                                                           |  |   
|                                                                                                                  | 
|Quantitative and Qualitative Disclosures about Market Risk                                                        |  | 17
|                                                                                                                  | 
|Item 4.                                                                                                           |  |   
|                                                                                                                  | 
|Controls and Procedures                                                                                           |  | 18
|                                                                                                                  | 
|PART II. OTHER INFORMATION                                                                                        |  |   
|                                                                                                                  | 
|Item 1.                                                                                                           |  |   
|                                                                                                                  | 
|Legal Proceedings                                                                                                 |  | 19
|                                                                                                                  | 
|Item 1A.                                                                                                          |  |   
|                                                                                                                  | 
|Risk Factors                                                                                                      |  | 19
|                                                                                                                  | 
|Item 2.                                                                                                           |  |   
|                                                                                                                  | 
|Unregistered Sales of Equity Securities and Use of Proceeds                                                       |  | 19
|                                                                                                                  | 
|Item 3.                                                                                                           |  |   
|                                                                                                                  | 
|Defaults Upon Senior Securities                                                                                   |  | 19
|                                                                                                                  | 
|Item 4.                                                                                                           |  |   
|                                                                                                                  | 
|Submission of Matters to a Vote of Security Holders                                                               |  | 19
|                                                                                                                  | 
|Item 5.                                                                                                           |  |   
|                                                                                                                  | 
|Other Information                                                                                                 |  | 20
|                                                                                                                  | 
|Item 6.                                                                                                           |  |   
|                                                                                                                  | 
|Exhibits                                                                                                          |  | 20
|                                                                                                                  | 
|Signatures                                                                                                        |  | 21



2



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##### Table of Contents

PART IFINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS.
|------- | ---------------------

BEVERLY NATIONAL CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)



|                                                                                                                                             |  |               |         |   |                   |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                             |  | June 30, 2007 |         |   | December 31, 2006 |  
|                                                                                                                                             |  | (unaudited)   |         |   |                   |  
|ASSETS                                                                                                                                       |  |               |         |   |                   |   |         |  
|Cash and due from banks                                                                                                                      |  | $             | 11,266  |   |                   | $ | 12,954  |  
|Interest-bearing demand deposits with other banks                                                                                            |  |               | 164     |   |                   |   | 1,010   |  
|Federal funds sold                                                                                                                           |  |               | 28      |   |                   |   | 11,604  |  
|                                                                                                                                             |  |               |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                                                    |  |               | 11,458  |   |                   |   | 25,568  |  
|Investments in available-for-sale securities (at fair value)                                                                                 |  |               | 116,093 |   |                   |   | 116,181 |  
|Federal Home Loan Bank stock, at cost                                                                                                        |  |               | 3,452   |   |                   |   | 3,503   |  
|Federal Reserve Bank stock, at cost                                                                                                          |  |               | 553     |   |                   |   | 188     |  
|Loans, net of the allowance for loan losses of $3,477 and $3,044, respectively                                                               |  |               | 320,503 |   |                   |   | 302,667 |  
|Premises and equipment                                                                                                                       |  |               | 7,454   |   |                   |   | 6,285   |  
|Accrued interest receivable                                                                                                                  |  |               | 1,986   |   |                   |   | 1,840   |  
|Other assets                                                                                                                                 |  |               | 11,464  |   |                   |   | 10,912  |  
|                                                                                                                                             |  |               |         |   |                   |   |         |  
|Total assets                                                                                                                                 |  | $             | 472,963 |   |                   | $ | 467,144 |  
|                                                                                                                                             |  |               |         |   |                   |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                         |  |               |         |   |                   |   |         |  
|Deposits:                                                                                                                                    |  |               |         |   |                   |   |         |  
|Noninterest-bearing                                                                                                                          |  | $             | 77,716  |   |                   | $ | 75,751  |  
|Interest-bearing                                                                                                                             |  |               | 278,462 |   |                   |   | 277,107 |  
|                                                                                                                                             |  |               |         |   |                   |   |         |  
|Total deposits                                                                                                                               |  |               | 356,178 |   |                   |   | 352,858 |  
|Federal Home Loan Bank advances                                                                                                              |  |               | 58,406  |   |                   |   | 47,000  |  
|Securities sold under agreements to repurchase                                                                                               |  |               | 7,648   |   |                   |   | 16,372  |  
|Other liabilities                                                                                                                            |  |               | 4,261   |   |                   |   | 4,736   |  
|                                                                                                                                             |  |               |         |   |                   |   |         |  
|Total liabilities                                                                                                                            |  |               | 426,493 |   |                   |   | 420,966 |  
|                                                                                                                                             |  |               |         |   |                   |   |         |  
|Stockholders equity:                                                                                                                        |  |               |         |   |                   |   |         |  
|Preferred stock, $1.00 par value per share; 300,000 shares authorized; issued and outstanding none                                           |  |               |        |   |                   |   |        |  
|Common stock, $2.50 par value per share; 5,000,000 shares authorized; issued 2,889,290 shares as of June 30, 2007 and 2,837,240 shares as
of |  |               |         |   |                   |   |         |  
|December 31, 2006; outstanding, 2,769,745 shares as of June 30, 2007 and 2,726,835 shares as of December 31,
2006                            |  |               | 7,223   |   |                   |   | 7,093   |  
|Paid-in capital                                                                                                                              |  |               | 22,305  |   |                   |   | 21,772  |  
|Retained earnings                                                                                                                            |  |               | 20,282  |   |                   |   | 19,694  |  
|Treasury stock, at cost (110,405 shares as of June 30, 2007 and December 31, 2006)                                                           |  |               | (1,495  | ) |                   |   | (1,495  | )
|Unearned shares, Restricted Stock Plan (9,140 shares as of June 30, 2007)                                                                    |  |               | (23     | ) |                   |   |        |  
|Accumulated other comprehensive loss                                                                                                         |  |               | (1,822  | ) |                   |   | (886    | )
|                                                                                                                                             |  |               |         |   |                   |   |         |  
|Total stockholders equity                                                                                                                   |  |               | 46,470  |   |                   |   | 46,178  |  
|                                                                                                                                             |  |               |         |   |                   |   |         |  
|Total liabilities and stockholders equity                                                                                                   |  | $             | 472,963 |   |                   | $ | 467,144 |  
|                                                                                                                                             |  |               |         |   |                   |   |         |  
|Book value per share                                                                                                                         |  | $             | 16.78   |   |                   | $ | 16.93   |  
|                                                                                                                                             |  |               |         |   |                   |   |         |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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##### Table of Contents

BEVERLY NATIONAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(unaudited)



|                                                                 |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|---------------------------------------------------------------- |  | ------------------ | --------- | ---------------- | ------------- | - | ------------- |  | ------------- | --------- |  | - | --------- | -
|                                                                 |  | Three Months Ended |           | Six Months Ended |              
|                                                                 |  | June 30, 2007      |           |                  | June 30, 2006 |   | June 30, 2007 |  | June 30, 2006 |          
|Interest and dividend income:                                    |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Interest and fees on loans                                       |  | $                  | 5,233     |                  |               | $ | 4,674         |  | $             | 10,168    |  | $ | 9,017     |  
|Interest on debt securities:                                     |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Taxable                                                          |  |                    | 1,145     |                  |               |   | 999           |  |               | 2,266     |  |   | 2,025     |  
|Tax-exempt                                                       |  |                    | 115       |                  |               |   | 23            |  |               | 218       |  |   | 49        |  
|Dividends on marketable equity securities                        |  |                    | 153       |                  |               |   | 62            |  |               | 315       |  |   | 124       |  
|Other interest                                                   |  |                    | 85        |                  |               |   | 1             |  |               | 219       |  |   | 15        |  
|                                                                 |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Total interest and dividend income                               |  |                    | 6,731     |                  |               |   | 5,759         |  |               | 13,186    |  |   | 11,230    |  
|                                                                 |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Interest expense:                                                |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Interest on deposits                                             |  |                    | 1,916     |                  |               |   | 1,338         |  |               | 3,678     |  |   | 2,552     |  
|Interest on other borrowed funds                                 |  |                    | 825       |                  |               |   | 755           |  |               | 1,545     |  |   | 1,195     |  
|                                                                 |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Total interest expense                                           |  |                    | 2,741     |                  |               |   | 2,093         |  |               | 5,223     |  |   | 3,747     |  
|                                                                 |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Net interest and dividend income                                 |  |                    | 3,990     |                  |               |   | 3,666         |  |               | 7,963     |  |   | 7,483     |  
|Provision for loan losses                                        |  |                    | 100       |                  |               |   | 150           |  |               | 250       |  |   | 290       |  
|                                                                 |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Net interest and dividend income after provision for loan losses |  |                    | 3,890     |                  |               |   | 3,516         |  |               | 7,713     |  |   | 7,193     |  
|                                                                 |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Noninterest income:                                              |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Income from fiduciary activities                                 |  |                    | 479       |                  |               |   | 489           |  |               | 941       |  |   | 921       |  
|Fees from sale of non-deposit products                           |  |                    | 66        |                  |               |   | 71            |  |               | 129       |  |   | 122       |  
|Service charges on deposit accounts                              |  |                    | 153       |                  |               |   | 141           |  |               | 295       |  |   | 279       |  
|Other deposit fees                                               |  |                    | 258       |                  |               |   | 159           |  |               | 503       |  |   | 305       |  
|Gain on sales of loans, net                                      |  |                    |          |                  |               |   |              |  |               | 6         |  |   |          |  
|Income on cash surrender value of life insurance                 |  |                    | 59        |                  |               |   | 52            |  |               | 111       |  |   | 104       |  
|Other income                                                     |  |                    | 255       |                  |               |   | 184           |  |               | 456       |  |   | 422       |  
|                                                                 |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Total noninterest income                                         |  |                    | 1,270     |                  |               |   | 1,096         |  |               | 2,441     |  |   | 2,153     |  
|                                                                 |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Noninterest expense:                                             |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Salaries and employee benefits                                   |  |                    | 2,099     |                  |               |   | 2,128         |  |               | 4,275     |  |   | 4,366     |  
|Director fees                                                    |  |                    | 87        |                  |               |   | 88            |  |               | 165       |  |   | 167       |  
|Occupancy expense                                                |  |                    | 392       |                  |               |   | 334           |  |               | 775       |  |   | 673       |  
|Equipment expense                                                |  |                    | 214       |                  |               |   | 200           |  |               | 421       |  |   | 395       |  
|Data processing fees                                             |  |                    | 298       |                  |               |   | 189           |  |               | 565       |  |   | 394       |  
|Marketing and public relations                                   |  |                    | 134       |                  |               |   | 93            |  |               | 242       |  |   | 194       |  
|Professional fees                                                |  |                    | 322       |                  |               |   | 156           |  |               | 566       |  |   | 284       |  
|Other expense                                                    |  |                    | 417       |                  |               |   | 378           |  |               | 837       |  |   | 752       |  
|                                                                 |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Total noninterest expense                                        |  |                    | 3,963     |                  |               |   | 3,566         |  |               | 7,846     |  |   | 7,225     |  
|                                                                 |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Income before income taxes                                       |  |                    | 1,197     |                  |               |   | 1,046         |  |               | 2,308     |  |   | 2,121     |  
|Income taxes                                                     |  |                    | 315       |                  |               |   | 327           |  |               | 619       |  |   | 664       |  
|                                                                 |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Net income                                                       |  | $                  | 882       |                  |               | $ | 719           |  | $             | 1,689     |  | $ | 1,457     |  
|                                                                 |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Comprehensive (loss) income                                      |  | $                  | (224      | )                |               | $ | 585           |  | $             | 753       |  | $ | 1,214     |  
|                                                                 |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Earnings per share:                                              |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Weighted average shares outstanding                              |  |                    | 2,733,071 |                  |               |   | 1,893,343     |  |               | 2,761,842 |  |   | 1,891,955 |  
|                                                                 |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Weighted average diluted shares outstanding                      |  |                    | 2,741,078 |                  |               |   | 1,927,028     |  |               | 2,774,263 |  |   | 1,931,343 |  
|                                                                 |  |                    |           |                  |               |   |               |  |               |           |  |   |           |  
|Earnings per common share                                        |  | $                  | 0.32      |                  |               | $ | 0.38          |  | $             | 0.61      |  | $ | 0.77      |  
|Earnings per common share, assuming dilution                     |  | $                  | 0.32      |                  |               | $ | 0.37          |  | $             | 0.61      |  | $ | 0.75      |  
|Dividends per share                                              |  | $                  | 0.20      |                  |               | $ |              |  | $             | 0.40      |  | $ | 0.40      | *

