##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q



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



For the Quarterly period ended June 30, 2005



OR



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



For the transition period from  to



Commission file number 33-22224-B



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Beverly National Corporation

(Name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Massachusetts                                                  |  | 04-2832201                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|240 Cabot Street Beverly, Massachusetts                        |  | 01915                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



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



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Indicate by check mark whether registrant (l) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange
Act of 1934 during the preceding l2 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



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



Indicate the number of shares outstanding of each of the issuers classes of common
stock, as of August 5, 2005. 1,878,190 shares.



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##### Table of Contents

BEVERLY NATIONAL CORPORATION



INDEX



|                                                                                                                 |  |     
|---------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                 |  | PAGE
|PART I.
FINANCIAL INFORMATION                                                                                    |  |     
|                                                                                                                 | 
|Item 1.                                                                                                          |  |     
|                                                                                                                 | 
|Financial Statements                                                                                             |  |     
|                                                                                                                 | 
|Condensed Consolidated Balance Sheetsat June 30, 2005 (Unaudited) and December 31, 2004                          |  | 3   
|                                                                                                                 | 
|Condensed Consolidated Statements of Incomefor the Six and Three Months Ended June 30, 2005 and 2004 (Unaudited) |  | 4   
|                                                                                                                 | 
|Condensed Consolidated Statements of Cash Flowsfor the Six Months Ended June 30, 2005 and 2004 (Unaudited)       |  | 5   
|                                                                                                                 | 
|Notes to Condensed Consolidated Financial Statements (Unaudited)                                                 |  | 6   
|                                                                                                                 | 
|Item 2.                                                                                                          |  |     
|                                                                                                                 | 
|Managements Discussion and Analysis of Financial Condition and Results of Operations                            |  | 8   
|                                                                                                                 | 
|Item 3.                                                                                                          |  |     
|                                                                                                                 | 
|Quantitative and Qualitative Disclosures About Market Risk                                                       |  | 15  
|                                                                                                                 | 
|Item 4.                                                                                                          |  |     
|                                                                                                                 | 
|Controls and Procedures                                                                                          |  | 16  
|                                                                                                                 | 
|PART II.
OTHER INFORMATION                                                                                       |  |     
|                                                                                                                 | 
|Item 1.                                                                                                          |  |     
|                                                                                                                 | 
|Legal Proceedings                                                                                                |  | 17  
|                                                                                                                 | 
|Item 2.                                                                                                          |  |     
|                                                                                                                 | 
|Unregistered Sales of Equity Securities and Use of Proceeds                                                      |  | 17  
|                                                                                                                 | 
|Item 3.                                                                                                          |  |     
|                                                                                                                 | 
|Defaults Upon Senior Securities                                                                                  |  | 17  
|                                                                                                                 | 
|Item 4.                                                                                                          |  |     
|                                                                                                                 | 
|Submission of Matters to a Vote of Security Holders                                                              |  | 17  
|                                                                                                                 | 
|Item 5.                                                                                                          |  |     
|                                                                                                                 | 
|Other Information                                                                                                |  | 18  
|                                                                                                                 | 
|Item 6.                                                                                                          |  |     
|                                                                                                                 | 
|Exhibits                                                                                                         |  | 18  
|                                                                                                                 | 
|Signatures                                                                                                       |  | 19  



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



|                                                                                                                                                                                                                                                               |  |               |             |   |                   |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ----------------- | - | ----------- | -
|                                                                                                                                                                                                                                                               |  | June 30, 2005 |             |   | December 31, 2004 |  
|                                                                                                                                                                                                                                                               |  | (Unaudited)   |             |   |                   |  
|ASSETS                                                                                                                                                                                                                                                         |  |               |             |   |                   |   |             |  
|Cash and due from banks                                                                                                                                                                                                                                        |  | $             | 15,688,610  |   |                   | $ | 10,345,116  |  
|Interest bearing demand deposits with other banks                                                                                                                                                                                                              |  |               | 845,352     |   |                   |   | 300,845     |  
|Federal Home Loan Bank overnight deposits                                                                                                                                                                                                                      |  |               | 454,848     |   |                   |   |            |  
|Federal funds sold                                                                                                                                                                                                                                             |  |               | 18,300,000  |   |                   |   |            |  
|                                                                                                                                                                                                                                                               |  |               |             |   |                   |   |             |  
|Cash and cash equivalents                                                                                                                                                                                                                                      |  |               | 35,288,810  |   |                   |   | 10,645,961  |  
|Investment in available-for-sale securities (at fair value)                                                                                                                                                                                                    |  |               | 44,313,126  |   |                   |   | 44,116,115  |  
|Investment in held-to-maturity securities (at amortized cost)                                                                                                                                                                                                  |  |               | 68,875,255  |   |                   |   | 70,712,919  |  
|Federal Home Loan Bank stock, at cost                                                                                                                                                                                                                          |  |               | 1,872,400   |   |                   |   | 1,872,400   |  
|Federal Reserve Bank stock, at cost                                                                                                                                                                                                                            |  |               | 187,500     |   |                   |   | 142,500     |  
|Loans, net of the allowance for loan losses of $2,447,730 and $2,181,257, respectively                                                                                                                                                                         |  |               | 248,513,314 |   |                   |   | 234,661,889 |  
|Mortgages held-for-sale                                                                                                                                                                                                                                        |  |               |            |   |                   |   | 447,000     |  
|Premises and equipment                                                                                                                                                                                                                                         |  |               | 4,697,655   |   |                   |   | 4,816,777   |  
|Accrued interest receivable                                                                                                                                                                                                                                    |  |               | 1,461,423   |   |                   |   | 1,356,474   |  
|Other assets                                                                                                                                                                                                                                                   |  |               | 9,546,406   |   |                   |   | 9,352,897   |  
|                                                                                                                                                                                                                                                               |  |               |             |   |                   |   |             |  
|Total assets                                                                                                                                                                                                                                                   |  | $             | 414,755,889 |   |                   | $ | 378,124,932 |  
|                                                                                                                                                                                                                                                               |  |               |             |   |                   |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                           |  |               |             |   |                   |   |             |  
|Deposits:                                                                                                                                                                                                                                                      |  |               |             |   |                   |   |             |  
|Noninterest-bearing                                                                                                                                                                                                                                            |  | $             | 77,569,013  |   |                   | $ | 72,317,274  |  
|Interest-bearing                                                                                                                                                                                                                                               |  |               | 297,469,937 |   |                   |   | 264,842,515 |  
|                                                                                                                                                                                                                                                               |  |               |             |   |                   |   |             |  
|Total deposits                                                                                                                                                                                                                                                 |  |               | 375,038,950 |   |                   |   | 337,159,789 |  
|Securities sold under agreements to repurchase                                                                                                                                                                                                                 |  |               | 8,826,651   |   |                   |   | 10,496,482  |  
|Other liabilities                                                                                                                                                                                                                                              |  |               | 2,509,920   |   |                   |   | 2,456,626   |  
|                                                                                                                                                                                                                                                               |  |               |             |   |                   |   |             |  
|Total liabilities                                                                                                                                                                                                                                              |  |               | 386,375,521 |   |                   |   | 350,112,897 |  
|                                                                                                                                                                                                                                                               |  |               |             |   |                   |   |             |  
|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 1,979,167 shares as of June 30, 2005 and 1,972,357 shares as of
December 31, 2004; outstanding, 1,868,262 shares as of June 30, 2005 and 1,861,332 shares as of December 31, 2004 |  |               | 4,947,918   |   |                   |   | 4,930,893   |  
|Paid-in capital                                                                                                                                                                                                                                                |  |               | 6,668,205   |   |                   |   | 6,618,028   |  
|Retained earnings                                                                                                                                                                                                                                              |  |               | 18,560,360  |   |                   |   | 18,097,225  |  
|Treasury stock, at cost (110,905 shares as of June 30, 2005 and 111,025 shares as of December 31, 2004)                                                                                                                                                        |  |               | (1,502,006  | ) |                   |   | (1,503,631  | )
|Accumulated other comprehensive loss                                                                                                                                                                                                                           |  |               | (294,109    | ) |                   |   | (130,480    | )
|                                                                                                                                                                                                                                                               |  |               |             |   |                   |   |             |  
|Total stockholders equity                                                                                                                                                                                                                                     |  |               | 28,380,368  |   |                   |   | 28,012,035  |  
|                                                                                                                                                                                                                                                               |  |               |             |   |                   |   |             |  
|Total liabilities and stockholders equity                                                                                                                                                                                                                     |  | $             | 414,755,889 |   |                   | $ | 378,124,932 |  
|                                                                                                                                                                                                                                                               |  |               |             |   |                   |   |             |  



