##### 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 March 31, 2006

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



---

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 May 1, 2006.
1,893,523 shares.



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##### Table of Contents

BEVERLY NATIONAL CORPORATION

INDEX



|                              |  |                                                                                                                |  |   
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION |  |                                                                                                               
|                              |  |                                                                                                               
|Item 1.                       |  | Financial Statements                                                                                           |  |   
|                              |  |                                                                                                               
|                              |  | Condensed Consolidated Balance Sheets at March 31, 2006 (Unaudited) and December 31, 2005                      |  | 3 
|                              |  |                                                                                                               
|                              |  | Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2006 and 2005 (Unaudited)     |  | 4 
|                              |  |                                                                                                               
|                              |  | Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2006 and 2005 (Unaudited) |  | 5 
|                              |  |                                                                                                               
|                              |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                               |  | 6 
|                              |  |                                                                                                               
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                          |  | 7 
|                              |  |                                                                                                               
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                     |  | 13
|                              |  |                                                                                                               
|Item 4.                       |  | Controls and Procedures                                                                                        |  | 14
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                               
|                              |  |                                                                                                               
|Item 1.                       |  | Legal Proceedings                                                                                              |  | 15
|                              |  |                                                                                                               
|Item 1A.                      |  | Risk Factors                                                                                                   |  | 15
|                              |  |                                                                                                               
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                    |  | 15
|                              |  |                                                                                                               
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                |  | 15
|                              |  |                                                                                                               
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                            |  | 15
|                              |  |                                                                                                               
|Item 5.                       |  | Other Information                                                                                              |  | 15
|                              |  |                                                                                                               
|Item 6.                       |  | Exhibits                                                                                                       |  | 15
|                              |  |                                                                                                               
|                              |  | Signatures                                                                                                     |  | 16



2



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##### Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

BEVERLY NATIONAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)



|                                                                                                                                                                                                                                                                |  |               |         |   |                  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                                                                                                                |  | March 31,2006 |         |   | December 31,2005 |  
|                                                                                                                                                                                                                                                                |  | (Unaudited)   |         |   |                  |  
|ASSETS                                                                                                                                                                                                                                                          |  |               |         |   |                  |   |         |  
|Cash and due from banks                                                                                                                                                                                                                                         |  | $             | 11,932  |   |                  | $ | 13,134  |  
|Interest bearing demand deposits with other banks                                                                                                                                                                                                               |  |               | 90      |   |                  |   | 306     |  
|                                                                                                                                                                                                                                                                |  |               |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                                                                                                                       |  |               | 12,022  |   |                  |   | 13,440  |  
|Investments in available-for-sale securities (at fair value)                                                                                                                                                                                                    |  |               | 46,406  |   |                  |   | 47,729  |  
|Investments in held-to-maturity securities                                                                                                                                                                                                                      |  |               | 64,424  |   |                  |   | 65,514  |  
|Federal Home Loan Bank stock, at cost                                                                                                                                                                                                                           |  |               | 1,992   |   |                  |   | 1,872   |  
|Federal Reserve Bank stock, at cost                                                                                                                                                                                                                             |  |               | 188     |   |                  |   | 188     |  
|Loans, net of the allowance for loan losses of $2,652 and $2,514, respectively                                                                                                                                                                                  |  |               | 282,202 |   |                  |   | 267,256 |  
|Premises and equipment                                                                                                                                                                                                                                          |  |               | 4,630   |   |                  |   | 4,577   |  
|Accrued interest receivable                                                                                                                                                                                                                                     |  |               | 1,843   |   |                  |   | 1,639   |  
|Other assets                                                                                                                                                                                                                                                    |  |               | 10,319  |   |                  |   | 10,297  |  
|                                                                                                                                                                                                                                                                |  |               |         |   |                  |   |         |  
|Total assets                                                                                                                                                                                                                                                    |  | $             | 424,026 |   |                  | $ | 412,512 |  
|                                                                                                                                                                                                                                                                |  |               |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                            |  |               |         |   |                  |   |         |  
|Deposits:                                                                                                                                                                                                                                                       |  |               |         |   |                  |   |         |  
|Noninterest-bearing                                                                                                                                                                                                                                             |  | $             | 74,905  |   |                  | $ | 78,218  |  
|Interest-bearing                                                                                                                                                                                                                                                |  |               | 265,840 |   |                  |   | 267,594 |  
|                                                                                                                                                                                                                                                                |  |               |         |   |                  |   |         |  
|Total deposits                                                                                                                                                                                                                                                  |  |               | 340,745 |   |                  |   | 345,812 |  
|Federal Home Loan Bank advances                                                                                                                                                                                                                                 |  |               | 40,000  |   |                  |   | 22,900  |  
|Securities sold under agreements to repurchase                                                                                                                                                                                                                  |  |               | 11,202  |   |                  |   | 11,390  |  
|Other liabilities                                                                                                                                                                                                                                               |  |               | 3,387   |   |                  |   | 3,689   |  
|                                                                                                                                                                                                                                                                |  |               |         |   |                  |   |         |  
|Total liabilities                                                                                                                                                                                                                                               |  |               | 395,334 |   |                  |   | 383,791 |  
|                                                                                                                                                                                                                                                                |  |               |         |   |                  |   |         |  
|Stockholders equity:                                                                                                                                                                                                                                           |  |               |         |   |                  |   |         |  
|Preferred stock, $2.50 par value per share;300,000 shares authorized; issued and outstanding none                                                                                                                                                               |  |               |        |   |                  |   |        |  
|Common stock, $2.50 par value per share;2,500,000 shares authorized; issued 2,003,298 shares as of March 31, 2006 and 1,993,200
shares as of December 31, 2005; outstanding, 1,892,893 shares as of March 31, 2006 and 1,882,795 shares as of December 31, 2005 |  |               | 5,008   |   |                  |   | 4,983   |  
|Paid-in capital                                                                                                                                                                                                                                                 |  |               | 6,922   |   |                  |   | 6,848   |  
|Retained earnings                                                                                                                                                                                                                                               |  |               | 18,973  |   |                  |   | 18,992  |  
|Treasury stock, at cost (110,405 shares as of March 31, 2006 and December 31, 2005)                                                                                                                                                                             |  |               | (1,495  | ) |                  |   | (1,495  | )
|Accumulated other comprehensive loss                                                                                                                                                                                                                            |  |               | (716    | ) |                  |   | (607    | )
|                                                                                                                                                                                                                                                                |  |               |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                                                                                                                      |  |               | 28,692  |   |                  |   | 28,721  |  
|                                                                                                                                                                                                                                                                |  |               |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                                                                                      |  | $             | 424,026 |   |                  | $ | 412,512 |  
|                                                                                                                                                                                                                                                                |  |               |         |   |                  |   |         |  