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|* | The dividends declared in the 2006 periods include the first quarter dividend of $0.20 declared in January 2006 and the second quarter dividend of $0.20 declared in March 2006.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these condensed consolidated financial statements.



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##### Table of Contents

BEVERLY NATIONAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)



|                                                                                   |  |                  |         |   |               |   |         |  
|---------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ------------- | - | ------- | -
|                                                                                   |  | Six Months Ended |        
|                                                                                   |  | June 30, 2007    |         |   | June 30, 2006 |  
|Cash flows from operating activities:                                              |  |                  |         |   |               |   |         |  
|Net income                                                                         |  | $                | 1,689   |   |               | $ | 1,457   |  
|Adjustments to reconcile net income to net cash provided by operating activities:  |  |                  |         |   |               |   |         |  
|Depreciation and amortization                                                      |  |                  | 360     |   |               |   | 330     |  
|Provision for loan losses                                                          |  |                  | 250     |   |               |   | 290     |  
|Increase in interest payable                                                       |  |                  | 241     |   |               |   | 153     |  
|Decrease in prepaid expenses                                                       |  |                  | 45      |   |               |   | 38      |  
|Decrease in RABBI Trust trading securities                                         |  |                  | 42      |   |               |   | 54      |  
|Increase (decrease) in other liabilities                                           |  |                  | 32      |   |               |   | (207    | )
|Amortization of securities, net                                                    |  |                  | 26      |   |               |   | 95      |  
|Stock-based compensation                                                           |  |                  | 26      |   |               |   | 16      |  
|Decrease in mortgage servicing rights                                              |  |                  | 18      |   |               |   | 18      |  
|Change in deferred loan costs, net                                                 |  |                  | 11      |   |               |   | (66     | )
|Increase in other assets                                                           |  |                  | (9      | ) |               |   | (161    | )
|(Increase) decrease in taxes receivable                                            |  |                  | (27     | ) |               |   | 55      |  
|Increase in cash surrender value of life insurance                                 |  |                  | (105    | ) |               |   | (103    | )
|Increase in interest receivable                                                    |  |                  | (146    | ) |               |   | (64     | )
|Decrease in accrued expenses                                                       |  |                  | (748    | ) |               |   | (369    | )
|                                                                                   |  |                  |         |   |               |   |         |  
|Net cash provided by operating activities                                          |  |                  | 1,705   |   |               |   | 1,536   |  
|                                                                                   |  |                  |         |   |               |   |         |  
|Cash flows from investing activities:                                              |  |                  |         |   |               |   |         |  
|Proceeds from maturities of available-for-sale securities                          |  |                  | 8,115   |   |               |   | 5,455   |  
|Proceeds from sales of available-for-sale securities                               |  |                  | 3,091   |   |               |   |        |  
|Recoveries of loans previously charged off                                         |  |                  | 187     |   |               |   | 5       |  
|Purchase of Federal Home Loan Bank stock                                           |  |                  | 51      |   |               |   | (1,342  | )
|Proceeds from maturities of held-to-maturity securities                            |  |                  |        |   |               |   | 2,492   |  
|Purchase of Federal Reserve Bank stock                                             |  |                  | (365    | ) |               |   |        |  
|Capital expenditures                                                               |  |                  | (1,529  | ) |               |   | (736    | )
|Purchases of available-for-sale securities                                         |  |                  | (12,596 | ) |               |   | (5,111  | )
|Loan originations and principal collections, net                                   |  |                  | (18,285 | ) |               |   | (30,868 | )
|                                                                                   |  |                  |         |   |               |   |         |  
|Net cash used in investing activities                                              |  |                  | (21,331 | ) |               |   | (30,105 | )
|                                                                                   |  |                  |         |   |               |   |         |  
|Cash flows from financing activities:                                              |  |                  |         |   |               |   |         |  
|Net increase in Federal Home Loan Bank advances                                    |  |                  | 11,406  |   |               |   | 27,350  |  
|Net decrease in time deposits                                                      |  |                  | 3,319   |   |               |   | 4,416   |  
|Proceeds from exercise of stock options                                            |  |                  | 614     |   |               |   | 100     |  
|Net increase (decrease) in demand deposits, NOW, money market and savings accounts |  |                  | 1       |   |               |   | (4,319  | )
|Dividends paid                                                                     |  |                  | (1,100  | ) |               |   | (756    | )
|(Decrease) increase in securities sold under agreements to repurchase              |  |                  | (8,724  | ) |               |   | 662     |  
|                                                                                   |  |                  |         |   |               |   |         |  
|Net cash provided by financing activities                                          |  |                  | 5,516   |   |               |   | 27,453  |  
|                                                                                   |  |                  |         |   |               |   |         |  
|Net decrease in cash and cash equivalents                                          |  |                  | (14,110 | ) |               |   | (1,116  | )
|Cash and cash equivalents at beginning of period                                   |  |                  | 25,568  |   |               |   | 13,440  |  
|                                                                                   |  |                  |         |   |               |   |         |  
|Cash and cash equivalents at end of period                                         |  | $                | 11,458  |   |               | $ | 12,324  |  
|                                                                                   |  |                  |         |   |               |   |         |  
|Supplemental disclosures:                                                          |  |                  |         |   |               |   |         |  
|Interest paid                                                                      |  | $                | 4,982   |   |               | $ | 3,594   |  
|Income taxes paid                                                                  |  |                  | 646     |   |               |   | 577     |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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##### Table of Contents

BEVERLY NATIONAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|1. | BASIS OF PRESENTATION
|-- | ---------------------

The interim condensed consolidated
financial statements contained herein are unaudited but, in the opinion of management, include all adjustments that are necessary to make the financial statements not misleading. All such adjustments are of a normal recurring nature. The results of
operations for any interim period are not necessarily indicative of results that may be expected for the year ended December 31, 2007.

The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.



|2. | EARNINGS PER SHARE
|-- | ------------------

Earnings per share (EPS)
calculations are based on the weighted-average number of common shares outstanding during the period.

Basic EPS excludes dilution and is
computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if the securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.



|3. | RECLASSIFICATION
|-- | ----------------

Certain amounts for prior periods have
been reclassified to be consistent with the current statement presentation.



|4. | IMPACT OF NEW ACCOUNTING STANDARDS
|-- | ----------------------------------

In February 2006, the
Financial Accounting Standards Board (FASB) issued SFAS No. 155, Accounting for Certain Hybrid Instruments (SFAS 155), which permits, but does not require, fair value accounting for any hybrid financial instrument that contains an
embedded derivative that would otherwise require bifurcation in accordance with SFAS 133. The statement also subjects beneficial interests issued by securitization vehicles to the requirements of SFAS No. 133. The statement was effective as of
January 1, 2007. The adoption of SFAS 155 is not expected to have a material impact on the Companys financial condition, results of operations or cash flows.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets- an amendment of FASB Statement No. 140 (SFAS 156). SFAS 156 requires an entity to recognize a servicing
asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in specific situations. Additionally, the servicing asset or servicing liability shall be initially measured at
fair value; however, an entity may elect the amortization method or fair value method for subsequent balance sheet reporting periods. SFAS 156 is effective as of an entitys first fiscal year beginning after
September 15, 2006. Early adoption is permitted as of the beginning of an entitys fiscal year, provided the entity has not yet issued financial statements, including interim financial statements, for any period of that fiscal year. The
Company does not expect the adoption of this statement to have a material impact on its financial condition, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles (GAAP) and
enhances disclosures about fair value measurements. SFAS 157 retains the exchange price notion and clarifies that the exchange price is the price that would be received for an asset or paid to transfer a liability (an exit price) in an orderly
transaction between market participants on the measurement date. SFAS 157 is effective for the Companys consolidated financial statements for the year beginning on January 1, 2008, with earlier adoption permitted. The Company does not
expect the adoption of this statement to have a material impact on its financial condition, results of operations or cash flows.