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



3



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##### Table of Contents

BEVERLY NATIONAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)



|                                                                     |  |                    |           |                  |   |               |  |               |           |  |   |          
|-------------------------------------------------------------------- |  | ------------------ | --------- | ---------------- | - | ------------- |  | ------------- | --------- |  | - | ---------
|                                                                     |  | Three Months Ended |           | Six Months Ended
|                                                                     |  | June 30, 2005      |           | June 30, 2004    |   | June 30, 2005 |  | June 30, 2004
|Interest and dividend income:                                        |  |                    |           |                  |   |               |  |               |           |  |   |          
|Interest and fees on loans                                           |  | $                  | 3,729,174 |                  | $ | 2,720,663     |  | $             | 7,273,571 |  | $ | 5,279,989
|Interest on debt securities:                                         |  |                    |           |                  |   |               |  |               |           |  |   |          
|Taxable                                                              |  |                    | 1,003,039 |                  |   | 979,534       |  |               | 2,014,157 |  |   | 1,988,020
|Tax-exempt                                                           |  |                    | 17,990    |                  |   | 18,057        |  |               | 39,075    |  |   | 33,975   
|Dividends on marketable equity securities                            |  |                    | 2,169     |                  |   | 3,048         |  |               | 4,338     |  |   | 6,534    
|Other interest                                                       |  |                    | 65,635    |                  |   | 35,784        |  |               | 73,883    |  |   | 42,220   
|                                                                     |  |                    |           |                  |   |               |  |               |           |  |   |          
|Total interest and dividend income                                   |  |                    | 4,818,007 |                  |   | 3,757,086     |  |               | 9,405,024 |  |   | 7,350,738
|                                                                     |  |                    |           |                  |   |               |  |               |           |  |   |          
|Interest expense:                                                    |  |                    |           |                  |   |               |  |               |           |  |   |          
|Interest on deposits                                                 |  |                    | 1,074,268 |                  |   | 550,752       |  |               | 1,824,984 |  |   | 1,114,856
|Interest on Federal Home Loan Bank advances and other borrowed funds |  |                    | 48,231    |                  |   | 39,006        |  |               | 129,987   |  |   | 72,381   
|                                                                     |  |                    |           |                  |   |               |  |               |           |  |   |          
|Total interest expense                                               |  |                    | 1,122,499 |                  |   | 589,758       |  |               | 1,954,971 |  |   | 1,187,237
|                                                                     |  |                    |           |                  |   |               |  |               |           |  |   |          
|Net interest and dividend income                                     |  |                    | 3,695,508 |                  |   | 3,167,328     |  |               | 7,450,053 |  |   | 6,163,501
|Provision for loan losses                                            |  |                    | 120,000   |                  |   | 70,000        |  |               | 260,000   |  |   | 130,000  
|                                                                     |  |                    |           |                  |   |               |  |               |           |  |   |          
|Net interest and dividend income after provision for loan losses     |  |                    | 3,575,508 |                  |   | 3,097,328     |  |               | 7,190,053 |  |   | 6,033,501
|                                                                     |  |                    |           |                  |   |               |  |               |           |  |   |          
|Noninterest income:                                                  |  |                    |           |                  |   |               |  |               |           |  |   |          
|Income from fiduciary activities                                     |  |                    | 472,076   |                  |   | 428,076       |  |               | 894,630   |  |   | 840,394  
|Fees from sale of non-deposit products                               |  |                    | 66,693    |                  |   | 21,822        |  |               | 130,958   |  |   | 21,822   
|Service charges on deposit accounts                                  |  |                    | 143,236   |                  |   | 159,522       |  |               | 280,170   |  |   | 314,275  
|Other deposit fees                                                   |  |                    | 143,879   |                  |   | 145,648       |  |               | 270,939   |  |   | 268,094  
|Gains on sales of securities, net                                    |  |                    |          |                  |   |              |  |               |          |  |   | 59,452   
|Gains on sales of loans, net                                         |  |                    | 14,358    |                  |   |              |  |               | 14,358    |  |   | 28,209   
|Income on cash surrender value of life insurance                     |  |                    | 50,980    |                  |   | 57,120        |  |               | 103,893   |  |   | 101,052  
|Other income                                                         |  |                    | 187,543   |                  |   | 122,354       |  |               | 309,565   |  |   | 245,779  
|                                                                     |  |                    |           |                  |   |               |  |               |           |  |   |          
|Total noninterest income                                             |  |                    | 1,078,765 |                  |   | 934,542       |  |               | 2,004,513 |  |   | 1,879,077
|                                                                     |  |                    |           |                  |   |               |  |               |           |  |   |          
|Noninterest expense:                                                 |  |                    |           |                  |   |               |  |               |           |  |   |          
|Salaries and employee benefits                                       |  |                    | 2,267,488 |                  |   | 1,918,379     |  |               | 4,427,304 |  |   | 3,804,362
|Director fees                                                        |  |                    | 68,570    |                  |   | 65,754        |  |               | 143,418   |  |   | 128,722  
|Occupancy expense                                                    |  |                    | 344,239   |                  |   | 250,989       |  |               | 731,202   |  |   | 520,457  
|Equipment expense                                                    |  |                    | 106,250   |                  |   | 114,585       |  |               | 211,444   |  |   | 225,128  
|Contributions                                                        |  |                    | 32,031    |                  |   | 9,487         |  |               | 34,845    |  |   | 19,188   
|Data processing fees                                                 |  |                    | 142,276   |                  |   | 132,685       |  |               | 291,088   |  |   | 279,736  
|Marketing and public relations                                       |  |                    | 121,842   |                  |   | 126,283       |  |               | 185,746   |  |   | 203,381  
|Stationery and supplies                                              |  |                    | 54,196    |                  |   | 42,057        |  |               | 121,588   |  |   | 100,771  
|Professional fees                                                    |  |                    | 230,031   |                  |   | 155,954       |  |               | 345,624   |  |   | 307,986  
|Other expense                                                        |  |                    | 448,733   |                  |   | 453,956       |  |               | 961,233   |  |   | 892,383  
|                                                                     |  |                    |           |                  |   |               |  |               |           |  |   |          
|Total noninterest expense                                            |  |                    | 3,815,656 |                  |   | 3,270,129     |  |               | 7,453,492 |  |   | 6,482,114
|                                                                     |  |                    |           |                  |   |               |  |               |           |  |   |          
|Income before income taxes                                           |  |                    | 838,617   |                  |   | 761,741       |  |               | 1,741,074 |  |   | 1,430,464
|Income taxes                                                         |  |                    | 263,256   |                  |   | 220,370       |  |               | 530,912   |  |   | 406,382  
|                                                                     |  |                    |           |                  |   |               |  |               |           |  |   |          
|Net Income                                                           |  | $                  | 575,361   |                  | $ | 541,371       |  | $             | 1,210,162 |  | $ | 1,024,082
|                                                                     |  |                    |           |                  |   |               |  |               |           |  |   |          
|Earnings per share:                                                  |  |                    |           |                  |   |               |  |               |           |  |   |          
|Weighted average shares outstanding                                  |  |                    | 1,868,142 |                  |   | 1,841,248     |  |               | 1,867,630 |  |   | 1,838,600
|                                                                     |  |                    |           |                  |   |               |  |               |           |  |   |          
|Weighted average diluted shares outstanding                          |  |                    | 1,932,301 |                  |   | 1,921,247     |  |               | 1,932,033 |  |   | 1,920,863
|                                                                     |  |                    |           |                  |   |               |  |               |           |  |   |          
|Earnings per common share, basic                                     |  | $                  | 0.31      |                  | $ | 0.29          |  | $             | 0.65      |  | $ | 0.56     
|Earnings per common share, assuming dilution                         |  | $                  | 0.30      |                  | $ | 0.28          |  | $             | 0.63      |  | $ | 0.53     
|Dividends per share                                                  |  | $                  | 0.20      |                  | $ | 0.20          |  | $             | 0.40      |  | $ | 0.40     