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

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

(Unaudited)



|                                                                 |  |                    |           |     |               |   |          
|---------------------------------------------------------------- |  | ------------------ | --------- | --- | ------------- | - | ---------
|                                                                 |  | Three Months Ended
|                                                                 |  | March 31,2006      |           |     | March 31,2005
|Interest and dividend income:                                    |  |                    |           |     |               |   |          
|Interest and fees on loans                                       |  | $                  | 4,343     |     |               | $ | 3,518    
|Interest on debt securities:                                     |  |                    |           |     |               |   |          
|Taxable                                                          |  |                    | 1,027     |     |               |   | 1,011    
|Tax-exempt                                                       |  |                    | 26        |     |               |   | 21       
|Dividends on marketable equity securities                        |  |                    | 61        |     |               |   | 2        
|Other interest                                                   |  |                    | 14        |     |               |   | 8        
|                                                                 |  |                    |           |     |               |   |          
|Total interest and dividend income                               |  |                    | 5,471     |     |               |   | 4,560    
|                                                                 |  |                    |           |     |               |   |          
|Interest expense:                                                |  |                    |           |     |               |   |          
|Interest on deposits                                             |  |                    | 1,214     |     |               |   | 751      
|Interest on other borrowed funds                                 |  |                    | 440       |     |               |   | 82       
|                                                                 |  |                    |           |     |               |   |          
|Total interest expense                                           |  |                    | 1,654     |     |               |   | 833      
|                                                                 |  |                    |           |     |               |   |          
|Net interest and dividend income                                 |  |                    | 3,817     |     |               |   | 3,727    
|Provision for loan losses                                        |  |                    | 140       |     |               |   | 140      
|                                                                 |  |                    |           |     |               |   |          
|Net interest and dividend income after provision for loan losses |  |                    | 3,677     |     |               |   | 3,587    
|                                                                 |  |                    |           |     |               |   |          
|Noninterest income:                                              |  |                    |           |     |               |   |          
|Income from fiduciary activities                                 |  |                    | 432       |     |               |   | 423      
|Fees from sale of non-deposit products                           |  |                    | 52        |     |               |   | 64       
|Service charges on deposit accounts                              |  |                    | 138       |     |               |   | 137      
|Other deposit fees                                               |  |                    | 146       |     |               |   | 127      
|Income on cash surrender value of life insurance                 |  |                    | 51        |     |               |   | 53       
|Other income                                                     |  |                    | 238       |     |               |   | 153      
|                                                                 |  |                    |           |     |               |   |          
|Total noninterest income                                         |  |                    | 1,057     |     |               |   | 957      
|                                                                 |  |                    |           |     |               |   |          
|Noninterest expense:                                             |  |                    |           |     |               |   |          
|Salaries and employee benefits                                   |  |                    | 2,237     |     |               |   | 2,160    
|Director fees                                                    |  |                    | 79        |     |               |   | 75       
|Occupancy expense                                                |  |                    | 339       |     |               |   | 387      
|Equipment expense                                                |  |                    | 195       |     |               |   | 158      
|Data processing fees                                             |  |                    | 205       |     |               |   | 227      
|Marketing and public relations                                   |  |                    | 101       |     |               |   | 64       
|Professional fees                                                |  |                    | 127       |     |               |   | 162      
|Other expense                                                    |  |                    | 376       |     |               |   | 408      
|                                                                 |  |                    |           |     |               |   |          
|Total noninterest expense                                        |  |                    | 3,659     |     |               |   | 3,641    
|                                                                 |  |                    |           |     |               |   |          
|Income before income taxes                                       |  |                    | 1,075     |     |               |   | 903      
|Income taxes                                                     |  |                    | 337       |     |               |   | 268      
|                                                                 |  |                    |           |     |               |   |          
|Net Income                                                       |  | $                  | 738       |     |               | $ | 635      
|                                                                 |  |                    |           |     |               |   |          
|Earnings per share:                                              |  |                    |           |     |               |   |          
|Weighted average shares outstanding                              |  |                    | 1,890,552 |     |               |   | 1,866,991
|                                                                 |  |                    |           |     |               |   |          
|Weighted average diluted shares outstanding                      |  |                    | 1,941,543 |     |               |   | 1,931,632
|                                                                 |  |                    |           |     |               |   |          
|Earnings per common share                                        |  | $                  | 0.39      |     |               | $ | 0.34     
|Earnings per common share, assuming dilution                     |  | $                  | 0.38      |     |               | $ | 0.33     
|Dividends per share                                              |  | $                  | 0.40      | (1) |               | $ | 0.20     

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|(1) | Dividends declared in the 2006 period 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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BEVERLY NATIONAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2006 AND 2005

(In
thousands)