6



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##### Table of Contents

In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined
Benefit Pension and other Postretirement Plans  an amendment of FASB Statements No 87, 88, 106 and 132(R) (SFAS 158). SFAS 158 requires 1) the recognition of an asset or liability for the over-funded or under-funded status of a defined
benefit plan, 2) the recognition of actuarial gains and losses and prior service costs and credits in other comprehensive income, 3) measurement of plan assets and benefit obligations as of the employers balance sheet date, rather than at
interim measurement dates as currently allowed, and 4) disclosure of additional information concerning actuarial gains and losses and prior service costs and credits recognized in other comprehensive income. This statement is effective for financial
statements with fiscal years ending after December 15, 2006. The adoption of this statement did not have a material impact on the Companys financial condition, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities including an amendment of
FASB Statement No. 115 (SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement
also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. The new standard is effective at the beginning of
the Companys fiscal year beginning January 1, 2008, and early application may be elected in certain circumstances. The Company is currently evaluating and has not yet determined the impact the new standard is expected to have on its
financial position, results of operations or cash flows.



|5. | STOCK BASED COMPENSATION
|-- | ------------------------

The Company maintains six
stock-based employee compensation plans. Effective January 1, 2006, the Company adopted SFAS 123R. For the six months ended June 30, 2007, stock-based employee compensation costs recorded as expenses amounted to $26,000, compared to
$16,000 for the same period last year. The 2007 figure includes compensation costs of $18,000 for grants made to employees pursuant to the Companys Restricted Stock Plan, from which the Board of Directors approved the initial grant of 9,140
shares, at costs of $21.85 per share, during the second quarter of 2007. Prior to January 1, 2006, the Company accounted for the plans under the recognition and measurement principles of APB Opinion No. 25. No stock-based employee
compensation cost had been recognized during periods prior to January 1, 2006 for the Companys fixed stock option plans.



|6. | PENSION BENEFITS
|-- | ----------------

The following summarizes the net
periodic cost for the three and six months ended June 30:



|                                                 |  |                                     |      |   |                                   |   |      |      |  |   |      |   |  |   |      |  
|------------------------------------------------ |  | ----------------------------------- | ---- | - | --------------------------------- | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                                 |  | For the Three Months Ended June 30, |      |   | For the Six Months Ended June 30, |  
|                                                 |  | 2007                                |      |   | 2006                              |   |      | 2007 |  |   | 2006 |  
|                                                 |  | (in thousands)                      |      |   | (in thousands)                    |  
|Service cost                                     |  | $                                   |     |   |                                   | $ |     |      |  | $ |     |   |  | $ |     |  
|Interest cost on benefit obligation              |  |                                     | 123  |   |                                   |   | 119  |      |  |   | 246  |   |  |   | 237  |  
|Expected return on plan assets                   |  |                                     | (162 | ) |                                   |   | (151 | )    |  |   | (323 | ) |  |   | (301 | )
|Amortization of prior service cost               |  |                                     |     |   |                                   |   |     |      |  |   |     |   |  |   |     |  
|                                                 |  |                                     |      |   |                                   |   |      |      |  |   |      |   |  |   |      |  
|Net periodic (benefit) cost                      |  |                                     | (39  | ) |                                   |   | (32  | )    |  |   | (77  | ) |  |   | (64  | )
|Adjustment for curtailment gain                  |  |                                     |     |   |                                   |   |     |      |  |   |     |   |  |   |     |  
|Adjustment for recognition of prior service cost |  |                                     |     |   |                                   |   |     |      |  |   |     |   |  |   |     |  
|                                                 |  |                                     |      |   |                                   |   |      |      |  |   |      |   |  |   |      |  
|Total plan benefit                               |  | $                                   | (39  | ) |                                   | $ | (32  | )    |  | $ | (77  | ) |  | $ | (64  | )
|                                                 |  |                                     |      |   |                                   |   |      |      |  |   |      |   |  |   |      |  

Effective January 1, 2006, the pension plan was suspended so that employees no longer earn
additional defined benefits for future service.



7



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##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------

Introduction

The following discussion includes Beverly National Corporation (Company) and its
subsidiary, Beverly National Bank (Bank) and the Banks wholly owned subsidiary, Beverly National Security Corporation (BNSC). BNSC was established to buy, sell and hold securities for the Banks investment
portfolios. A former subsidiary of the Bank, Hannah Insurance Agency (Hannah), which was established to sell annuities, life and long-term disability insurance, was dissolved during the first quarter of 2006.

Critical Accounting Estimates

In preparing the Companys
financial statements, management selects and applies numerous accounting policies. In applying these policies, management must make estimates and assumptions. The accounting policy that is most susceptible to critical estimates and assumptions is
the allowance for loan losses. The determination of an appropriate provision is based on a determination of the probable amount of credit losses in the loan portfolio. Many factors influence the amount of potential charge-offs of loans deemed to be
uncollectible. These factors include the specific characteristics of the loan portfolio and general economic conditions nationally and locally. While management carefully considers these factors in determining the amount of the allowance for loan
losses, future adjustments may be necessary due to changed conditions, which could have an adverse impact on reported earnings in the future. See Provisions and Allowance for Loan Losses.

Summary

Total assets as of June 30, 2007 increased $5.8
million, or 1.2%, compared to December 31, 2006. Loans, net of the allowance for loan losses, increased $17.8 million, or 5.9%, while cash and cash equivalents declined $14.1 million, or 55.2% during the period. The strategic focus remains the
prudent growth of the loan portfolio, and funding that growth through an expanded deposit base, or other funding alternatives, with the lowest feasible cost available to the Bank. Deposits increased $3.3 million, or 0.9%, repurchase agreements
decreased $8.7 million, or 55.3%, and Federal Home Loan Bank advances increased $11.4 million, or 24.3%. This growth in deposits reflects the June opening of the Banks newest branch in Salem and the introduction of an enhanced line of deposit
products, including an on-line only savings account. Despite this increase, however, the deposit side of the balance sheet has remained challenging, as it has proven difficult to balance the overall cost of deposits while competing with high rate
alternatives available to customers from local competition and internet-based sources. The Bank tempers the effect of competing for retail deposits through judicious use of other funding options available to the Bank, such as Federal Home Loan Bank
advances. This strategy offers the Bank the greatest potential for earnings improvement and resources will continue to be allocated to these areas. The market for deposits continues to be competitive as financial institutions introduce aggressively
priced products at higher rate levels in an attempt to attract new deposits. The Banks management has been hesitant to match these aggressively priced products, as it would result in additional pressure on the net interest margin and core
earnings. The Bank actively manages and monitors its deposit pricing to strike a balance between sound financial management and maintenance of its deposit customer base.



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##### Table of Contents

Investment Portfolio

Debt and equity securities have been classified in the consolidated balance sheets according to managements intent. The following table presents the amortized cost of securities and their approximate fair values as of June 30,
2007 (unaudited) and December 31, 2006:



|                                                                                              |  |                      |         |                        |   |                         |  |            |       |  |   |        
|--------------------------------------------------------------------------------------------- |  | -------------------- | ------- | ---------------------- | - | ----------------------- |  | ---------- | ----- |  | - | -------
|                                                                                              |  | Amortized Cost Basis |         | Gross Unrealized Gains |   | Gross Unrealized Losses |  | Fair Value
|                                                                                              |  | (in thousands)      
|Available-for-sale securities:                                                                |  |                      |         |                        |   |                         |  |            |       |  |   |        
|June 30, 2007:                                                                                |  |                      |         |                        |   |                         |  |            |       |  |   |        
|Debt securities issued by U.S. government corporations and agencies                           |  | $                    | 16,939  |                        | $ | 1                       |  | $          | 133   |  | $ | 16,807 
|Debt securities issued by states of the United States or political subdivisions of the states |  |                      | 12,328  |                        |   | 4                       |  |            | 532   |  |   | 11,800 
|Trust preferred securities                                                                    |  |                      | 9,387   |                        |   |                        |  |            | 77    |  |   | 9,310  
|Marketable equity securities                                                                  |  |                      | 1,637   |                        |   | 3                       |  |            | 21    |  |   | 1,619  
|Mortgage-backed securities                                                                    |  |                      | 78,088  |                        |   |                        |  |            | 1,929 |  |   | 76,159 
|Debt securities issued by foreign governments                                                 |  |                      | 400     |                        |   |                        |  |            | 2     |  |   | 398    
|                                                                                              |  |                      |         |                        |   |                         |  |            |       |  |   |        
|                                                                                              |  | $                    | 118,779 |                        | $ | 8                       |  | $          | 2,694 |  | $ | 116,093
|                                                                                              |  |                      |         |                        |   |                         |  |            |       |  |   |        
|December 31, 2006:                                                                            |  |                      |         |                        |   |                         |  |            |       |  |   |        
|Debt securities issued by U.S. government corporations and agencies                           |  | $                    | 13,000  |                        | $ | 14                      |  | $          | 71    |  | $ | 12,943 
|Debt securities issued by states of the United States or political subdivisions of the states |  |                      | 9,730   |                        |   | 2                       |  |            | 75    |  |   | 9,657  
|Corporate debt securities                                                                     |  |                      | 1,451   |                        |   |                        |  |            |      |  |   | 1,451  
|Trust preferred securities                                                                    |  |                      | 9,529   |                        |   |                        |  |            | 49    |  |   | 9,480  
|Marketable equity securities                                                                  |  |                      | 4,692   |                        |   | 4                       |  |            | 13    |  |   | 4,683  
|Mortgage-backed securities                                                                    |  |                      | 78,613  |                        |   | 118                     |  |            | 1,159 |  |   | 77,572 
|Debt securities issued by foreign governments                                                 |  |                      | 400     |                        |   |                        |  |            | 5     |  |   | 395    
|                                                                                              |  |                      |         |                        |   |                         |  |            |       |  |   |        
|                                                                                              |  | $                    | 117,415 |                        | $ | 138                     |  | $          | 1,372 |  | $ | 116,181
|                                                                                              |  |                      |         |                        |   |                         |  |            |       |  |   |        