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



4



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##### Table of Contents

BEVERLY NATIONAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2005 AND 2004

(Unaudited)



|                                                                                            |  |               |             |   |               |   |             |  
|------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ------------- | - | ----------- | -
|                                                                                            |  | June 30, 2005 |             |   | June 30, 2004 |  
|Cash flows from operating activities:                                                       |  |               |             |   |               |   |             |  
|Net income                                                                                  |  | $             | 1,210,121   |   |               | $ | 1,024,082   |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |               |             |   |               |   |             |  
|Amortization of securities, net                                                             |  |               | 163,744     |   |               |   | 441,769     |  
|Gains on sales of securities, net                                                           |  |               |            |   |               |   | (59,452     | )
|Provision for loan losses                                                                   |  |               | 260,000     |   |               |   | 130,000     |  
|Change in deferred loan costs, net                                                          |  |               | 12,118      |   |               |   | (57,447     | )
|Net decrease in mortgages held-for-sale                                                     |  |               | 447,000     |   |               |   |            |  
|Depreciation and amortization                                                               |  |               | 315,172     |   |               |   | 302,151     |  
|Increase in interest receivable                                                             |  |               | (104,949    | ) |               |   | (143,221    | )
|Decrease (increase) in prepaid expenses                                                     |  |               | 209,550     |   |               |   | (13,260     | )
|Decrease in mortgage servicing rights                                                       |  |               | 36,600      |   |               |   | 27,235      |  
|Increase in cash surrender value of life insurance                                          |  |               | (122,574    | ) |               |   | (101,052    | )
|Decrease in RABBI Trust trading securities                                                  |  |               | 59,098      |   |               |   | 57,027      |  
|(Increase) decrease in other assets                                                         |  |               | (372,844    | ) |               |   | 3,318       |  
|Increase (decrease) in interest payable                                                     |  |               | 155,458     |   |               |   | (3,528      | )
|Decrease in accrued expenses                                                                |  |               | (155,761    | ) |               |   | (92,031     | )
|Decrease in taxes receivable                                                                |  |               | 78,110      |   |               |   | 59,710      |  
|Increase in other liabilities                                                               |  |               | 53,597      |   |               |   | 13,926      |  
|                                                                                            |  |               |             |   |               |   |             |  
|Net cash provided by operating activities                                                   |  |               | 2,244,440   |   |               |   | 1,589,227   |  
|                                                                                            |  |               |             |   |               |   |             |  
|Cash flows from investing activities:                                                       |  |               |             |   |               |   |             |  
|Purchases of available-for-sale securities                                                  |  |               | (4,619,166  | ) |               |   | (20,950,355 | )
|Proceeds from sales of available-for-sale securities                                        |  |               |            |   |               |   | 10,359,168  |  
|Proceeds from maturities of available-for-sale securities                                   |  |               | 4,030,579   |   |               |   | 17,656,292  |  
|Purchases of held-to-maturity securities                                                    |  |               | (1,000,000  | ) |               |   | (7,675,506  | )
|Proceeds from maturities of held-to-maturity securities                                     |  |               | 2,820,418   |   |               |   | 9,572,749   |  
|Purchase of Federal Reserve Bank stock                                                      |  |               | (45,000     | ) |               |   | (290,500    | )
|Loan originations and principal collections, net                                            |  |               | (14,138,860 | ) |               |   | (25,172,230 | )
|Recoveries of loans previously charged off                                                  |  |               | 15,317      |   |               |   | 47,110      |  
|Capital expenditures                                                                        |  |               | (196,050    | ) |               |   | (235,738    | )
|Purchase of life insurance policies                                                         |  |               |            |   |               |   | (4,788,636  | )
|                                                                                            |  |               |             |   |               |   |             |  
|Net cash used in investing activities                                                       |  |               | (13,132,762 | ) |               |   | (21,477,646 | )
|                                                                                            |  |               |             |   |               |   |             |  
|Cash flows from financing activities:                                                       |  |               |             |   |               |   |             |  
|Net increase in demand deposits, NOW, money market and savings accounts                     |  |               | 21,182,969  |   |               |   | 2,961,120   |  
|Net increase in time deposits                                                               |  |               | 16,696,192  |   |               |   | 1,672,540   |  
|Net increase in Federal Home Loan Bank advances                                             |  |               |            |   |               |   | 15,000,000  |  
|(Decrease) increase in securities sold under agreements to repurchase                       |  |               | (1,669,831  | ) |               |   | 3,019,481   |  
|Proceeds from exercise of stock options                                                     |  |               | 68,827      |   |               |   | 116,433     |  
|Proceeds from issuance of treasury stock                                                    |  |               |            |   |               |   | 5,686       |  
|Dividends paid                                                                              |  |               | (746,986    | ) |               |   | (735,164    | )
|                                                                                            |  |               |             |   |               |   |             |  
|Net cash provided by financing activities                                                   |  |               | 35,531,171  |   |               |   | 22,040,096  |  
|                                                                                            |  |               |             |   |               |   |             |  
|Net increase in cash and cash equivalents                                                   |  |               | 24,642,849  |   |               |   | 2,151,677   |  
|Cash and cash equivalents at beginning of year                                              |  |               | 10,645,961  |   |               |   | 22,950,289  |  
|                                                                                            |  |               |             |   |               |   |             |  
|Cash and cash equivalents at June 30                                                        |  | $             | 35,288,810  |   |               | $ | 25,101,966  |  
|                                                                                            |  |               |             |   |               |   |             |  
|Supplemental disclosures:                                                                   |  |               |             |   |               |   |             |  
|Mortgages held-for-sale transferred to loans                                                |  | $             |            |   |               | $ | 1,885,282   |  
|Interest paid                                                                               |  |               | 1,799,513   |   |               |   | 1,190,765   |  
|Income taxes paid                                                                           |  |               | 809,640     |   |               |   | 346,372     |  



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



5



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##### Table of Contents

BEVERLY NATIONAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



1. BASIS OF PRESENTATION



The
interim condensed consolidated financial statements contained herein are unaudited but, in the opinion of management, include all adjustments that are necessary to make the financial statements not misleading. All such adjustments are of a normal
recurring nature. The results of operations for any interim period are not necessarily indicative of results that may be expected for the year ended December 31, 2005.



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



2. EARNINGS PER SHARE



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



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



3. RECLASSIFICATION



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



4. IMPACT OF NEW ACCOUNTING STANDARDS



In January 2003, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46), in an effort to expand upon and strengthen existing accounting guidance that addresses when a company should include in
its financial statements the assets, liabilities and activities of another entity, referred to as variable interest entities. In December 2003, the FASB revised Interpretation No. 46, also referred to as Interpretation 46 (R) (FIN
46(R)). The objective of this interpretation is not to restrict the use of variable interest entities but to improve financial reporting by companies involved with variable interest entities. Until now, one company generally has included
another entity in its consolidated financial statements only if it controlled the entity through voting interests. This interpretation changes that by requiring a variable interest entity to be consolidated by a company only if that company is
subject to a majority of the risk of loss from the variable interest entitys activities or entitled to receive a majority of the entitys residual returns or both. The Company was required to apply FIN 46(R) to all entities subject to it
no later than the end of the first reporting period ending after March 15, 2004. However, prior to the required application of FIN 46(R), the Company shall apply FIN 46 or FIN 46 (R) to those entities that are considered to be special-purpose
entities as of the end of the first fiscal year or interim period ending after December 15, 2003. The adoption of this interpretation did not have a material effect on the Companys consolidated financial statements.