(Unaudited)



|                                                                                  |  |               |         |   |               |   |        |  
|--------------------------------------------------------------------------------- |  | ------------- | ------- | - | ------------- | - | ------ | -
|                                                                                  |  | March 31,2006 |         |   | March 31,2005 |  
|Cash flows from operating activities:                                             |  |               |         |   |               |   |        |  
|Net income                                                                        |  | $             | 738     |   |               | $ | 635    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |               |         |   |               |   |        |  
|Amortization of securities, net                                                   |  |               | 73      |   |               |   | 91     |  
|Provision for loan losses                                                         |  |               | 140     |   |               |   | 140    |  
|Change in deferred loan costs, net                                                |  |               | (42     | ) |               |   | (23    | )
|Net decrease in mortgages held-for-sale                                           |  |               |        |   |               |   | 161    |  
|Depreciation and amortization                                                     |  |               | 164     |   |               |   | 165    |  
|Increase in interest receivable                                                   |  |               | (204    | ) |               |   | (123   | )
|(Increase) decrease in prepaid expenses                                           |  |               | (83     | ) |               |   | 24     |  
|Decrease in mortgage servicing rights                                             |  |               | 8       |   |               |   | 18     |  
|Increase in cash surrender value of life insurance                                |  |               | (51     | ) |               |   | (53    | )
|Decrease in taxes receivable                                                      |  |               | 238     |   |               |   |       |  
|Decrease in RABBI Trust trading securities                                        |  |               | 20      |   |               |   | 36     |  
|Increase in other assets                                                          |  |               | (149    | ) |               |   | (1     | )
|(Decrease) increase in interest payable                                           |  |               | (82     | ) |               |   | 27     |  
|Decrease in accrued expenses                                                      |  |               | (474    | ) |               |   | (163   | )
|Increase in taxes payable                                                         |  |               | 99      |   |               |   | 173    |  
|(Decrease) increase in other liabilities                                          |  |               | (227    | ) |               |   | 31     |  
|                                                                                  |  |               |         |   |               |   |        |  
|Net cash provided by operating activities                                         |  |               | 168     |   |               |   | 1,138  |  
|                                                                                  |  |               |         |   |               |   |        |  
|Cash flows from investing activities:                                             |  |               |         |   |               |   |        |  
|Purchases of available-for-sale securities                                        |  |               | (110    | ) |               |   | (92    | )
|Proceeds from maturities of available-for-sale securities                         |  |               | 1,257   |   |               |   | 1,846  |  
|Purchases of held-to-maturity securities                                          |  |               |        |   |               |   | (1,000 | )
|Proceeds from maturities of held-to-maturity securities                           |  |               | 1,082   |   |               |   | 1,239  |  
|Purchase of Federal Home Loan Bank stock                                          |  |               | (120    | ) |               |   |       |  
|Purchase of Federal Reserve Bank stock                                            |  |               |        |   |               |   | (45    | )
|Loan originations and principal collections, net                                  |  |               | (15,046 | ) |               |   | (7,817 | )
|Recoveries of loans previously charged off                                        |  |               | 2       |   |               |   | 13     |  
|Capital expenditures                                                              |  |               | (217    | ) |               |   | (18    | )
|                                                                                  |  |               |         |   |               |   |        |  
|Net cash used in investing activities                                             |  |               | (13,152 | ) |               |   | (5,874 | )
|                                                                                  |  |               |         |   |               |   |        |  
|Cash flows from financing activities:                                             |  |               |         |   |               |   |        |  
|Net increase in demand deposits, NOW, money market and savings accounts           |  |               | 321     |   |               |   | 7,077  |  
|Net (decrease) increase in time deposits                                          |  |               | (5,388  | ) |               |   | 1,416  |  
|Net increase in Federal Home Loan Bank advances                                   |  |               | 17,100  |   |               |   | 6,000  |  
|Decrease in securities sold under agreements to repurchase                        |  |               | (188    | ) |               |   | (4,944 | )
|Proceeds from exercise of stock options                                           |  |               | 99      |   |               |   | 69     |  
|Dividends paid                                                                    |  |               | (378    | ) |               |   | (373   | )
|                                                                                  |  |               |         |   |               |   |        |  
|Net cash provided by financing activities                                         |  |               | 11,566  |   |               |   | 9,245  |  
|                                                                                  |  |               |         |   |               |   |        |  
|Net (decrease) increase in cash and cash equivalents                              |  |               | (1,418  | ) |               |   | 4,509  |  
|Cash and cash equivalents at beginning of year                                    |  |               | 13,440  |   |               |   | 10,646 |  
|                                                                                  |  |               |         |   |               |   |        |  
|Cash and cash equivalents at March 31                                             |  | $             | 12,022  |   |               | $ | 15,155 |  
|                                                                                  |  |               |         |   |               |   |        |  
|Supplemental disclosures:                                                         |  |               |         |   |               |   |        |  
|Interest paid                                                                     |  | $             | 1,736   |   |               | $ | 805    |  
|Income taxes paid                                                                 |  |               | 62      |   |               |   | 95     |  

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 condensed consolidated financial statements contained herein are unaudited but include, in the opinion of management, all
adjustments that management considers necessary for a fair presentation of the financial information set forth herein. All such adjustments are of a normal recurring nature. The results of operations for the three months ended March 31, 2006
are not necessarily indicative of results that may be expected for the year ended December 31, 2006.

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
obligations to issue common stock were exercised and 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 December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payments (SFAS
123R). SFAS 123R revised FASB Statement No. 123, Accounting for Stock Based Compensation (SFAS 123) and superseded Accounting Principles Board (APB) Opinion No. 25 (APB No. 25),
Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS 123R requires that the cost resulting from all share-based payment transactions be recognized in the consolidated financial statements. It
establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value based measurement method in accounting for share-based payment transactions with employees except
for equity instruments held by employee share ownership plans. Effective January 1, 2006, the Company adopted SFAS 123R.