Loan Portfolio

The following table summarizes the distribution of the Banks loan portfolio as of June 30, 2007 and December 31, 2006:



|                                              |  |                |         |   |            |        |   |                   |   |         |            |  |        |  
|--------------------------------------------- |  | -------------- | ------- | - | ---------- | ------ | - | ----------------- | - | ------- | ---------- |  | ------ | -
|                                              |  | June 30, 2007  |         |   | % of Total |        |   | December 31, 2006 |   |         | % of Total | 
|                                              |  | (in thousands) |         |   |            |        |   | (in thousands)    |   |         |            | 
|                                              |  | (unaudited)    |         |   |            |        |   |                   |   |         |            | 
|Commercial, financial and agricultural        |  | $              | 40,332  |   |            | 12.58  | % |                   | $ | 48,201  |            |  | 15.93  | %
|Real estateconstruction and land development |  |                | 19,908  |   |            | 6.21   | % |                   |   | 20,890  |            |  | 6.90   | %
|Real estateresidential                       |  |                | 114,320 |   |            | 35.67  | % |                   |   | 106,930 |            |  | 35.33  | %
|Real estatecommercial                        |  |                | 132,015 |   |            | 41.19  | % |                   |   | 112,237 |            |  | 37.08  | %
|Consumer                                      |  |                | 3,303   |   |            | 1.03   | % |                   |   | 3,102   |            |  | 1.03   | %
|Other                                         |  |                | 13,426  |   |            | 4.19   | % |                   |   | 13,664  |            |  | 4.51   | %
|                                              |  |                |         |   |            |        |   |                   |   |         |            |  |        |  
|                                              |  |                | 323,304 |   |            | 100.87 | % |                   |   | 305,024 |            |  | 100.78 | %
|Allowance for loan losses                     |  |                | (3,477  | ) |            | -1.08  | % |                   |   | (3,044  | )          |  | -1.01  | %
|Deferred loan costs, net                      |  |                | 676     |   |            | 0.21   | % |                   |   | 687     |            |  | 0.23   | %
|                                              |  |                |         |   |            |        |   |                   |   |         |            |  |        |  
|Net Loans                                     |  | $              | 320,503 |   |            | 100.00 | % |                   | $ | 302,667 |            |  | 100.00 | %
|                                              |  |                |         |   |            |        |   |                   |   |         |            |  |        |  



9



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##### Table of Contents

Deposits

The
following table summarizes deposits as of June 30, 2007 and the year ended December 31, 2006:



|                      |  |                |         |            |        |   |                   |   |            |  |        |  
|--------------------- |  | -------------- | ------- | ---------- | ------ | - | ----------------- | - | ---------- |  | ------ | -
|                      |  | June 30, 2007  |         | % of Total |        |   | December 31, 2006 |   | % of Total | 
|                      |  | (in thousands) |         |            |        |   | (in thousands)    |   |            | 
|                      |  | (unaudited)    |         |            |        |   |                   |   |            | 
|Demand Deposits       |  | $              | 77,716  |            | 21.82  | % |                   | $ | 75,751     |  | 21.47  | %
|NOW Accounts          |  |                | 62,774  |            | 17.62  | % |                   |   | 71,805     |  | 20.35  | %
|Money Market Accounts |  |                | 83,447  |            | 23.43  | % |                   |   | 76,427     |  | 21.66  | %
|Savings Deposits      |  |                | 48,852  |            | 13.72  | % |                   |   | 48,805     |  | 13.83  | %
|Time Deposits         |  |                | 83,389  |            | 23.41  | % |                   |   | 80,070     |  | 22.69  | %
|                      |  |                |         |            |        |   |                   |   |            |  |        |  
|Total                 |  | $              | 356,178 |            | 100.00 | % |                   | $ | 352,858    |  | 100.00 | %
|                      |  |                |         |            |        |   |                   |   |            |  |        |  

Comparison of operating results for the three months ended June 30, 2007 and 2006

Net income for the quarter was $882,000, an increase of $163,000, or 22.5%, compared to net income of $719,000 for the same period last year. Basic and diluted earnings
per share decreased to $0.32 per share, compared to basic earnings per share of $0.38 and fully diluted earnings of $0.37 per share for the same period last year. The decrease in both basic and diluted earnings per share is due to the issuance of
805,000 shares of common stock resulting from the Companys secondary stock offering in July 2006 and subsequent increase in the number of shares outstanding.

Total interest and dividend income, when compared to the same period last year, increased by $971,000, or 16.9%. This was the result of increases in interest and fees on loans, which increased by $559,000, or 12.0%, and interest and
dividends on investments, which increased $413,000, or 38.1%. The current interest rate environment has led to the increase in the Companys yield on loans. The restructuring of the investment portfolio in December 2006, as well as the
reinvestment of cash flows from the portfolio at current market rates, has led to the increase in the Companys yield on investments.

Total interest
expense increased by $648,000, or 31.0%, compared to the same period last year. The increase was primarily comprised of a $578,000, or 43.2%, increase in deposit interest expense, which was due to an increase in the amount of deposits and in the
average interest rate paid on deposits, fueled by the current competitive rate environment.

The above changes in interest income and expense resulted in
an increase in net interest and dividend income of $323,000, or 8.8%, from the comparable period last year.

The current interest rate environment has
stabilized to some degree, and while rates on core transaction accounts and maturing certificates of deposit accounts are still increasing, the Banks net interest margin actually increased eight basis points, to 3.78% from 3.70%, for the same
quarter last year. The slow down of increases in the cost of funds, combined with the restructuring of the investment portfolio, accounted for this increase to the net interest margin.



10



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##### Table of Contents

The following table summarizes the components and activity with respect to the Companys net interest and dividend
income and interest rate spread and margin for the periods presented:



|                                                 |  |                                          |         |                           |                                          |       |             |  |      |                           |  |                           |         |  |             |       |    |  |      |  
|------------------------------------------------ |  | ---------------------------------------- | ------- | ------------------------- | ---------------------------------------- | ----- | ----------- |  | ---- | ------------------------- |  | ------------------------- | ------- |  | ----------- | ----- | -- |  | ---- | -
|                                                 |  | For the Three Months Ended June 30, 2007 |         |                           | For the Three Months Ended June 30, 2006 |      
|                                                 |  | AverageBalance                           |         | Interest Inc/Exp          |                                          |       | Yield/ Rate |  |      | AverageBalance            |  | Interest Inc/Exp          |         |  | Yield/ Rate |      
|                                                 |  | (in thousands)(unaudited)                |         | (in thousands)(unaudited) |                                          |       |             |  |      | (in thousands)(unaudited) |  | (in thousands)(unaudited) |         |  |             |      
|Assets                                           |  |                                          |         |                           |                                          |       |             |  |      |                           |  |                           |         |  |             |       |    |  |      |  
|Federal funds sold and interest-bearing deposits |  | $                                        | 1,119   |                           | $                                        | 10    |             |  | 3.49 | %                         |  | $                         | 453     |  | $           | 5     |    |  | 3.98 | %
|Investments                                      |  |                                          | 119,892 |                           |                                          | 1,547 | *           |  | 5.18 | %                         |  |                           | 112,854 |  |             | 1,092 | *  |  | 3.88 | %
|Loans                                            |  |                                          | 318,146 |                           |                                          | 5,320 | **          |  | 6.71 | %                         |  |                           | 292,133 |  |             | 4,732 | ** |  | 6.50 | %
|                                                 |  |                                          |         |                           |                                          |       |             |  |      |                           |  |                           |         |  |             |       |    |  |      |  
|Total interest-earning assets                    |  | $                                        | 439,157 |                           |                                          | 6,877 |             |  | 6.28 | %                         |  | $                         | 405,440 |  |             | 5,829 |    |  | 5.77 | %
|                                                 |  |                                          |         |                           |                                          |       |             |  |      |                           |  |                           |         |  |             |       |    |  |      |  
|Liabilities                                      |  |                                          |         |                           |                                          |       |             |  |      |                           |  |                           |         |  |             |       |    |  |      |  
|Savings deposits                                 |  | $                                        | 48,324  |                           |                                          | 91    |             |  | 0.75 | %                         |  | $                         | 58,221  |  |             | 78    |    |  | 0.54 | %
|NOW accounts                                     |  |                                          | 59,430  |                           |                                          | 121   |             |  | 0.81 | %                         |  |                           | 58,624  |  |             | 38    |    |  | 0.26 | %
|Money market accounts                            |  |                                          | 88,028  |                           |                                          | 800   |             |  | 3.64 | %                         |  |                           | 78,444  |  |             | 608   |    |  | 3.11 | %
|Time deposits                                    |  |                                          | 78,027  |                           |                                          | 905   |             |  | 4.65 | %                         |  |                           | 67,730  |  |             | 613   |    |  | 3.63 | %
|FHLB advances                                    |  |                                          | 60,930  |                           |                                          | 760   |             |  | 5.00 | %                         |  |                           | 53,075  |  |             | 671   |    |  | 5.07 | %
|Repurchase agreements                            |  |                                          | 7,599   |                           |                                          | 65    |             |  | 3.44 | %                         |  |                           | 10,460  |  |             | 85    |    |  | 3.25 | %
|                                                 |  |                                          |         |                           |                                          |       |             |  |      |                           |  |                           |         |  |             |       |    |  |      |  
|Total interest-bearing liabilities               |  |                                          | 342,338 |                           |                                          | 2,742 |             |  | 3.21 | %                         |  |                           | 326,554 |  |             | 2,093 |    |  | 2.57 | %
|Non-interest-bearing deposits                    |  |                                          | 71,591  |                           |                                          |      |             |  |      |                           |  |                           | 73,059  |  |             |      |    |  |      |  
|                                                 |  |                                          |         |                           |                                          |       |             |  |      |                           |  |                           |         |  |             |       |    |  |      |  
|Total deposits                                   |  | $                                        | 413,929 |                           |                                          | 2,742 |             |  | 2.66 | %                         |  | $                         | 399,613 |  |             | 2,093 |    |  | 2.10 | %
|                                                 |  |                                          |         |                           |                                          |       |             |  |      |                           |  |                           |         |  |             |       |    |  |      |  
|Net interest income                              |  |                                          |         |                           | $                                        | 4,135 |             |  |      |                           |  |                           |         |  | $           | 3,736 |    |  |      |  
|                                                 |  |                                          |         |                           |                                          |       |             |  |      |                           |  |                           |         |  |             |       |    |  |      |  
|Net interest spread                              |  |                                          |         |                           |                                          |       |             |  | 3.62 | %                         |  |                           |         |  |             |       |    |  | 3.67 | %
|                                                 |  |                                          |         |                           |                                          |       |             |  |      |                           |  |                           |         |  |             |       |    |  |      |  
|Net interest margin                              |  |                                          |         |                           |                                          |       |             |  | 3.78 | %                         |  |                           |         |  |             |       |    |  | 3.70 | %
|                                                 |  |                                          |         |                           |                                          |       |             |  |      |                           |  |                           |         |  |             |       |    |  |      |  
|Tax Equivalent Income Adjustment:                |  |                                          |         |                           |                                          |       |             |  |      |                           |  |                           |         |  |             |       |    |  |      |  
|State and Muncipal Investment Income             |  |                                          |         |                           | $                                        | 59    | *           |  |      |                           |  |                           |         |  | $           | 12    | *  |  |      |  
|Industrial Revenue Bond Income                   |  |                                          |         |                           |                                          | 87    | **          |  |      |                           |  |                           |         |  |             | 58    | ** |  |      |  
|                                                 |  |                                          |         |                           |                                          |       |             |  |      |                           |  |                           |         |  |             |       |    |  |      |  
|Total Tax Equivalent Income Adjustment           |  |                                          |         |                           | $                                        | 146   |             |  |      |                           |  |                           |         |  | $           | 70    |    |  |      |  
|                                                 |  |                                          |         |                           |                                          |       |             |  |      |                           |  |                           |         |  |             |       |    |  |      |  