In December 2003, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 132 (revised), Employers Disclosures about Pensions and Other Postretirement Benefits - an amendment of SFAS No. 87, SFAS No. 88 and SFAS No. 106 (SFAS No. 132 (revised)). This Statement
revises employers disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, Employers Accounting for Pensions, SFAS No.
88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions. SFAS
No. 132 (revised) retains the disclosure requirements contained in SFAS No. 132, Employers Disclosures About Pensions and Other Postretirement Benefits, which it replaces. It requires additional disclosures to those in the original
SFAS No. 132 (revised) about assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. SFAS No. 132 (revised) is effective for financial statements with fiscal
years ending after December 15, 2003 and interim periods beginning after December 15, 2003. Adoption of SFAS No. 132 (revised) did not have a material impact on the Companys consolidated financial statements.



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In December 2003, the American Institute of Certified Public Accountants (AICPA) issued
Statement of Position 03-3 (SOP 03-3) Accounting for Certain Loans or Debt Securities Acquired in a Transfer. SOP 03-3 requires that loans acquired through a transfer, such as a business combination, where there are
differences in expected cash flows and contractual cash flows due in part to credit quality, be recognized at their fair value. The excess of contractual cash flows over expected cash flows is not to be recognized as an adjustment of yield, loss
accrual, or valuation allowance. Valuation allowances cannot be created nor carried over in the initial accounting for loans acquired in a transfer on loans subject to SFAS 114, Accounting by Creditors for Impairment of a
Loan. This SOP is effective for loans acquired in fiscal years beginning after December 15, 2004, with early adoption encouraged. The Company does not believe the adoption of SOP 03-3 will have a material impact on the Companys financial
position or results of operations.



In December 2004, the FASB
issued SFAS No. 123 (revised), Share-Based Payment (SFAS No. 123R). This Statement revises FASB Statement No. 123, Accounting for Stock Based Compensation and supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees, and its related implementation guidance. SFAS No. 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. SFAS No. 123R was effective for the Company as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. However, since the issuance of SFAS No. 123R, the SEC has
delayed the effective date. The new effective date for the Company is January 1, 2006. The Company does not believe the adoption of SFAS No. 123R will have a material impact on the Companys financial position or results of operations.



5. STOCK BASED COMPENSATION



At June 30, 2005, the Company has five stock-based employee compensation
plans. The Company accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Accordingly, no compensation cost has been
recognized for its 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 No. 123R, Share-Based Payment, to
stock-based employee compensation.



|                                                                                                                                            |  |                             |           |                           |   |           |  |      |           |  |   |          
|------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | --------- | ------------------------- | - | --------- |  | ---- | --------- |  | - | ---------
|                                                                                                                                            |  | Three Months Ended June 30, |           | Six Months Ended June 30,
|                                                                                                                                            |  | 2005                        |           | 2004                      |   | 2005      |  | 2004
|Net income, as reported                                                                                                                     |  | $                           | 575,361   |                           | $ | 541,371   |  | $    | 1,210,162 |  | $ | 1,024,082
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                             | 11,973    |                           |   | 11,973    |  |      | 23,946    |  |   | 23,946   
|                                                                                                                                            |  |                             |           |                           |   |           |  |      |           |  |   |          
|Pro forma net income                                                                                                                        |  | $                           | 563,388   |                           | $ | 529,398   |  | $    | 1,186,216 |  | $ | 1,000,136
|                                                                                                                                            |  |                             |           |                           |   |           |  |      |           |  |   |          
|Earnings per share:                                                                                                                         |  |                             |           |                           |   |           |  |      |           |  |   |          
|Basis - as reported                                                                                                                         |  | $                           | 0.31      |                           | $ | 0.29      |  | $    | 0.65      |  | $ | 0.56     
|Basic - pro forma                                                                                                                           |  | $                           | 0.30      |                           | $ | 0.29      |  | $    | 0.64      |  | $ | 0.54     
|Diluted - as reported                                                                                                                       |  | $                           | 0.30      |                           | $ | 0.28      |  | $    | 0.63      |  | $ | 0.53     
|Diluted - pro forma                                                                                                                         |  | $                           | 0.29      |                           | $ | 0.28      |  | $    | 0.61      |  | $ | 0.52     
|                                                                                                                                            |  |                             |           |                          
|Average basic shares at June 30, 2005                                                                                                       |  |                             | 1,868,142 |                           |   | 1,841,248 |  |      | 1,867,630 |  |   | 1,838,600
|Average diluted shares at June 30, 2005                                                                                                     |  |                             | 1,932,301 |                           |   | 1,921,247 |  |      | 1,932,033 |  |   | 1,920,863



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##### Table of Contents

6. PENSION BENEFITS



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



|                                    |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |          |  
|----------------------------------- |  | --------------------------- | -------- | - | ------------------------- | - | -------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                    |  | Three Months Ended June 30, |          |   | Six Months Ended June 30, |  
|                                    |  | 2005                        |          |   | 2004                      |   |          | 2005 |  |   | 2004     |  
|Service cost                        |  | $                           | 96,587   |   |                           | $ | 80,287   |      |  | $ | 193,173  |   |  | $ | 153,769  |  
|Interest cost on benefit obligation |  |                             | 137,004  |   |                           |   | 127,502  |      |  |   | 274,007  |   |  |   | 259,996  |  
|Expected return on plan assets      |  |                             | (152,037 | ) |                           |   | (137,648 | )    |  |   | (304,073 | ) |  |   | (256,075 | )
|Amortization of prior service cost  |  |                             | 13,744   |   |                           |   | 13,745   |      |  |   | 27,489   |   |  |   | 27,489   |  
|Recognized net actuarial loss       |  |                             |         |   |                           |   | (2,694   | )    |  |   |         |   |  |   |         |  
|                                    |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |          |  
|Net periodic benefit cost           |  | $                           | 95,298   |   |                           | $ | 81,192   |      |  | $ | 190,596  |   |  | $ | 185,179  |  
|                                    |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |          |  



The Company previously
disclosed in its consolidated financial statements for the year ended December 31, 2004, which are contained in the Form 10-K for the period then ended, that it expected pension plan contributions to be $800,000 in 2005. Through June 30, 2005, no
contribution to the pension plan was required.



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 subsidiaries, Hannah Insurance Agency,
Inc. (Hannah) and Beverly National Security Corporation (BNSC). Hannah was established to sell annuities, life, long-term and disability insurance. BNSC was established for the buying, selling and holding of securities.



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 future loan losses, relating to both 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



The Companys net income
for the three and six months ended June 30, 2005 was $575,361 and $1,210,162, as compared to net income of $541,371 and $1,024,082 for the three and six months ended June 30, 2004, respectively. This represents an increase of $33,990, or 6.3%, for
the three-month period and an increase of $186,080, or 18.2%, for the six months ended June 30, 2005. Basic earnings per share totaled $0.31 for the three months ended June 30, 2005 compared to $0.29 for the same period last year and $0.65 for the
six months ended June 30, 2005, as compared to $0.56 for the six months ended June 30, 2004. On a fully diluted basis, earnings per share for the three months ended June 30, 2005 was $0.30 compared to $0.28 for the same period last year and for the
six months ended June 2005 amounted to $0.63, as compared to $0.53 for the same period in 2004. The three and six-month periods ended June 30, 2005 were impacted by the previously announced one-time charges associated with the resignation of the
former Chief Financial Officer.