5. STOCK-BASED COMPENSATION

The Company maintains five stock-based employee compensation plans. Effective January 1, 2006, the Company adopted SFAS 123R. This
Statement revised SFAS 123 and superseded APB No. 25. SFAS 123R requires that the cost resulting from all share-based payment transactions be recognized in the consolidated financial statements and establishes fair value as the measurement
objective in accounting for share-based payment arrangements. In the three months ended March 31, 2006, stock-based employee compensation costs recorded as expenses amounted to $9,263. 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. The
following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123R to stock-based employee compensation during the three month period ended March 31, 2005.



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##### Table of Contents

|                                                                                                                                            |  |                                         |     
|------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ----
|                                                                                                                                            |  | For the ThreeMonths EndedMarch 31, 2005
|                                                                                                                                            |  | (in thousands)                         
|Net income, as reported                                                                                                                     |  | $                                       | 635 
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                         | 12  
|                                                                                                                                            |  |                                         |     
|Pro forma net income                                                                                                                        |  | $                                       | 623 
|                                                                                                                                            |  |                                         |     
|Earnings per share:                                                                                                                         |  |                                         |     
|Basis - as reported                                                                                                                         |  | $                                       | 0.34
|Basic - pro forma                                                                                                                           |  | $                                       | 0.33
|Diluted - as reported                                                                                                                       |  | $                                       | 0.33
|Diluted - pro forma                                                                                                                         |  | $                                       | 0.32

6. PENSION BENEFITS

The following summarizes the net periodic cost for the three months ended March 31:



|                                    |  |                                    |      |   |      |   |      |  
|----------------------------------- |  | ---------------------------------- | ---- | - | ---- | - | ---- | -
|                                    |  | For the ThreeMonths EndedMarch 31, |     
|                                    |  | 2006                               |      |   | 2005 |  
|                                    |  | (in thousands)                     |     
|Service cost                        |  | $                                  |     |   |      | $ | 96   |  
|Interest cost on benefit obligation |  |                                    | 118  |   |      |   | 137  |  
|Expected return on plan assets      |  |                                    | (150 | ) |      |   | (152 | )
|Amortization of prior service cost  |  |                                    |     |   |      |   | 14   |  
|                                    |  |                                    |      |   |      |   |      |  
|Net periodic benefit cost           |  | $                                  | (32  | ) |      | $ | 95   |  
|                                    |  |                                    |      |   |      |   |      |  

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

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 for the buying, selling and holding of securities. 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

Net income for the quarter
ended March 31, 2006 was $738,000, or basic earnings per share of $0.39 and fully diluted earnings of $0.38 per share, compared to net income of $635,000, or basic earnings per share of $0.34 and



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fully diluted earnings of $0.33 per share for the same period last year. These results for the quarter represent an increase in net income of $103,000, or
16.2%, and increases of 14.7% and 15.2% in basic and fully diluted earnings per share, respectively, compared to the same period last year.

At
March 31, 2006 total assets had increased $11.5 million, or 2.8%, compared to total assets at December 31, 2005. Loans, net of the allowance for loan losses, increased $15.0 million, or 5.6%, from December 31, 2005. The growth of the
loan portfolio is the main focus on the asset side of the balance sheet. Investing the Banks assets in this area offers the greatest earnings potential and, accordingly, the Bank will continue to allocate greater resources to this area. Total
deposits decreased $5.1 million, or 1.5%, when compared to balances at December 31, 2005. This decrease is a result of the current market for deposits, which has become much more competitive as financial institutions have been more aggressive
in pricing at current interest rate levels to gather deposits. The Bank, however, has resisted the temptation to match these rates, as it would result in additional pressure on the net interest margin. Federal Home Loan Bank advances increased $17.1
million, or 74.7%, to fund deposit outflow and growth in the loan portfolio.

The Company declared and paid a quarterly dividend of $0.20 per share in
January 2006, which is the same as the amount paid for the comparable period in 2005. Also, on March 28, 2006, the Company declared a quarterly dividend of $0.20 per share for the second quarter of 2006. This March 28th dividend was paid
in April 2006 and is consistent with that paid for the second quarter of 2005. However, as a result of declaring such dividend in March, the Company accounted for such dividend in the first quarter rather than the second quarter. In future quarters,
the Company expects to declare and pay dividends in the same quarter.

Investment Portfolio

Debt and equity securities have been classified in the consolidated balance sheets according to managements intent. The following table presents amortized cost of
securities and their approximate fair values as of March 31, 2006 (unaudited) and December 31, 2005:



|                                                                                               |  |                     |        |                      |   |                       |  |           |       |  |   |       
|---------------------------------------------------------------------------------------------- |  | ------------------- | ------ | -------------------- | - | --------------------- |  | --------- | ----- |  | - | ------
|                                                                                               |  | AmortizedCost Basis |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | FairValue
|                                                                                               |  | (in thousands)     
|Available-for-sale securities:                                                                 |  |                     |        |                      |   |                       |  |           |       |  |   |       
|March 31, 2006:                                                                                |  |                     |        |                      |   |                       |  |           |       |  |   |       
|Debt securities issued by U.S. government corporations and agencies                            |  | $                   | 13,499 |                      | $ |                      |  | $         | 374   |  | $ | 13,125
|Debt securities issued by states of the United States and political subdivisions of the states |  |                     | 973    |                      |   |                      |  |           | 27    |  |   | 946   
|Corporate debt securities                                                                      |  |                     | 4,981  |                      |   |                      |  |           | 24    |  |   | 4,957 
|Trust preferred securities                                                                     |  |                     | 3,404  |                      |   |                      |  |           | 44    |  |   | 3,360 
|Marketable equity securities                                                                   |  |                     | 1,488  |                      |   | 218                   |  |           | 19    |  |   | 1,687 
|Mortgage-backed securities                                                                     |  |                     | 23,195 |                      |   |                      |  |           | 864   |  |   | 22,331
|                                                                                               |  |                     |        |                      |   |                       |  |           |       |  |   |       
|                                                                                               |  | $                   | 47,540 |                      | $ | 218                   |  | $         | 1,352 |  | $ | 46,406
|                                                                                               |  |                     |        |                      |   |                       |  |           |       |  |   |       
|December 31, 2005:                                                                             |  |                     |        |                      |   |                       |  |           |       |  |   |       
|Debt securities issued by U.S. government corporations and agencies                            |  | $                   | 13,494 |                      | $ |                      |  | $         | 355   |  | $ | 13,139
|Debt securities issued by states of the United States and political subdivisions of the states |  |                     | 975    |                      |   |                      |  |           | 29    |  |   | 946   
|Corporate debt securities                                                                      |  |                     | 4,999  |                      |   |                      |  |           | 29    |  |   | 4,970 
|Trust preferred securities                                                                     |  |                     | 3,415  |                      |   | 20                    |  |           |      |  |   | 3,435 
|Marketable equity securities                                                                   |  |                     | 1,374  |                      |   | 188                   |  |           | 9     |  |   | 1,553 
|Mortgage-backed securities                                                                     |  |                     | 24,495 |                      |   |                      |  |           | 809   |  |   | 23,686
|                                                                                               |  |                     |        |                      |   |                       |  |           |       |  |   |       
|                                                                                               |  | $                   | 48,752 |                      | $ | 208                   |  | $         | 1,231 |  | $ | 47,729
|                                                                                               |  |                     |        |                      |   |                       |  |           |       |  |   |       



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|                                                                                               |  |                     |        |                      |   |                       |  |           |       |  |   |       
|---------------------------------------------------------------------------------------------- |  | ------------------- | ------ | -------------------- | - | --------------------- |  | --------- | ----- |  | - | ------
|                                                                                               |  | AmortizedCost Basis |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | FairValue
|                                                                                               |  | (in thousands)     
|Held-to-maturity securities:                                                                   |  |                     |        |                      |   |                       |  |           |       |  |   |       
|March 31, 2006:                                                                                |  |                     |        |                      |   |                       |  |           |       |  |   |       
|Debt securities issued by U.S. government corporations and agencies                            |  | $                   | 39,013 |                      | $ |                      |  | $         | 934   |  | $ | 38,079
|Debt securities issued by states of the United States and political subdivisions of the states |  |                     | 1,926  |                      |   | 2                     |  |           | 11    |  |   | 1,917 
|Debt securities issued by foreign governments                                                  |  |                     | 400    |                      |   |                      |  |           | 4     |  |   | 396   
|Mortgage-backed securities                                                                     |  |                     | 23,085 |                      |   |                      |  |           | 860   |  |   | 22,225
|                                                                                               |  |                     |        |                      |   |                       |  |           |       |  |   |       
|                                                                                               |  | $                   | 64,424 |                      | $ | 2                     |  | $         | 1,809 |  | $ | 62,617
|                                                                                               |  |                     |        |                      |   |                       |  |           |       |  |   |       
|December 31, 2005:                                                                             |  |                     |        |                      |   |                       |  |           |       |  |   |       
|Debt securities issued by U.S. government corporations and agencies                            |  | $                   | 39,013 |                      | $ |                      |  | $         | 841   |  | $ | 38,172
|Debt securities issued by states of the United States and political subdivisions of the states |  |                     | 1,927  |                      |   | 3                     |  |           | 9     |  |   | 1,921 
|Debt securities issued by foreign governments                                                  |  |                     | 400    |                      |   |                      |  |           | 1     |  |   | 399   
|Mortgage-backed securities                                                                     |  |                     | 24,174 |                      |   |                      |  |           | 771   |  |   | 23,403
|                                                                                               |  |                     |        |                      |   |                       |  |           |       |  |   |       
|                                                                                               |  | $                   | 65,514 |                      | $ | 3                     |  | $         | 1,622 |  | $ | 63,895
|                                                                                               |  |                     |        |                      |   |                       |  |           |       |  |   |       

Loan Portfolio

The following table summarizes the distribution of the Banks loan portfolio as of March 31, 2006 and December 31, 2005:



|                                                |  |                |         |   |            |        |    |                  |   |         |            |  |        |   
|----------------------------------------------- |  | -------------- | ------- | - | ---------- | ------ | -- | ---------------- | - | ------- | ---------- |  | ------ | --
|                                                |  | March 31,2006  |         |   | % of Total |        |    | December 31,2005 |   |         | % of Total | 
|                                                |  | (in thousands) |         |   |            |        |    | (in thousands)   |   |         |            | 
|                                                |  | (unaudited)    |         |   |            |        |    |                  |   |         |            | 
|Commercial, financial and agricultural          |  | $              | 45,300  |   |            | 16.05  | %  |                  | $ | 42,034  |            |  | 15.73  | % 
|Real estate - construction and land development |  |                | 20,303  |   |            | 7.20   | %  |                  |   | 16,413  |            |  | 6.14   | % 
|Real estate - residential                       |  |                | 102,282 |   |            | 36.24  | %  |                  |   | 98,007  |            |  | 36.67  | % 
|Real estate - commercial                        |  |                | 103,539 |   |            | 36.69  | %  |                  |   | 98,761  |            |  | 36.95  | % 
|Consumer                                        |  |                | 3,854   |   |            | 1.37   | %  |                  |   | 4,949   |            |  | 1.85   | % 
|Other                                           |  |                | 8,896   |   |            | 3.15   | %  |                  |   | 8,968   |            |  | 3.36   | % 
|                                                |  |                |         |   |            |        |    |                  |   |         |            |  |        |   
|                                                |  |                | 284,174 |   |            | 100.70 | %  |                  |   | 269,132 |            |  | 100.70 | % 
|Allowance for loan losses                       |  |                | (2,652  | ) |            | (0.94  | )% |                  |   | (2,514  | )          |  | (0.94  | )%
|Deferred loan costs, net                        |  |                | 680     |   |            | 0.24   | %  |                  |   | 638     |            |  | 0.24   | % 
|                                                |  |                |         |   |            |        |    |                  |   |         |            |  |        |   
|Net Loans                                       |  | $              | 282,202 |   |            | 100.00 | %  |                  | $ | 267,256 |            |  | 100.00 | % 
|                                                |  |                |         |   |            |        |    |                  |   |         |            |  |        |   