---

|* | Amount included in investment income.
|- | -------------------------------------

|** | Amount included in loan income.
|-- | -------------------------------

Total noninterest income for the three
months ended June 30, 2007 was $1.3 million, an increase of $174,000, or 15.9%, from the same period last year. Increases in other deposit fees accounted for much of this increase, and were due to an increased amount of deposits and to
implementations made as a result of the corporate-wide efficiency review occurring in 2006.

Total noninterest expense increased by $397,000, or 11.1%,
when compared to the same period last year. The Company realized a decrease in salaries and benefits expense, a result of the Banks focus on improving its overall efficiency. However, most expense categories increased, including occupancy and
equipment, data processing and professional fees. This is an anticipated, inherent result in the strategy of growing the Bank. Occupancy and equipment expense increased due to lease payments and depreciation of improvements for the recently upgraded
North Beverly location and the opening of the new Salem branch. Data processing fees increased due to improvements made to the Banks Internet banking system, a newly upgraded website and the outsourcing of the items processing operation. The
Internet banking improvements included enhancing the overall systems functionality, as well as the addition of several products and services now available to Internet banking customers. Professional and other fees increased as a result of both
new product development costs and costs associated with the implementation of a number of initiatives identified in the recently completed efficiency study.



11



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##### Table of Contents

The following table sets forth the various components of noninterest income and noninterest expense for the three months
ended June 30, 2007 and 2006 and the dollar amount and percentage change between the periods:



|                                                 |  |                                    |       |                     |   |       |  |   |     |   |  |        |  
|------------------------------------------------ |  | ---------------------------------- | ----- | ------------------- | - | ----- |  | - | --- | - |  | ------ | -
|                                                 |  | June 30,                           |       | Increase (Decrease) |  
|                                                 |  | 2007                               |       | 2006                |   | $     |  |   | %   |  
|                                                 |  | (Dollars in thousands) (unaudited) |      
|Noninterest income:                              |  |                                    |       |                     |   |       |  |   |     |   |  |        |  
|Income from fiduciary activities                 |  | $                                  | 479   |                     | $ | 489   |  | $ | (10 | ) |  | -2.04  | %
|Fees from sale of non-deposit products           |  |                                    | 66    |                     |   | 71    |  |   | (5  | ) |  | -7.04  | %
|Service charges on deposit accounts              |  |                                    | 153   |                     |   | 141   |  |   | 12  |   |  | 8.51   | %
|Other deposit fees                               |  |                                    | 258   |                     |   | 159   |  |   | 99  |   |  | 62.26  | %
|Income on cash surrender value of life insurance |  |                                    | 59    |                     |   | 52    |  |   | 7   |   |  | 13.46  | %
|Other income                                     |  |                                    | 255   |                     |   | 184   |  |   | 71  |   |  | 38.59  | %
|                                                 |  |                                    |       |                     |   |       |  |   |     |   |  |        |  
|Total noninterest income                         |  | $                                  | 1,270 |                     | $ | 1,096 |  | $ | 174 |   |  | 15.88  | %
|                                                 |  |                                    |       |                     |   |       |  |   |     |   |  |        |  
|Noninterest expense:                             |  |                                    |       |                     |   |       |  |   |     |   |  |        |  
|Salaries and employee benefits                   |  | $                                  | 2,099 |                     | $ | 2,128 |  | $ | (29 | ) |  | -1.36  | %
|Director fees                                    |  |                                    | 87    |                     |   | 88    |  |   | (1  | ) |  | -1.14  | %
|Occupancy expense                                |  |                                    | 392   |                     |   | 334   |  |   | 58  |   |  | 17.37  | %
|Equipment expense                                |  |                                    | 214   |                     |   | 200   |  |   | 14  |   |  | 7.00   | %
|Data processing fees                             |  |                                    | 298   |                     |   | 189   |  |   | 109 |   |  | 57.67  | %
|Marketing and public relations                   |  |                                    | 134   |                     |   | 93    |  |   | 41  |   |  | 44.09  | %
|Professional fees                                |  |                                    | 322   |                     |   | 156   |  |   | 166 |   |  | 106.41 | %
|Other expense                                    |  |                                    | 417   |                     |   | 378   |  |   | 39  |   |  | 10.32  | %
|                                                 |  |                                    |       |                     |   |       |  |   |     |   |  |        |  
|Total noninterest expense                        |  | $                                  | 3,963 |                     | $ | 3,566 |  | $ | 397 |   |  | 11.13  | %
|                                                 |  |                                    |       |                     |   |       |  |   |     |   |  |        |  

The income tax provision for the three months ended June 30, 2007 decreased by $12,000, or 3.5%, compared to
the same period last year, despite the increase in income. The 4.9% decrease in the effective tax rate, from 31.2% to 26.3%, is the result of the restructuring of the Companys investment portfolio in December 2006 and significant increases in
tax-exempt loans and investments realized during the past year.

Comparison of operating results for the six months ended June 30, 2007 and 2006

Net income for the six months ended June 30, 2007 of $1.7 million, or basic and fully diluted earnings of $0.61 per share, increased $232,000, or
16.0%, compared to net income of $1.5 million, or basic earnings per share of $0.77 and fully diluted earnings of $0.75 per share, for the same period last year. The decrease in both basic and diluted earnings per share is due to the issuance of
805,000 shares of common stock resulting from the Companys secondary stock offering in July 2006.

Total interest and dividend income, when compared
to the same period last year, increased by $2.0 million, or 17.4%. This was the result of increases in interest and fees on loans, which increased by $1.2 million, or 12.8%, and interest and dividends on investments, which increased $805,000, or
36.4%. As stated with the quarterly operating results, the current interest rate environment and restructuring of the investment portfolio in December 2006 has led to the increase in interest and dividend income.

Total interest expense increased by $1.5 million, or 39.4%, compared to the same period last year. The increase was partially comprised of a $1.1 million, or 44.1%,
increase in deposit interest expense, which was caused by an increase in the amount of deposits and in the average interest rate paid on deposits, fueled by the current competitive rate environment. The increase in total interest expense was also
attributed to interest on other borrowed funds, comprised of advances from the Federal Home Loan Bank and securities sold under agreements to repurchase. Interest paid on these borrowings increased $350,000, or 29.3%, from the same period last year.
The increase in the amount of borrowings by the Bank to fund loan portfolio growth is the cause for the increase in interest paid on borrowed funds.

The
above changes in interest income and expense resulted in an increase in net interest and dividend income of $481,000, or 6.4%, from the comparable period last year.



12



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##### Table of Contents

The Companys net interest margin decreased by approximately three basis points, from 3.87% to 3.84%, from the
comparable period last year.