At June 30, 2005 assets totaled $414,755,889,
an increase of $36,630,957, or 9.7%, over total assets at December 31, 2004. Cash and cash equivalents increased $24,642,849, or 231.5%, loans, net of the allowance for loan losses, increased $13,851,425, or 5.9% and total deposits increased
$37,879,161, or 11.2%, when compared to balances at December 31, 2004.



The
Company declared and paid quarterly dividends of $0.20 per share in January and April 2005, totaling $0.40 per share, which was the same as the amount paid for the comparable period in 2004.



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##### Table of Contents

Investment Portfolio



Debt and equity securities have been classified in the consolidated balance sheets according to managements intent. The amortized cost of securities and their
approximate fair values are as follows as of June 30, 2005 and December 31, 2004:



|                                                                                               |  |                     |            |                      |   |                       |  |            |         |  |   |           
|---------------------------------------------------------------------------------------------- |  | ------------------- | ---------- | -------------------- | - | --------------------- |  | ---------- | ------- |  | - | ----------
|                                                                                               |  | AmortizedCost Basis |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | Fair Value
|Available-for-sale securities:                                                                 |  |                     |            |                      |   |                       |  |            |         |  |   |           
|June 30, 2005:                                                                                 |  |                     |            |                      |   |                       |  |            |         |  |   |           
|Debt securities issued by U.S. government corporations and agencies                            |  | $                   | 11,985,463 |                      | $ | 10,240                |  | $          | 198,403 |  | $ | 11,797,300
|Marketable equity securities                                                                   |  |                     | 673,822    |                      |   | 152,520               |  |            |        |  |   | 826,342   
|Mortgage-backed securities                                                                     |  |                     | 28,587,756 |                      |   |                      |  |            | 430,384 |  |   | 28,157,372
|Corporate Securities                                                                           |  |                     | 3,531,687  |                      |   | 425                   |  |            |        |  |   | 3,532,112 
|                                                                                               |  |                     |            |                      |   |                       |  |            |         |  |   |           
|                                                                                               |  | $                   | 44,778,728 |                      | $ | 163,185               |  | $          | 628,787 |  | $ | 44,313,126
|                                                                                               |  |                     |            |                      |   |                       |  |            |         |  |   |           
|December 31, 2004:                                                                             |  |                     |            |                      |   |                       |  |            |         |  |   |           
|Debt securities issued by U.S. government corporations and agencies                            |  | $                   | 10,997,236 |                      | $ | 630                   |  | $          | 118,596 |  | $ | 10,879,270
|Marketable equity securities                                                                   |  |                     | 571,906    |                      |   | 125,769               |  |            |        |  |   | 697,675   
|Mortgage backed securities                                                                     |  |                     | 32,767,864 |                      |   | 33,574                |  |            | 262,268 |  |   | 32,539,170
|                                                                                               |  |                     |            |                      |   |                       |  |            |         |  |   |           
|                                                                                               |  | $                   | 44,337,006 |                      | $ | 159,973               |  | $          | 380,864 |  | $ | 44,116,115
|                                                                                               |  |                     |            |                      |   |                       |  |            |         |  |   |           
|                                                                                               |  |                     |            |                     
|                                                                                               |  | AmortizedCost Basis |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | Fair Value
|Held-to-maturity securities:                                                                   |  |                     |            |                      |   |                       |  |            |         |  |   |           
|June 30, 2005:                                                                                 |  |                     |            |                      |   |                       |  |            |         |  |   |           
|Debt securities issued by U.S. government corporations and agencies                            |  | $                   | 39,012,408 |                      | $ | 26,924                |  | $          | 409,182 |  | $ | 38,630,150
|Debt securities issued by states of the United States and political subdivisions of the states |  |                     | 1,929,697  |                      |   | 21,636                |  |            |        |  |   | 1,951,333 
|Debt securities issued by foreign governments                                                  |  |                     | 500,000    |                      |   |                      |  |            | 2       |  |   | 499,998   
|Mortgage-backed securities                                                                     |  |                     | 27,433,150 |                      |   | 104                   |  |            | 322,846 |  |   | 27,110,408
|                                                                                               |  |                     |            |                      |   |                       |  |            |         |  |   |           
|                                                                                               |  | $                   | 68,875,255 |                      | $ | 48,664                |  | $          | 732,030 |  | $ | 68,191,889
|                                                                                               |  |                     |            |                      |   |                       |  |            |         |  |   |           
|December 31, 2004:                                                                             |  |                     |            |                      |   |                       |  |            |         |  |   |           
|Debt securities issued by U.S. government corporations and agencies                            |  | $                   | 38,011,806 |                      | $ | 58,816                |  | $          | 132,422 |  | $ | 37,938,200
|Debt securities issued by states of the United States and political subdivisions of the states |  |                     | 1,932,265  |                      |   | 30,266                |  |            |        |  |   | 1,962,531 
|Debt securities issued by foreign governments                                                  |  |                     | 500,000    |                      |   |                      |  |            | 2       |  |   | 499,998   
|Mortgage-backed securities                                                                     |  |                     | 30,268,848 |                      |   | 68,605                |  |            | 95,930  |  |   | 30,241,523
|                                                                                               |  |                     |            |                      |   |                       |  |            |         |  |   |           
|                                                                                               |  | $                   | 70,712,919 |                      | $ | 157,687               |  | $          | 228,354 |  | $ | 70,642,252
|                                                                                               |  |                     |            |                      |   |                       |  |            |         |  |   |           



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Loan Portfolio



The following table summarizes the distribution of the loan portfolio as of June 30, 2005 and December 31, 2004:



|                                                |  |               |             |   |            |        |   |                   |   |             |            |  |        |  
|----------------------------------------------- |  | ------------- | ----------- | - | ---------- | ------ | - | ----------------- | - | ----------- | ---------- |  | ------ | -
|                                                |  | June 30, 2005 |             |   | % of Total |        |   | December 31, 2004 |   |             | % of Total | 
|Commercial, financial and agricultural          |  | $             | 45,814,546  |   |            | 18.44  | % |                   | $ | 45,519,751  |            |  | 19.40  | %
|Real estate - construction and land development |  |               | 16,463,891  |   |            | 6.62   | % |                   |   | 5,785,885   |            |  | 2.47   | %
|Real estate - residential                       |  |               | 86,191,598  |   |            | 34.68  | % |                   |   | 83,954,297  |            |  | 35.78  | %
|Real estate - commercial                        |  |               | 88,387,387  |   |            | 35.57  | % |                   |   | 87,365,949  |            |  | 37.23  | %
|Consumer                                        |  |               | 5,319,562   |   |            | 2.14   | % |                   |   | 6,535,752   |            |  | 2.78   | %
|Other                                           |  |               | 8,112,300   |   |            | 3.26   | % |                   |   | 6,997,635   |            |  | 2.98   | %
|                                                |  |               |             |   |            |        |   |                   |   |             |            |  |        |  
|                                                |  |               | 250,289,284 |   |            | 100.71 | % |                   |   | 236,159,269 |            |  | 100.64 | %
|Allowance for loan losses                       |  |               | (2,447,730  | ) |            | -0.98  | % |                   |   | (2,181,257  | )          |  | -0.93  | %
|Deferred loan costs, net                        |  |               | 671,760     |   |            | 0.27   | % |                   |   | 683,877     |            |  | 0.29   | %
|                                                |  |               |             |   |            |        |   |                   |   |             |            |  |        |  
|Net Loans                                       |  | $             | 248,513,314 |   |            | 100.00 | % |                   | $ | 234,661,889 |            |  | 100.00 | %
|                                                |  |               |             |   |            |        |   |                   |   |             |            |  |        |  