Deposits

The following table summarizes deposits for the three months ended March 31, 2006 and the year ended December 31, 2005:



|                      |  |                |         |            |        |   |                   |   |            |  |        |  
|--------------------- |  | -------------- | ------- | ---------- | ------ | - | ----------------- | - | ---------- |  | ------ | -
|                      |  | March 31, 2006 |         | % of Total |        |   | December 31, 2005 |   | % of Total | 
|                      |  | (in thousands) |         |            |        |   | (in thousands)    |   |            | 
|                      |  | (unaudited)    |         |            |        |   |                   |   |            | 
|Demand Deposits       |  | $              | 74,905  |            | 21.98  | % |                   | $ | 78,218     |  | 22.62  | %
|NOW Accounts          |  |                | 62,445  |            | 18.33  | % |                   |   | 59,507     |  | 17.21  | %
|Money Market Accounts |  |                | 79,505  |            | 23.33  | % |                   |   | 78,487     |  | 22.70  | %
|Savings Deposits      |  |                | 61,079  |            | 17.93  | % |                   |   | 61,401     |  | 17.75  | %
|Time Deposits         |  |                | 62,811  |            | 18.43  | % |                   |   | 68,199     |  | 19.72  | %
|                      |  |                |         |            |        |   |                   |   |            |  |        |  
|Total                 |  | $              | 340,745 |            | 100.00 | % |                   | $ | 345,812    |  | 100.00 | %
|                      |  |                |         |            |        |   |                   |   |            |  |        |  



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Comparison of Operating Results for the Three Months Ended March 31, 2006 and
March 31, 2005

Total interest and dividend income, when compared to the same period last year, increased by $911,000, or 20.0%. Interest and fees
on loans, which increased by $825,000, or 23.5%, from the same period last year, contributed to most of this increase. The current interest rate and operating environment are presenting the Bank with a number of challenges. Interest rates have
continued to rise, increasing the Banks cost of funds and compressing the Banks net interest margin. The additional loan growth, while at smaller margins, has allowed the Bank to offset the increased interest costs and improve the core
earnings of the Bank.

Total interest expense increased by $821,000, or 98.6%, compared to the same period last year. The increase was partially comprised
of a $464,000, or 61.7%, increase in deposit interest expense, which was fueled by an increase in the average interest rate paid on deposits, necessitated by the current rate environment. The remaining increase in interest expense was attributed to
interest on other borrowed funds, primarily consisting of Federal Home Loan Bank advances. Interest paid on these borrowings increased $358,000, or 436.6%, from the same period last year. This was due to an increase in the amount of borrowings by
the Bank to fund loan portfolio growth and deposit outflow.