The following table summarizes the components and activity with respect to the Companys net interest and dividend
income and interest rate spread and margin for the periods presented:



|                                                 |  |                                        |         |                           |                                        |        |             |  |      |                           |  |                           |         |  |             |        |    |  |      |  
|------------------------------------------------ |  | -------------------------------------- | ------- | ------------------------- | -------------------------------------- | ------ | ----------- |  | ---- | ------------------------- |  | ------------------------- | ------- |  | ----------- | ------ | -- |  | ---- | -
|                                                 |  | For the Six Months Ended June 30, 2007 |         |                           | For the Six Months Ended June 30, 2006 |       
|                                                 |  | AverageBalance                         |         | Interest Inc/Exp          |                                        |        | Yield/ Rate |  |      | AverageBalance            |  | Interest Inc/Exp          |         |  | Yield/ Rate |       
|                                                 |  | (in thousands)(unaudited)              |         | (in thousands)(unaudited) |                                        |        |             |  |      | (in thousands)(unaudited) |  | (in thousands)(unaudited) |         |  |             |       
|Assets                                           |  |                                        |         |                           |                                        |        |             |  |      |                           |  |                           |         |  |             |        |    |  |      |  
|Federal funds sold and interest-bearing deposits |  | $                                      | 1,984   |                           | $                                      | 49     |             |  | 5.00 | %                         |  | $                         | 361     |  | $           | 8      |    |  | 4.33 | %
|Investments                                      |  |                                        | 119,558 |                           |                                        | 3,081  | *           |  | 5.20 | %                         |  |                           | 113,517 |  |             | 2,230  | *  |  | 3.96 | %
|Loans                                            |  |                                        | 312,057 |                           |                                        | 10,343 | **          |  | 6.68 | %                         |  |                           | 283,136 |  |             | 9,134  | ** |  | 6.51 | %
|                                                 |  |                                        |         |                           |                                        |        |             |  |      |                           |  |                           |         |  |             |        |    |  |      |  
|Total interest-earning assets                    |  | $                                      | 433,599 |                           |                                        | 13,473 |             |  | 6.27 | %                         |  | $                         | 397,014 |  |             | 11,372 |    |  | 5.78 | %
|                                                 |  |                                        |         |                           |                                        |        |             |  |      |                           |  |                           |         |  |             |        |    |  |      |  
|Liabilities                                      |  |                                        |         |                           |                                        |        |             |  |      |                           |  |                           |         |  |             |        |    |  |      |  
|Savings deposits                                 |  | $                                      | 48,146  |                           |                                        | 159    |             |  | 0.67 | %                         |  | $                         | 59,627  |  |             | 161    |    |  | 0.54 | %
|NOW accounts                                     |  |                                        | 59,413  |                           |                                        | 227    |             |  | 0.77 | %                         |  |                           | 57,905  |  |             | 71     |    |  | 0.25 | %
|Money market accounts                            |  |                                        | 84,638  |                           |                                        | 1,511  |             |  | 3.60 | %                         |  |                           | 80,473  |  |             | 1,181  |    |  | 2.96 | %
|Time deposits                                    |  |                                        | 78,612  |                           |                                        | 1,780  |             |  | 4.57 | %                         |  |                           | 67,634  |  |             | 1,139  |    |  | 3.40 | %
|FHLB advances                                    |  |                                        | 56,035  |                           |                                        | 1,387  |             |  | 4.99 | %                         |  |                           | 42,897  |  |             | 1,034  |    |  | 4.86 | %
|Repurchase agreements                            |  |                                        | 8,788   |                           |                                        | 157    |             |  | 3.61 | %                         |  |                           | 10,111  |  |             | 161    |    |  | 3.21 | %
|                                                 |  |                                        |         |                           |                                        |        |             |  |      |                           |  |                           |         |  |             |        |    |  |      |  
|Total interest-bearing liabilities               |  |                                        | 335,632 |                           |                                        | 5,221  |             |  | 3.14 | %                         |  |                           | 318,647 |  |             | 3,747  |    |  | 2.37 | %
|Non-interest-bearing deposits                    |  |                                        | 73,089  |                           |                                        |       |             |  |      |                           |  |                           | 72,412  |  |             |       |    |  |      |  
|                                                 |  |                                        |         |                           |                                        |        |             |  |      |                           |  |                           |         |  |             |        |    |  |      |  
|Total deposits                                   |  | $                                      | 408,721 |                           |                                        | 5,221  |             |  | 2.58 | %                         |  | $                         | 391,059 |  |             | 3,747  |    |  | 1.93 | %
|                                                 |  |                                        |         |                           |                                        |        |             |  |      |                           |  |                           |         |  |             |        |    |  |      |  
|Net interest income                              |  |                                        |         |                           | $                                      | 8,252  |             |  |      |                           |  |                           |         |  | $           | 7,625  |    |  |      |  
|                                                 |  |                                        |         |                           |                                        |        |             |  |      |                           |  |                           |         |  |             |        |    |  |      |  
|Net interest spread                              |  |                                        |         |                           |                                        |        |             |  | 3.69 | %                         |  |                           |         |  |             |        |    |  | 3.85 | %
|                                                 |  |                                        |         |                           |                                        |        |             |  |      |                           |  |                           |         |  |             |        |    |  |      |  
|Net interest margin                              |  |                                        |         |                           |                                        |        |             |  | 3.84 | %                         |  |                           |         |  |             |        |    |  | 3.87 | %
|                                                 |  |                                        |         |                           |                                        |        |             |  |      |                           |  |                           |         |  |             |        |    |  |      |  
|Tax Equivalent Income Adjustment:                |  |                                        |         |                           |                                        |        |             |  |      |                           |  |                           |         |  |             |        |    |  |      |  
|State and Muncipal Investment Income             |  |                                        |         |                           | $                                      | 112    | *           |  |      |                           |  |                           |         |  | $           | 25     | *  |  |      |  
|Industrial Revenue Bond Income                   |  |                                        |         |                           |                                        | 175    | **          |  |      |                           |  |                           |         |  |             | 117    | ** |  |      |  
|                                                 |  |                                        |         |                           |                                        |        |             |  |      |                           |  |                           |         |  |             |        |    |  |      |  
|Total Tax Equivalent Income Adjustment           |  |                                        |         |                           | $                                      | 287    |             |  |      |                           |  |                           |         |  | $           | 142    |    |  |      |  
|                                                 |  |                                        |         |                           |                                        |        |             |  |      |                           |  |                           |         |  |             |        |    |  |      |  

---

|* | Amount included in investment income.
|- | -------------------------------------

|** | Amount included in loan income.
|-- | -------------------------------

Total noninterest income for the six
months ended June 30, 2007 was $2.4 million, an increase of $288,000, or 13.4%, from the same period last year. Increases in other deposit fees primarily accounted for much of this increase, and, as stated in the quarterly operating results,
were due to implementations made as a result of the corporate-wide efficiency review occurring in 2006.

Total noninterest expense increased by $621,000,
or 8.6%, when compared to the same period last year. The reasons for this increase are consistent with the reasons for the increase noted in the operating results for the quarter.



13



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The following table sets forth the various components of noninterest income and noninterest expense for the six months
ended June 30, 2007 and 2006 and the dollar amount and percentage change between the periods:



|                                                 |  |                                    |       |                     |   |       |  |   |     |   |  |       |  
|------------------------------------------------ |  | ---------------------------------- | ----- | ------------------- | - | ----- |  | - | --- | - |  | ----- | -
|                                                 |  | June 30,                           |       | Increase (Decrease) |  
|                                                 |  | 2007                               |       | 2006                |   | $     |  |   | %   |  
|                                                 |  | (Dollars in thousands) (unaudited) |      
|Noninterest income:                              |  |                                    |       |                     |   |       |  |   |     |   |  |       |  
|Income from fiduciary activities                 |  | $                                  | 941   |                     | $ | 921   |  | $ | 20  |   |  | 2.17  | %
|Fees from sale of non-deposit products           |  |                                    | 129   |                     |   | 122   |  |   | 7   |   |  | 5.74  | %
|Service charges on deposit accounts              |  |                                    | 295   |                     |   | 279   |  |   | 16  |   |  | 5.73  | %
|Other deposit fees                               |  |                                    | 503   |                     |   | 305   |  |   | 198 |   |  | 64.92 | %
|Gains on sales of loans, net                     |  |                                    | 6     |                     |   |      |  |   | 6   |   |  |      |  
|Income on cash surrender value of life insurance |  |                                    | 111   |                     |   | 104   |  |   | 7   |   |  | 6.73  | %
|Other income                                     |  |                                    | 456   |                     |   | 422   |  |   | 34  |   |  | 8.06  | %
|                                                 |  |                                    |       |                     |   |       |  |   |     |   |  |       |  
|Total noninterest income                         |  | $                                  | 2,441 |                     | $ | 2,153 |  | $ | 288 |   |  | 13.38 | %
|                                                 |  |                                    |       |                     |   |       |  |   |     |   |  |       |  
|Noninterest expense:                             |  |                                    |       |                     |   |       |  |   |     |   |  |       |  
|Salaries and employee benefits                   |  | $                                  | 4,275 |                     | $ | 4,366 |  | $ | (91 | ) |  | -2.08 | %
|Director fees                                    |  |                                    | 165   |                     |   | 167   |  |   | (2  | ) |  | -1.20 | %
|Occupancy expense                                |  |                                    | 775   |                     |   | 673   |  |   | 102 |   |  | 15.16 | %
|Equipment expense                                |  |                                    | 421   |                     |   | 395   |  |   | 26  |   |  | 6.58  | %
|Data processing fees                             |  |                                    | 565   |                     |   | 394   |  |   | 171 |   |  | 43.40 | %
|Marketing and public relations                   |  |                                    | 242   |                     |   | 194   |  |   | 48  |   |  | 24.74 | %
|Professional fees                                |  |                                    | 566   |                     |   | 284   |  |   | 282 |   |  | 99.30 | %
|Other expense                                    |  |                                    | 837   |                     |   | 752   |  |   | 85  |   |  | 11.30 | %
|                                                 |  |                                    |       |                     |   |       |  |   |     |   |  |       |  
|Total noninterest expense                        |  | $                                  | 7,846 |                     | $ | 7,225 |  | $ | 621 |   |  | 8.60  | %
|                                                 |  |                                    |       |                     |   |       |  |   |     |   |  |       |  

The income tax provision for the six months ended June 30, 2007 decreased by $45,000, or 6.7%, compared to
the same period last year, despite the increase in income. The 4.5% decrease in the effective tax rate, from 31.3% to 26.8%, is the result of the restructuring of the Companys investment portfolio in December 2006 and significant increases in
tax-exempt loans and investments realized during the past year.