Deposits



The following table shows the average deposits and average interest rate paid for the six
months ended June 30, 2005 and the year ended December 31, 2004:



|                      |  |                |             |             |                   |   |                |   |             |  |      |  
|--------------------- |  | -------------- | ----------- | ----------- | ----------------- | - | -------------- | - | ----------- |  | ---- | -
|                      |  | June 30, 2005  |             |             | December 31, 2004 |  
|                      |  | AverageBalance |             | AverageRate |                   |   | AverageBalance |   | AverageRate | 
|Demand Deposits       |  | $              | 72,232,352  |             | 0.00              | % |                | $ | 66,997,964  |  | 0.00 | %
|NOW Accounts          |  |                | 65,781,952  |             | 0.30              | % |                |   | 65,647,354  |  | 0.23 | %
|Money Market Accounts |  |                | 75,766,855  |             | 1.78              | % |                |   | 58,429,587  |  | 0.91 | %
|Savings Deposits      |  |                | 68,913,413  |             | 0.59              | % |                |   | 67,501,297  |  | 0.53 | %
|Time Deposits         |  |                | 66,778,345  |             | 2.58              | % |                |   | 60,211,309  |  | 2.21 | %
|                      |  |                |             |             |                   |   |                |   |             |  |      |  
|Total                 |  | $              | 349,472,917 |             | 1.10              | % |                | $ | 318,787,511 |  | 0.94 | %
|                      |  |                |             |             |                   |   |                |   |             |  |      |  



Comparison of operating results for
the three months ended June 30, 2005 and June 30, 2004



Net income
amounted to $575,361 for the three months ended June 30, 2005 as compared to net income of $541,371 for the same period in 2004, an increase of $33,990, or 6.3%. This earnings increase is primarily due to the increase of $1,008,511 in fee and
interest income earned on loans during the second quarter of 2005 as compared to the corresponding period in 2004, offset by increased non-interest expenses of $545,527 and increased interest expenses of $532,741. Previously announced second quarter
income non-interest expenses included amounts incurred in conjunction with the resignation of the former Chief Financial Officer.



Net interest and dividend income after provision for loan losses for the three months ended June 30, 2005 totaled $3,575,508, as compared to $3,097,328 for the three
months ended June 30, 2004. This represents an increase of $478,180, or 15.4%. Total interest and dividend income equaled $4,818,007 for the three months ended June 30, 2005, representing an increase of $1,060,921, or 28.2%, from the same period in
2004. Interest and fees on loans for the three months ended June 30, 2005 totaled $3,729,174, representing an increase of $1,008,511, or 37.1%, from the same period in 2004. This increase is mainly attributable to the increase in the average size of
the loan portfolio.



Deposit interest expense equaled $1,074,268 for the three
months ended June 30, 2005, an increase of $523,516, or 95.1%, when compared to the same period in 2004. This was due to both the 14.9% increase in the average balance of total deposits and the 69.2% increase in the average interest rate paid on
those deposits necessitated by the current rate environment.



The
Companys net interest margin for the three months ended June 30, 2005 was 4.08%, compared to 3.92% for the three months ended June 30, 2004.



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##### Table of Contents

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



|                                                   |  |                                  |         |                 |                                  |            |                |      |                |  |                 |         |            |   |       |  |      |  
|-------------------------------------------------- |  | -------------------------------- | ------- | --------------- | -------------------------------- | ---------- | -------------- | ---- | -------------- |  | --------------- | ------- | ---------- | - | ----- |  | ---- | -
|                                                   |  | Three Months Ended June 30, 2005 |         |                 | Three Months Ended June 30, 2004 |           
|                                                   |  | AverageBalance                   |         | InterestInc/Exp |                                  | Yield/Rate |                |      | AverageBalance |  | InterestInc/Exp |         | Yield/Rate |  
|                                                   |  | (in thousands)                   |         |                 |                                  |            | (in thousands) |      |                | 
|Assets:                                            |  |                                  |         |                 |                                  |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Federal funds sold                                 |  | $                                | 8,084   |                 | $                                | 58         |                | 2.89 | %              |  | $               | 14,434  |            | $ | 32    |  | 0.90 | %
|Investments (1)                                    |  |                                  | 114,612 |                 |                                  | 1,036      |                | 3.63 | %              |  |                 | 124,959 |            |   | 1,003 |  | 3.23 | %
|Loans (1)                                          |  |                                  | 245,780 |                 |                                  | 3,774      |                | 6.16 | %              |  |                 | 189,869 |            |   | 2,762 |  | 5.85 | %
|                                                   |  |                                  |         |                 |                                  |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Total earning assets                               |  |                                  | 368,476 |                 |                                  | 4,868      |                | 5.30 | %              |  |                 | 329,262 |            |   | 3,797 |  | 4.64 | %
|                                                   |  |                                  |         |                 |                                  |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Other non-interest-earning assets                  |  |                                  | 28,589  |                 |                                  |            |                |      |                |  |                 | 29,075  |            |   |       |  |      |  
|                                                   |  |                                  |         |                 |                                  |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Total average assets                               |  | $                                | 397,065 |                 |                                  |            |                |      |                |  | $               | 358,337 |            |   |       |  |      |  
|                                                   |  |                                  |         |                 |                                  |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Liabilities and Stockholders Equity:              |  |                                  |         |                 |                                  |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Savings deposits                                   |  | $                                | 67,583  |                 |                                  | 106        |                | 0.63 | %              |  | $               | 67,884  |            |   | 90    |  | 0.54 | %
|NOW accounts                                       |  |                                  | 66,013  |                 |                                  | 59         |                | 0.36 | %              |  |                 | 67,909  |            |   | 36    |  | 0.21 | %
|Money market accounts                              |  |                                  | 78,098  |                 |                                  | 396        |                | 2.04 | %              |  |                 | 51,611  |            |   | 91    |  | 0.71 | %
|Time deposits                                      |  |                                  | 74,438  |                 |                                  | 514        |                | 2.77 | %              |  |                 | 61,133  |            |   | 333   |  | 2.19 | %
|Short-term borrowings                              |  |                                  | 7,073   |                 |                                  | 48         |                | 2.74 | %              |  |                 | 15,924  |            |   | 39    |  | 0.99 | %
|                                                   |  |                                  |         |                 |                                  |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Total interest-bearing liabilities                 |  |                                  | 293,205 |                 |                                  | 1,123      |                | 1.54 | %              |  |                 | 264,461 |            |   | 590   |  | 0.90 | %
|Non-interest-bearing deposits                      |  |                                  | 73,695  |                 |                                  |            |                |      |                |  |                 | 64,698  |            |   |       |  |      |  
|                                                   |  |                                  |         |                 |                                  |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Total deposits                                     |  |                                  | 366,900 |                 |                                  | 1,123      |                | 1.23 | %              |  |                 | 329,159 |            |   | 590   |  | 0.72 | %
|Other non-interest-bearing liabilities             |  |                                  | 2,018   |                 |                                  |            |                |      |                |  |                 | 2,752   |            |   |       |  |      |  
|Stockholders equity                               |  |                                  | 28,147  |                 |                                  |            |                |      |                |  |                 | 26,426  |            |   |       |  |      |  
|                                                   |  |                                  |         |                 |                                  |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Total average liabilities and stockholders equity |  | $                                | 397,065 |                 |                                  |            |                |      |                |  | $               | 358,337 |            |   |       |  |      |  
|                                                   |  |                                  |         |                 |                                  |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Net interest and dividend income                   |  |                                  |         |                 | $                                | 3,745      |                |      |                |  |                 |         |            | $ | 3,207 |  |      |  
|                                                   |  |                                  |         |                 |                                  |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Interest spread                                    |  |                                  |         |                 |                                  |            |                | 4.07 | %              |  |                 |         |            |   |       |  | 3.92 | %
|                                                   |  |                                  |         |                 |                                  |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Net interest margin                                |  |                                  |         |                 |                                  |            |                | 4.08 | %              |  |                 |         |            |   |       |  | 3.92 | %
|                                                   |  |                                  |         |                 |                                  |            |                |      |                |  |                 |         |            |   |       |  |      |  

---

|(1) | Interest income and yield are stated on a fully tax-equivalent basis. The total amount of adjustment for the three months ended June 30, 2005 and 2004 is $38 and $35, respectively.
A federal tax rate of 34% was used in performing this calculation.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Non-interest income totaled $1,078,765 for the three months ended June 30, 2005, an increase of $144,223, or 15.4%, from the three months ended June 30, 2004. Income from fiduciary activities totaled $472,076 for the three months ended June
30, 2005, an increase of $44,000, or 10.3%, as compared to the three months ended June 30, 2004. Income from sale of non-deposit products totaled $66,693 for the three months ended June 30, 2005, as compared to $21,822 for the three months ended
June 30, 2004. due to the introduction of a new product line. Other non-interest income totaled $187,543 for the three months ended June 30, 2005, an increase of $65,189, or 53.3%, as compared to the same period in 2004. This increase is attributed
to .