The Companys net interest margin decreased by
approximately 24 basis points 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 Three Months Ended March 31, 2006 |         |                  | For the Three Months Ended March 31, 2005 |           
|                                                 |  | AverageBalance                            |         | Interest Inc/Exp |                                           | Yield/Rate |  |      | AverageBalance |  | Interest Inc/Exp |         | Yield/Rate |  
|                                                 |  | (in thousands)                            |         | (in thousands)   |                                           |            |  |      | (in thousands) |  | (in thousands)   |         |            |  
|                                                 |  | (unaudited)                               |         | (unaudited)      |                                           |            |  |      | (unaudited)    |  | (unaudited)      |         |            |  
|Assets                                           |  |                                           |         |                  |                                           |            |  |      |                |  |                  |         |            |   |       |  |      |  
|Federal funds sold and interest bearing deposits |  | $                                         | 268     |                  | $                                         | 3          |  | 5.08 | %              |  | $                | 1,784   |            | $ | 8     |  | 1.82 | %
|Investments(1)                                   |  |                                           | 114,187 |                  |                                           | 1,138      |  | 4.04 | %              |  |                  | 115,445 |            |   | 1,045 |  | 3.67 | %
|Loans(1) (2) (3)                                 |  |                                           | 274,040 |                  |                                           | 4,402      |  | 6.51 | %              |  |                  | 239,760 |            |   | 3,563 |  | 6.03 | %
|                                                 |  |                                           |         |                  |                                           |            |  |      |                |  |                  |         |            |   |       |  |      |  
|Total interest-earning assets                    |  | $                                         | 388,495 |                  |                                           | 5,543      |  | 5.79 | %              |  | $                | 356,989 |            |   | 4,616 |  | 5.25 | %
|                                                 |  |                                           |         |                  |                                           |            |  |      |                |  |                  |         |            |   |       |  |      |  
|Liabilities                                      |  |                                           |         |                  |                                           |            |  |      |                |  |                  |         |            |   |       |  |      |  
|Savings deposits                                 |  | $                                         | 61,047  |                  |                                           | 82         |  | 0.55 | %              |  | $                | 70,066  |            |   | 96    |  | 0.55 | %
|NOW accounts                                     |  |                                           | 57,178  |                  |                                           | 33         |  | 0.24 | %              |  |                  | 65,548  |            |   | 39    |  | 0.24 | %
|Money market accounts                            |  |                                           | 82,524  |                  |                                           | 573        |  | 2.81 | %              |  |                  | 73,409  |            |   | 274   |  | 1.51 | %
|Time deposits                                    |  |                                           | 67,536  |                  |                                           | 526        |  | 3.16 | %              |  |                  | 59,227  |            |   | 342   |  | 2.34 | %
|FHLB advances                                    |  |                                           | 32,606  |                  |                                           | 364        |  | 4.52 | %              |  |                  | 6,228   |            |   | 42    |  | 2.71 | %
|Repurchase agreements                            |  |                                           | 9,759   |                  |                                           | 76         |  | 3.17 | %              |  |                  | 7,552   |            |   | 40    |  | 2.16 | %
|                                                 |  |                                           |         |                  |                                           |            |  |      |                |  |                  |         |            |   |       |  |      |  
|Total interest-bearing liabilities               |  |                                           | 310,650 |                  |                                           | 1,654      |  | 2.16 | %              |  |                  | 282,030 |            |   | 833   |  | 1.20 | %
|Non-interest-bearing deposits                    |  |                                           | 71,757  |                  |                                           |           |  |      |                |  |                  | 70,528  |            |   |      |  |      |  
|                                                 |  |                                           |         |                  |                                           |            |  |      |                |  |                  |         |            |   |       |  |      |  
|Total deposits                                   |  | $                                         | 382,407 |                  |                                           | 1,654      |  | 1.75 | %              |  | $                | 352,558 |            |   | 833   |  | 0.96 | %
|                                                 |  |                                           |         |                  |                                           |            |  |      |                |  |                  |         |            |   |       |  |      |  
|Net interest income                              |  |                                           |         |                  | $                                         | 3,889      |  |      |                |  |                  |         |            | $ | 3,783 |  |      |  
|                                                 |  |                                           |         |                  |                                           |            |  |      |                |  |                  |         |            |   |       |  |      |  
|Net interest spread                              |  |                                           |         |                  |                                           |            |  | 4.04 | %              |  |                  |         |            |   |       |  | 4.29 | %
|                                                 |  |                                           |         |                  |                                           |            |  |      |                |  |                  |         |            |   |       |  |      |  
|Net interest margin                              |  |                                           |         |                  |                                           |            |  | 4.06 | %              |  |                  |         |            |   |       |  | 4.30 | %
|                                                 |  |                                           |         |                  |                                           |            |  |      |                |  |                  |         |            |   |       |  |      |  

---

|(1) | Interest income and yield are stated on a fully tax-equivalent basis. The total amount of adjustments for investments is $13,000 and $10,000 for the three months ended
March 31, 2006 and 2005, respectivley. The total amount of adjustments for loans is $59,000 and $46,000 for the three months ended March 31, 2006 and 2005, respectively. A federal tax rate of 34% was used in performing this calculation.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes loan fees of $58,000 and $73,000 for the three months ended March 31, 2006 and 2005, respectively.
|--- | -----------------------------------------------------------------------------------------------------------

|(3) | Includes non-accruing loan balances and interest received on non-accruing loans.
|--- | --------------------------------------------------------------------------------

Total non-interest income for the three months ended March 31, 2006 was $1.1 million, an increase of $100,000, or 10.5%, from the same period last year. The increase was primarily a result of increased other deposit fees, and in other
income that consisted primarily of increases in loan origination and prepayment fees.

Total non-interest expense for the three months ended March 31,
2006 was $3.7 million, consistent with the amount reported by the Company for the same period last year. While the company realized increases in certain operating expenses, such as salaries and employee benefits, equipment and marketing, these
increases were anticipated, as they are inherent in the strategy of growing the Bank. Most other operating expenses have decreased from the amount reported for the comparable period last year, a result of the Banks focus on improving its
overall efficiency.

The income tax provision for the three months ended March 31, 2006 increased by $69,000, or 25.8%, from the same period last
year. This is simply a result of increased net income, as the effective rate is consistent with that of the same period last year.



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Provisions and Allowance for Loan Losses

Credit risk is inherent in the business of extending loans. The Bank maintains an allowance for credit losses through charges to earnings. A loan loss provision of
$140,000 was made during the three months ended March 31, 2006 and 2005. The total allowance for loan losses was 0.9% of total loans at March 31, 2006 and December 31, 2005.

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 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 smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, 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. It also looks at delinquency 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 three months ended March 31:



|                                           |  |                |       |   |                |   |       |  
|------------------------------------------ |  | -------------- | ----- | - | -------------- | - | ----- | -
|                                           |  | 2006           |       |   | 2005           |  
|                                           |  | (in thousands) |       |   | (in thousands) |  
|                                           |  | (unaudited)    |      
|Balance as of January 1st                  |  | $              | 2,514 |   |                | $ | 2,181 |  
|Loans charged off                          |  |                | (4    | ) |                |   | (6    | )
|Provision for loan losses                  |  |                | 140   |   |                |   | 140   |  
|Recoveries of loans previously charged off |  |                | 2     |   |                |   | 13    |  
|                                           |  |                |       |   |                |   |       |  
|Balance as of March 31st                   |  | $              | 2,652 |   |                | $ | 2,328 |  
|                                           |  |                |       |   |                |   |       |  

At March 31, 2006, the allowance for loan losses represented 13,260.0% of non-performing loans, which totaled
$20,000, and 0.93% of total loans, including deferred costs, net, of $284.9 million. Non-performing loans represented 0.01% of total loans and mortgages held-for-sale at March 31, 2006. At March 31, 2005, the allowance for loan loss
represented 954.1% of non-performing loans, which totaled $244,000, and 0.95% of total loans, including deferred costs, net, of $244.7 million. Non-performing loans represented 0.1% of total loans and mortgages held-for-sale. The decrease in
non-performing loans is a result of several loans that were either brought current or paid off.