Provisions and Allowance for Loan Losses

Credit risk is inherent in the business of extending loans. The Bank maintains an allowance for loan losses through charges to earnings. A provision of $100,000 was made
to the allowance for loan losses during the three months ended June 30, 2007, compared to $150,000 for the same period last year. The provision for the six months ended June 30, 2007 was $250,000, compared to $290,000 for the same period
last year. The allowance for loan losses was 1.07% and 1.00% of total loans at June 30, 2007 and December 31, 2006, respectively.

The Bank
formally determines the adequacy of the allowance for loan losses on a quarterly basis. This determination is based on an assessment of credit quality or risk rating of loans. Loans are initially risk rated when originated and are
reviewed periodically. If there is deterioration in the credit, the risk rating is adjusted accordingly.

The allowance also includes a component resulting
from the application of the measurement criteria of SFAS No. 114, Accounting by Creditors for Impairment of a Loan. Impaired loans receive individual evaluation of the allowance necessary on a quarterly basis. Impaired loans are
defined in the Banks Loan Policy as those instances in which it is probable that the Bank will not be able to collect all principal and interest due according to the terms of the note.

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. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis,
taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of



14



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the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest
owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price, or
the fair value of the collateral if the loan is collateral dependent.

Large groups of loans consisting of smaller balance homogeneous loans are
collectively evaluated for impairment. Accordingly, as a general rule, the Company does not separately identify individual consumer and residential loans for impairment disclosures. The loss factors applied as a general allowance are determined by a
periodic analysis of the allowance for loan losses. This analysis considers historical loan losses and delinquency figures and trends.

Concentrations of
credit and local economic factors are also evaluated on a periodic basis. Historical average net losses by loan type are examined and any identified trends are assessed. The Banks loan mix over that same period of time is also analyzed. A loan
loss allocation is made for each type of loan and multiplied by the loan mix percentage for each loan type to produce a weighted average factor.

Changes
in the allowance for loan losses were as follows for the six months ended June 30, 2007 and 2006:



|                                                       |  |                           |       |   |      |   |       |  
|------------------------------------------------------ |  | ------------------------- | ----- | - | ---- | - | ----- | -
|                                                       |  | 2007                      |       |   | 2006 |  
|                                                       |  | (in thousands)(unaudited) |      
|Balance as of January 1st                              |  | $                         | 3,044 |   |      | $ | 2,514 |  
|Loans charged off                                      |  |                           | (5    | ) |      |   | (8    | )
|Provision for loan losses                              |  |                           | 250   |   |      |   | 290   |  
|Recoveries of loans previously charged off             |  |                           | 187   |   |      |   | 5     |  
|Reclassification to allowance for unfunded commitments |  |                           | 1     |   |      |   |      |  
|                                                       |  |                           |       |   |      |   |       |  
|Balance as of June 30th                                |  | $                         | 3,477 |   |      | $ | 2,801 |  
|                                                       |  |                           |       |   |      |   |       |  

The allowance for loan losses represented 13,373.1% and 14,742.1% of non-performing loans, which totaled $26,000
and $19,000, at June 30, 2007 and 2006, respectively. Non-performing loans represented less than 0.01% of total loans and mortgages held-for-sale at June 30, 2007 and 2006.

Management maintains the adequacy of the allowance through monthly provisions. The amount of the provision is based on changes in economic and real estate market conditions, information obtained regarding problem
loans, identification of additional problem loans and other factors, both within and outside of managements control. The overall level of non-performing loans remains low. Accordingly, while the overall quality of the loan portfolio remains
strong, management will continue to monitor economic conditions and the performance of the portfolio in order to maintain an adequate allowance for loan losses.

Capital Resources

As of June 30, 2007, the Company had total capital of $46.5 million, an increase of $292,000, or 0.6%, from total
capital as of December 31, 2006. The net change in the Banks capital reflects current year income, reduced by dividends declared, the increase in the net unrealized loss on securities available-for-sale, the vesting of stock awards and
the exercise of stock options.

The Companys policy has been to pay dividends out of funds in excess of the needs of the business. The Company
declared and paid cash dividends to shareholders on a quarterly basis at a rate of $0.20 per share in each of the final two quarters of 2006 and the first two quarters of 2007. The Company expects to continue paying dividends of $0.20 per quarter.

Generally, banks are required to maintain Tier 1 capital at a level equal to or greater than 4.0% of their average total assets. As of June 30, 2007,
the Banks Tier 1 capital amounted to 9.24% of average total assets. At June 30, 2007, the Banks ratio of risk-based capital to risk-weighted assets amounted to 13.51%, which satisfies the applicable risk-based capital requirements.
As of December 31, 2006, the Banks Tier 1 capital amounted to 9.37% of average assets and risk-based capital amounted to 13.47% of total risk-based assets.

Generally, bank holding companies are also required to maintain Tier 1 capital at a level equal to or greater than 4.0% of their average total assets. As of June 30, 2007, the Companys Tier 1 capital
amounted to 10.41% of average total assets. At June 30, 2007, the Companys ratio of risk-based capital to risk weighted assets amounted to 15.18%, which satisfies the applicable risk-based capital requirements. As of December 31,
2006, the Companys Tier 1 capital amounted to 10.81% of average assets and risk-based capital amounted to 15.35% of total risk-based assets.



15



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##### Table of Contents

To provide for its future capital needs, the Company took the steps necessary to increase the authorized and issued
number of its shares of common stock. On July 19, 2006, the Company completed the sale of 805,000 shares of its common stock, including 105,000 shares of common stock sold pursuant to the exercise of the underwriters over-allotment
option, at an offering price of $22.00 per share in a public offering underwritten by Sandler ONeill & Partners, L.P. Of the $16.4 million in net proceeds from the offering, the Company contributed $12 million in additional capital to
the Bank to assist in funding its growth and expansion plans. The financial statements and results of operations contained in this report reflect the results of such offering, which was completed in the third calendar quarter of 2006.

The capital ratios of the Company and the Bank exceed all regulatory requirements, and each entity is considered well capitalized by their federal
supervisory agencies.

Liquidity

The primary function
of asset/liability management is to assure adequate liquidity and maintain an appropriate balance between interest-sensitive earning assets and interest-bearing liabilities. Liquidity management involves the ability to meet the cash flow
requirements of customers who may be either depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Interest rate sensitivity management seeks to avoid fluctuating net
interest margins and to enhance consistent growth of net interest income through periods of changing interest rates.

Certain marketable investment
securities, particularly those of shorter maturities, are the principal source of asset liquidity. The Company maintains such securities in an available-for-sale account as a liquidity resource. Securities maturing in one year or less amounted to
$8.5 million at June 30, 2007; additionally, a minimum amount of contractual payments in the amount of $15.3 million for the mortgage-backed securities portfolio is due within one year at June 30, 2007. Assets such as federal funds sold,
mortgages held for sale, pre-payments and payoffs on mortgage-backed securities, as well as maturing loans, are also sources of liquidity. The Companys objectives are to be substantially neutral with respect to interest rate sensitivity and
maintain a net cumulative gap at one year of less than 15% of total earning assets. The Companys current practices are consistent with these objectives.

Off Balance Sheet Arrangements

The Company is party to financial instruments with off-balance sheet risk in the normal course of business
to meet the financial needs of its customers. In the opinion of Management, these off-balance sheet arrangements are not likely to have a material effect on the Companys financial condition, results of operations, or liquidity. As of
June 30, 2007, total off-balance sheet financial commitments, which include unadvanced funds on loans, commitments to fund loans and letters of credit, amounted to approximately $61.9 million.

Forward-Looking Statements

This Form 10-Q and future filings made by
the Company with the Securities and Exchange Commission, as well as other filings, reports and press releases made or issued by the Company and the Bank, and oral statements made by executive officers of the Company and the Bank, may include
forward-looking statements relating to such matters as:



| | (a) | assumptions concerning future economic and business conditions and their effect on the economy in general and on the markets in which the Company and the Bank do business; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | expectations for increased revenues and earnings for the Company and Bank through growth resulting from acquisitions, attraction of new deposit and loan customers and the
introduction of new products and services.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Such forward-looking statements are based on assumptions rather than historical or current facts
and, therefore, are inherently uncertain and subject to risk. For those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Act of 1995.

The Company notes that a variety of factors could cause the actual results or experience to differ materially from the anticipated results or other expectations
described or implied by such forward-looking statements. The risks and uncertainties that may affect the operation, performance, development and results of the Companys and Banks business include the following:



|(a) | the risk of adverse changes in business conditions in the banking industry generally and in the specific markets in which the Bank operates;
|--- | --------------------------------------------------------------------------------------------------------------------------------------------



16



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|(b) | changes in the legislative and regulatory environment that negatively impact the Company and Bank through increased operating expenses;
|--- | ---------------------------------------------------------------------------------------------------------------------------------------



|(c) | increased competition from other financial and non-financial institutions;
|--- | --------------------------------------------------------------------------



|(d) | the impact of technological advances; and
|--- | -----------------------------------------



|(e) | other risks detailed from time to time in the Companys filings with the Securities and Exchange Commission.
|--- | ------------------------------------------------------------------------------------------------------------

Such developments could have an adverse impact on the Companys and the Banks financial position and results of operation.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|------- | -----------------------------------------------------------

Market
risk is the risk of loss from adverse changes in market prices. In particular, the market price of interest-earning assets and liabilities may be affected by changes in interest rates. Since net interest income (the difference, or spread, between
the interest earned on loans and investments and the interest paid on deposits and borrowings) is the Companys primary source of revenue, interest rate risk is the most significant non-credit related market risk to which the Company is
exposed. Net interest income is affected by changes in interest rates as well as fluctuations in the level and duration of the Companys assets and liabilities.

The Companys net interest margin for the six months ended June 30, 2007 was 3.84%, in comparison to the 3.87% net interest margin for the six months ended June 30, 2006. Interest rate risk is the
exposure of net interest income to movements in interest rates. In addition to directly impacting net interest income, changes in interest rates can also affect the amount of new loan originations, the ability of borrowers to repay variable rate
loans, the volume of loan prepayments and re-financings, the carrying value of investment securities classified as available for sale and the flow and mix of deposits.