Non-interest expense totaled $3,815,656 for the three months ended June
30, 2005, an increase of $545,527, or 16.7%, as compared to the same time period in 2004. This increase is primarily attributed to increases in salaries and occupancy costs. Salaries and employee benefits totaled $2,267,488 for the three months
ended June 30, 2005, an increase of $349,109, or 18.2%, from the same time period in 2004. This increase is due to increased staff in lending, salary increases and staffing the new Danvers branch. Occupancy expense totaled $344,239 for the three
months ended June 30, 2005 as compared to $250,989 for the same period in 2004. This represented an increase of $93,250, or 37.2%, and is primarily attributed to the additional occupancy expenses associated with the new Danvers branch. The costs of
equipment totaled $106,250 for the three months ended June 30, 2005, a decrease of $8,335, or 7.3%, as compared to $114,585 for the same period in 2004. Professional fees increased $74,077, or 47.5%, due to increased consulting expenses in
connection with Sarbanes-Oxley compliance and other corporate matters. The total of director fees, contributions, data processing fees, stationary and supplies and other expenses totaled $745,806 for the three months ended June 30, 2005, an increase
of $41,867, or 5.9%, as compared to $703,939 for the same period in 2004.



The
income tax provision for the three months ended June 30, 2005 totaled $263,256, in comparison to an income tax provision of $220,370 for the same time period in 2004 due to the increase in net income and a higher effective tax rate.



Comparison of operating results for the six months ended June 30, 2005 and June 30,
2004



Net income amounted to $1,210,162 for the six months ended June 30,
2005 as compared to net income of $1,024,082 for the same period in 2004, an increase of $186,080, or 18.2%. This earnings increase is primarily due to the increase of $1,993,582 in fee and interest income earned on loans during the first six months
of 2005 as compared to the corresponding period in 2004, partially offset by an increase of $971,378 in non-interest expenses and, to a lesser extent, increased interest expenses of $767,734.



11



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##### Table of Contents

Net interest and dividend income after provision for loan losses for the six months ended June 30, 2005 totaled
$7,190,053, as compared to $6,033,051 for the six months ended June 30, 2004. This represents an increase of $1,156,552, or 19.2%. Total interest and dividend income equaled $9,405,024 for the six months ended June 30, 2005, representing an increase
of $2,054,286, or 28.0%, from the same period in 2004. Interest and fees on loans for the six months ended June 30, 2005 totaled $7,273,571, representing an increase of $1,993,582, or 37.8%, from the same period in 2004. This increase is mainly
attributable to the increase in the average size of the loan portfolio of 32.3% during the 2005 period as compared to the same period in 2004.



Deposit interest expense equaled $1,824,984 for the six months ended June 30, 2005, an increase of $710,128, or 63.7%, when compared to the same period in 2004. This was
due to both the 14.3% increase in the average balance of total deposits and the 49.7% increase in the average interest rate paid on those deposits, necessitated by the current rate environment. Interest on borrowings totaled $129,987 for the six
months ended June 30, 2005, as compared to $72,381 for the same time period in 2004, primarily due to the increased level of Federal Home Loan Bank borrowings early in 2005.



The Companys net interest margin for the six months ended June 30, 2005 was 4.21%, compared to 3.94% for the six months ended June 30,
2004.



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



|                                                   |  |                                |         |                 |                                |            |                |      |                |  |                 |         |            |   |       |  |      |  
|-------------------------------------------------- |  | ------------------------------ | ------- | --------------- | ------------------------------ | ---------- | -------------- | ---- | -------------- |  | --------------- | ------- | ---------- | - | ----- |  | ---- | -
|                                                   |  | Six Months Ended June 30, 2005 |         |                 | Six Months Ended June 30, 2004 |           
|                                                   |  | AverageBalance                 |         | InterestInc/Exp |                                | Yield/Rate |                |      | AverageBalance |  | InterestInc/Exp |         | Yield/Rate |  
|                                                   |  | (in thousands)                 |         |                 |                                |            | (in thousands) |      |                | 
|Assets:                                            |  |                                |         |                 |                                |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Federal funds sold                                 |  | $                              | 4,454   |                 | $                              | 63         |                | 2.85 | %              |  | $               | 8,617   |            | $ | 38    |  | 0.89 | %
|Investments (1)                                    |  |                                | 115,368 |                 |                                | 2,081      |                | 3.64 | %              |  |                 | 127,311 |            |   | 2,032 |  | 3.21 | %
|Loans (1)                                          |  |                                | 242,164 |                 |                                | 7,362      |                | 6.13 | %              |  |                 | 183,104 |            |   | 5,363 |  | 5.89 | %
|                                                   |  |                                |         |                 |                                |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Total earning assets                               |  |                                | 361,986 |                 |                                | 9,506      |                | 5.30 | %              |  |                 | 319,032 |            |   | 7,433 |  | 4.69 | %
|                                                   |  |                                |         |                 |                                |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Other non interest-earning assets                  |  |                                | 28,150  |                 |                                |            |                |      |                |  |                 | 33,548  |            |   |       |  |      |  
|                                                   |  |                                |         |                 |                                |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Total average assets                               |  | $                              | 390,136 |                 |                                |            |                |      |                |  | $               | 352,580 |            |   |       |  |      |  
|                                                   |  |                                |         |                 |                                |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Liabilities and Stockholders Equity:              |  |                                |         |                 |                                |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Savings deposits                                   |  | $                              | 68,817  |                 |                                | 202        |                | 0.59 | %              |  | $               | 66,584  |            |   | 177   |  | 0.54 | %
|NOW accounts                                       |  |                                | 65,782  |                 |                                | 98         |                | 0.30 | %              |  |                 | 65,362  |            |   | 78    |  | 0.24 | %
|Money market accounts                              |  |                                | 75,767  |                 |                                | 670        |                | 1.78 | %              |  |                 | 50,870  |            |   | 188   |  | 0.74 | %
|Time deposits                                      |  |                                | 66,875  |                 |                                | 855        |                | 2.58 | %              |  |                 | 60,517  |            |   | 672   |  | 2.23 | %
|Short-term borrowings                              |  |                                | 10,407  |                 |                                | 130        |                | 2.52 | %              |  |                 | 14,496  |            |   | 72    |  | 1.00 | %
|                                                   |  |                                |         |                 |                                |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Total interest-bearing liabilities                 |  |                                | 287,648 |                 |                                | 1,955      |                | 1.37 | %              |  |                 | 257,829 |            |   | 1,187 |  | 0.93 | %
|Non-interest-bearing deposits                      |  |                                | 72,232  |                 |                                |           |                |      |                |  |                 | 62,518  |            |   |      |  |      |  
|                                                   |  |                                |         |                 |                                |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Total deposits                                     |  |                                | 359,881 |                 |                                | 1,955      |                | 1.10 | %              |  |                 | 320,347 |            |   | 1,187 |  | 0.75 | %
|Other non-interest-bearing liabilities             |  |                                | 2,196   |                 |                                |            |                |      |                |  |                 | 5,761   |            |   |       |  |      |  
|Stockholders equity                               |  |                                | 28,059  |                 |                                |            |                |      |                |  |                 | 26,472  |            |   |       |  |      |  
|                                                   |  |                                |         |                 |                                |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Total average liabilities and stockholders equity |  | $                              | 390,136 |                 |                                |            |                |      |                |  | $               | 352,580 |            |   |       |  |      |  
|                                                   |  |                                |         |                 |                                |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Net interest and dividend income                   |  |                                |         |                 | $                              | 7,551      |                |      |                |  |                 |         |            | $ | 6,246 |  |      |  
|                                                   |  |                                |         |                 |                                |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Interest spread                                    |  |                                |         |                 |                                |            |                | 4.20 | %              |  |                 |         |            |   |       |  | 3.94 | %
|                                                   |  |                                |         |                 |                                |            |                |      |                |  |                 |         |            |   |       |  |      |  
|Net interest margin                                |  |                                |         |                 |                                |            |                | 4.21 | %              |  |                 |         |            |   |       |  | 3.94 | %
|                                                   |  |                                |         |                 |                                |            |                |      |                |  |                 |         |            |   |       |  |      |  