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



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##### Table of Contents

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 March 31, 2006, the Company had total capital of $28.7 million, a decrease of $29,000, or 0.1%, from total
capital as of December 31, 2005. The net change in the Banks capital reflects the current year income reduced by the two dividends declared in the first quarter, which were paid in the first and second quarters, and the increase in the
net unrealized loss on securities available-for-sale.

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 March 31, 2006, the Banks Tier 1 capital amounted to 6.55% of average total assets. At March 31, 2006, the Banks ratio of risk-based capital to risk-weighted assets amounted to 9.98%, which
satisfies the applicable risk-based capital requirements. As of December 31, 2005, the Banks Tier 1 capital amounted to 6.75% of average assets and risk-based capital amounted to 10.47% 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
March 31, 2006, the Companys Tier 1 capital amounted to 7.09% of average total assets. At March 31, 2006, the Companys ratio of risk-based capital to risk weighted assets amounted to 10.77%, which satisfies the applicable
risk-based capital requirements. As of December 31, 2005, the Companys Tier 1 capital amounted to 6.84% of average assets and risk-based capital amounted to 11.19% of total risk-based assets.

The capital ratios of the Company and the Bank exceed all regulatory requirements, and the Bank and the Company are 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 $8.7 million at March 31, 2006; additionally, a minimum amount of contractual payments in the amount of $10.5 million for the mortgage-backed securities portfolio is due within one year at March 31,
2006. 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.

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.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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;
|--- | --------------------------------------------------------------------------------------------------------------------------------------------



|(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 three months ended March 31, 2006 was 4.06%, in comparison to the 4.30% net interest margin for the three months ended March 31, 2005. 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 and Chief Operations Officer, 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 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 ALCO 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 March 31, 2006, the capital ratio of the Company on an EVE basis, at current rate levels, is 14.2%. Based on



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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 7.75% to 9.75%) would result in an EVE capital ratio of 15.0%. Alternatively, if interest rates were to decrease over the next year by 200 basis points, the EVE capital ratio is estimated to be 11.8%. 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.



|                      |  |                             |        |                             |                   |      |                             |  |                              |    |  |   |        |  |   |      |   |  |       |   
|--------------------- |  | --------------------------- | ------ | --------------------------- | ----------------- | ---- | --------------------------- |  | ---------------------------- | -- |  | - | ------ |  | - | ---- | - |  | ----- | --
|                      |  | March 31, 2006              |        |                             | December 31, 2005 |     
|                      |  | Projectednet interestincome |        | Change from year 1base case |                   |      | Projectednet interestincome |  | Change from year 1 base case |   
|Year 1 projections:   |  |                             |        |                             |                   |      |                             |  |                              |    |  |   |        |  |   |      |   |  |       |   
|Down 200 basis points |  | $                           | 15,913 |                             | $                 | 205  |                             |  | 1.31                         | %  |  | $ | 15,743 |  | $ | 18   |   |  | 0.11  | % 
|Base                  |  | $                           | 15,708 |                             | $                 |     |                             |  |                             |    |  | $ | 15,725 |  | $ |     |   |  |      |   
|Up 200 basis points   |  | $                           | 15,222 |                             | $                 | (486 | )                           |  | (3.09                        | )% |  | $ | 15,346 |  | $ | (379 | ) |  | (2.41 | )%
|                      |  |                             |        |                             |                   |     
|Year 2 projections:   |  |                             |        |                             |                   |      |                             |  |                              |    |  |   |        |  |   |      |   |  |       |   
|Down 200 basis points |  | $                           | 15,937 |                             | $                 | 229  |                             |  | 1.46                         | %  |  | $ | 15,426 |  | $ | (299 | ) |  | (1.90 | )%
|Base                  |  | $                           | 16,422 |                             | $                 | 714  |                             |  | 4.55                         | %  |  | $ | 16,151 |  | $ | 426  |   |  | 2.71  | % 
|Up 200 basis points   |  | $                           | 16,203 |                             | $                 | 495  |                             |  | 3.15                         | %  |  | $ | 16,169 |  | $ | 444  |   |  | 2.82  | % 

As of March 31, 2006, net interest income increases slightly in a declining rate scenario in both year 1 and
year 2 is a result of the Banks effort to reduce exposure to falling interest rates. The cause for the change in the effect of rising rates from a negative impact in year 1 to a positive impact in year 2 is a result of the initial impact of
increasing core deposit rates which is then more than offset in year 2, as a greater level of assets re-price at current rates than liabilities. These changes 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 March 31, 2006, 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 March 31, 2006, 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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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. |  | Not applicable |  | 
|         |  |                                                              | 
|Item 3.  |  | Defaults Upon Senior Securities.                             |  | Not applicable |  | 
|         |  |                                                              | 
|Item 4.  |  | Submission of Matters to a Vote of Security Holders.         |  | Not applicable |  | 
|         |  |                                                              | 
|Item 5.  |  | Other Information.                                           |  | Not applicable |  | 
|         |  |                                                              | 
|Item 6.  |  | Exhibits.                                                    |  |                |  | 



|       |  |                                                                  
|------ |  | -----------------------------------------------------------------
|3.1(a) |  | Restated Articles of Organization                                
|       | 
|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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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: May 11, 2006           |  | By: |  | /s/ Donat A. Fournier                               
|                             |  |     |  | Donat A. Fournier                                   
|                             |  |     |  | President and Chief Executive Officer               
|                             |  |    
|Date: May 11, 2006           |  | By: |  | /s/ Michael O. Gilles                               
|                             |  |     |  | Michael O. Gilles                                   
|                             |  |     |  | Executive Vice President and Chief Financial Officer



16