The Companys Asset/Liability Management Committee is comprised of the President and Chief Executive Officer of the Company; the Executive Vice President and Chief Financial Officer; the Executive Vice President
and Senior Loan Officer; the Executive Vice President of Retail Banking; the Senior Vice President, Secretary, Chief Operations Officer and Cashier; the Senior Vice President and Chief Risk Officer; and various lending, retail and finance officers.
The Committee is responsible for managing interest rate risk in accordance with policies approved by the Board of Directors regarding acceptable levels of interest rate risk, liquidity and capital. The Committee meets bi-weekly and develops new
products, sets the rates paid on deposits, approves loan pricing and reviews investment transactions. This Asset/Liability Management Committee reports to the Board of Directors Asset/Liability Committee, which is comprised of several
Directors and the President and Chief Executive Officer.

The Company is subject to interest rate risk in the event that rates either increase or decrease.
The two primary measurements of exposure to changes in interest rates, which the Bank manages and monitors closely, are net interest income simulation, using various interest rate scenarios, or rate shocks, and the impact on the economic value of
equity, given those same interest rate scenarios.

The Bank works with an independent third party consultant to calculate and review these various
measurements.

In the event that interest rates increase or decrease, the economic value of equity (EVE) changes due to its inherent correlation to changes
in the market value of the Companys assets and liabilities. The Company is considered liability sensitive if changes in the interest rate would cause the assets of the Company to extend out, and as a result, liabilities would
re-price faster than assets. Conversely, the Company is considered asset sensitive if interest rate changes cause liabilities to extend out, thus making assets re-price faster than liabilities.

As of June 30, 2007, the capital ratio of the Company on an EVE basis, at current rate levels, is 15.90%. Based on the most recent analysis it is estimated that an
increase in interest rates over the next year of 200 basis points (for example, an increase in the prime rate from 8.25% to 10.25%) would result in an EVE capital ratio of 15.16%. Alternatively, if interest rates were to decrease over the next year
by 200 basis points, the EVE capital ratio is estimated to be 14.67%. These changes are within the risk tolerance levels established by the Company policies.

As part of its risk management practices the Company runs net interest income simulations to determine the impact on net interest income given an increase or decrease in interest rates as these changes would have an impact on future levels
of net interest income. These simulations require that estimates and assumptions be made with respect to deposit pricing; including potential changes in non-maturity core deposits, and reinvestment of cash flows from the loan and investment
portfolios given changes in rates both up and down.



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##### Table of Contents

|                    |  |                               |        |                             |                   |      |                             |  |                             |   |  |   |        |  |   |      |   |  |       |  
|------------------- |  | ----------------------------- | ------ | --------------------------- | ----------------- | ---- | --------------------------- |  | --------------------------- | - |  | - | ------ |  | - | ---- | - |  | ----- | -
|                    |  | June 30, 2007                 |        |                             | December 31, 2006 |     
|                    |  | Projected net interest income |        | Change from year 1base case |                   |      | Projectednet interestincome |  | Change from year 1base case |  
|                    |  | (Dollars in thousands)        |       
|Year 1 projections: |  |                               |        |                             |                   |      |                             |  |                             |   |  |   |        |  |   |      |   |  |       |  
|Down 200BP          |  | $                             | 17,114 |                             | $                 | 229  |                             |  | 1.36                        | % |  | $ | 16,815 |  | $ | (52  | ) |  | -0.31 | %
|Base                |  |                               | 16,885 |                             |                   |     |                             |  |                            |   |  |   | 16,867 |  |   |     |   |  |      |  
|Up 200BP            |  |                               | 16,253 |                             |                   | (632 | )                           |  | -3.74                       | % |  |   | 16,411 |  |   | (456 | ) |  | -2.70 | %
|                    |  |                               |        |                             |                   |     
|Year 2 projections: |  |                               |        |                             |                   |      |                             |  |                             |   |  |   |        |  |   |      |   |  |       |  
|Down 200BP          |  | $                             | 17,396 |                             | $                 | 511  |                             |  | 3.03                        | % |  | $ | 16,624 |  | $ | (243 | ) |  | -1.44 | %
|Base                |  |                               | 17,770 |                             |                   | 885  |                             |  | 5.24                        | % |  |   | 17,438 |  |   | 571  |   |  | 3.39  | %
|Up 200BP            |  |                               | 16,785 |                             |                   | (100 | )                           |  | -0.59                       | % |  |   | 16,737 |  |   | (130 | ) |  | -0.77 | %

The increase in interest earning assets as of June 30, 2007, compared to December 31, 2006, is the
primary cause for the increase in net interest income in all scenarios indicated above. The Companys strategy to reduce its net interest income exposure to stable and/or falling interest rates in the near term has benefited the net interest
income projections. The changes indicated above are within the risk tolerance levels established by the Company policies.



|ITEM 4. | CONTROLS AND PROCEDURES.
|------- | ------------------------

The Company maintains disclosure controls
and procedures that are designed to ensure that information required to be disclosed in the Companys Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and
that such information is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the
definition of disclosure controls and procedures in Rule 13a-15(e). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on their evaluation, as of June 30, 2007, the Companys Chief Executive Officer and the Companys Chief Financial Officer concluded that the
Companys disclosure controls and procedures were effective.

In the quarter ended June 30, 2007, there have been no significant changes in the
Companys internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting subsequent to the date the Company completed its
evaluation. Therefore, no corrective actions were taken.



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##### Table of Contents

PART II  OTHER INFORMATION



|         |  |                                                              |  |               
|-------- |  | ------------------------------------------------------------ |  | --------------
|Item 1.  |  | Legal Proceedings.                                           |  | Not applicable
|         |  |                                                             
|Item 1A. |  | Risk Factors                                                 |  | Not applicable
|         |  |                                                             
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds. |  |               

During the quarter ending June 30, 2007, the Company issued 9,275 shares of common stock
pursuant to the Companys 2005 Restricted Stock Plan. Such transaction was exempt from registration under the Securities Act of 1933, as amended, under Section 4(2), as it did not involve any public offering.



|        |  |                                                      |  |               
|------- |  | ---------------------------------------------------- |  | --------------
|Item 3. |  | Defaults Upon Senior Securities.                     |  | Not applicable
|        |  |                                                     
|Item 4. |  | Submission of Matters to a Vote of Security Holders. |  |               

The Companys Annual Meeting of Shareholders was held at the Danvers office of the Bank,
Danvers, Massachusetts, on the 22nd day of May, 2007 at 9:00 a.m. At the Meeting, the following matters were submitted to a vote with the results as follows:

1. The proposal to fix the number of directors at eleven (11) who shall constitute the full Board of Directors was approved by the requisite majority vote of shareholders. The votes for fixing the number of directors were as follows:



|                 |  |                    |  |                 
|---------------- |  | ------------------ |  | ----------------
|FOR APPROVAL   |  | AGAINST APPROVAL |  | ABSTAIN       
|2,363,160        |  | 11,930             |  | 8,639           
|Number of Shares |  | Number of Shares   |  | Number of Shares

2. All of the four (4) nominees for director received in excess of the requisite plurality of the votes cast
at the meeting and were elected and qualified. The votes cast FOR and WITH-HOLD on the proposal to elect each of the following four (4) Directors of the Company, who, together with the Directors whose terms of office do
not expire at the Annual Meeting, will constitute the full Board of Directors and will serve for a term of three (3) years were as follows:



|                   |  |                  |  |                 
|------------------ |  | ---------------- |  | ----------------
|                   |  | FOR APPROVAL   |  | WITH-HOLD     
|Suzanne S. Gruhl   |  | 2,306,519        |  | 77,210          
|                   |  | Number of Shares |  | Number of Shares
|                   |  |                 
|John J. Meany      |  | 2,324,506        |  | 59,223          
|                   |  | Number of Shares |  | Number of Shares
|                   |  |                 
|Clark R. Smith     |  | 2,172,992        |  | 210,737         
|                   |  | Number of Shares |  | Number of Shares
|                   |  |                 
|Michael F. Tripoli |  | 2,177,564        |  | 206,165         
|                   |  | Number of Shares |  | Number of Shares

3. The appointment of Shatswell, MacLeod & Company, P.C. as independent auditors for the Company for the
year ending December 31, 2006 was ratified because the votes for such appointment exceeded the votes against such appointment. The votes cast FOR, AGAINST and ABSTAIN on the proposal to ratify the appointment
of Shatswell, MacLeod & Company, P.C. to act as independent auditors for the fiscal year ended December 31, 2007, are as follows:



|                 |  |                    |  |                 
|---------------- |  | ------------------ |  | ----------------
|FOR APPROVAL   |  | AGAINST APPROVAL |  | ABSTAIN       
|2,349,134        |  | 29,806             |  | 4,789           
|Number of Shares |  | Number of Shares   |  | Number of Shares



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##### Table of Contents

|        |  |                    |  |               
|------- |  | ------------------ |  | --------------
|Item 5. |  | Other Information. |  | Not applicable
|        |  |                   
|Item 6. |  | Exhibits.          |  |               



|     |  |                                                                  
|---- |  | -----------------------------------------------------------------
|11   |  | Computation of Per Share Earnings                                
|     | 
|31.1 |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
|     | 
|31.2 |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
|     | 
|32   |  | Section 1350 Certifications                                      



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##### Table of Contents

SIGNATURES

In accordance with 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.



|                      |  |                              |  |                                                     
|--------------------- |  | ---------------------------- |  | ----------------------------------------------------
|                      |  | BEVERLY NATIONAL CORPORATION
|                      |  | (Registrant)                
|                      |  |                             
|Date: August 13, 2007 |  | By:                          |  | /s/ Donat A. Fournier                               
|                      |  |                              |  | Donat A. Fournier                                   
|                      |  |                              |  | President and Chief Executive Officer               
|                      |  |                             
|Date: August 13, 2007 |  | By:                          |  | /s/ Michael O. Gilles                               
|                      |  |                              |  | Michael O. Gilles                                   
|                      |  |                              |  | Executive Vice President and Chief Financial Officer



21