---

|(1) | Interest income and yield are stated on a fully tax-equivalent basis. The total amount of adjustment for the six months ended June 30, 2005 and 2004 is $75 and $71, respectively. A
federal tax rate of 34% was used in performing this calculation.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Non-interest income totaled $2,004,513 for the six months ended June 30, 2005, an increase of $125,436, or 6.7% from the six months ended June 30, 2004. Income from fiduciary activities totaled $894,630 for the six months ended June 30,
2005, an increase of $54,236, or 6.5%, as compared to the six months ended June 30, 2004. Income from sale of non-deposit products totaled $130,958 for the six months ended June 30, 2005, as compared to $21,822 for the six months ended June 30, 2004
due to the introduction of a new product line. Service charges on deposit accounts decreased $34,105, or 10.9%, for the six months ended June 30, 2005 as compared to the six months ended June 30, 2004. Other non-interest income totaled $309,565 for
the six months ended June 30, 2005, an increase of $63,786, or 26.0%, as compared to the same period in 2004.



Non-interest expense totaled $7,453,492 for the six months ended June 30, 2005, an increase of $971,378, or 15.0%, as compared to the same time period in 2004. This increase is primarily attributed to increases in
salaries and



12



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##### Table of Contents

occupancy costs. Salaries and employee benefits totaled $4,427,304 for the six months ended June 30, 2005, an increase of
$622,942, or 16.4%, from the same time period in 2004. This increase is due to increased staff in lending, salary increases and staffing the new Danvers branch. Occupancy expense totaled $731,202 for the six months ended June 30, 2005 as compared to
$520,457 for the same period in 2004. This represented an increase of $210,745, or 40.5%, and is primarily attributed to the additional occupancy expenses associated with the new Danvers branch. Professional fees increased $37,638, or 12.2%, due to
increased consulting expenses in connection with Sarbanes-Oxley compliance and other corporate matters. The total of director fees, contributions, data processing fees, stationary and supplies and other expenses totaled $1,552,172 for the six months
ended June 30, 2005, an increase of $131,372, or 9.2%, as compared to $1,420,800 for the same period in 2004.



The income tax provision for the six months ended June 30, 2005 totaled $530,912, in comparison to an income tax provision of $406,382 for the same time period in 2004 due to the increase in net income and a higher
effective tax rate.



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 $120,000 was made during the three months ended June 30, 2005 compared to $70,000 for the same period last year and a provision of $260,000 was made
during the six months ended June 30, 2005, as compared to $130,000 for the same period in 2004. The increased level of provision was directly related to the increase in size and changing mix of the loan portfolio. As of June 30, 2005 the total
allowance for loan losses was 0.98% of total loans compared to 0.93% at December 31, 2004.



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 (SFAS No. 114). 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 six months ended June 30,
2005 and 2004:



|                                           |  |      |           |   |      |   |           |  
|------------------------------------------ |  | ---- | --------- | - | ---- | - | --------- | -
|                                           |  | 2005 |           |   | 2004 |  
|Balance as of January 1st                  |  | $    | 2,181,257 |   |      | $ | 2,182,675 |  
|Loans charged off                          |  |      | (8,844    | ) |      |   | (416,777  | )
|Provision for loan losses                  |  |      | 260,000   |   |      |   | 130,000   |  
|Recoveries of loans previously charged off |  |      | 15,317    |   |      |   | 47,110    |  
|                                           |  |      |           |   |      |   |           |  
|Balance as of June 30th                    |  | $    | 2,447,730 |   |      | $ | 1,943,008 |  
|                                           |  |      |           |   |      |   |           |  



13



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At June 30, 2005, the allowance for loan losses totaled $2,447,730, representing 1,390.84% of non-performing loans.
Non-performing loans totaled $175,989, which represented 0.07% of total loans and mortgages held-for-sale. At June 30, 2004, the allowance for loan losses amounted to $1,943,008, representing 174.4% of non-performing loans. At June 30, 2004,
non-performing loans totaled $1,114,017, which represented 0.56% of total loans and mortgages held-for-sale. Management maintains the adequacy of the allowance through monthly provisions. The amount of the provision is based on changes in economic
and real estate market conditions; information obtained regarding problem loans, identification of additional problem loans and other factors, both within and outside of managements control. The overall level of non-performing loans remains
low. Accordingly, while the overall quality of the loan portfolio remains strong, management will continue to monitor economic conditions and the performance of the portfolio in order to maintain an adequate allowance for loan losses.



Capital Resources



As of June 30, 2005, the Company had total capital of $28,380,368, an increase of $368,333,
or 1.31% as compared with December 31, 2004. The net change in the Banks capital reflects the current year income, dividends paid 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 total assets. As of June 30, 2005, the Banks Tier 1 capital amounted to 6.75% of total assets. At June 30, 2005, the Banks ratio of risk-based capital to risk-weighted assets amounted to 10.82%, which satisfies the
applicable risk-based capital requirements. As of December 31, 2004, the Banks Tier 1 capital amounted to 6.82% of average assets and risk- based capital amounted to 11.48% 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 total assets. As of June 30, 2005, the Companys Tier 1 capital amounted to 6.80% of total assets. At June 30, 2005, the Companys ratio of risk-based capital to risk weighted assets amounted to
11.52%, which satisfies the applicable risk-based capital requirements. As of December 31, 2004, the Companys Tier 1 capital amounted to 7.31% of average assets and risk-based capital amounted to 12.24% of total risk-based assets.



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



Liquidity



The primary function of
asset/liability management is to assure adequate liquidity and maintain an appropriate balance between interest-sensitive earning assets and interest-bearing liabilities. Liquidity management involves the ability to meet the cash flow requirements
of customers who may be either depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. The Companys interest rate sensitivity management practices seek to provide
consistency in the maintenance of net interest margins and to foster a sustainable growth of net interest income despite 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 $2,365,000 from the investment securities portfolio at June 30, 2005; additionally, a minimum amount of contractual payments in the amount of
$11,721,044 for the mortgage-backed securities portfolio is due within one year at June 30, 2005. Assets such as federal funds sold, mortgages held for sale, payments of 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
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

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



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



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



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



|(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 average net interest margin for the six months ended June 30, 2005 yielded
4.21% in comparison to the 3.94% net interest margin yield for the six months ended June 30, 2004. 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, comprised of the President and Chief Executive Officer of the Company, the Executive Vice President and Senior Loan Officer, the Executive Vice President of Retail Banking, the Senior Vice President and Chief
Operations Officer, and marketing, retail and finance officers, 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.
This committee meets weekly and sets the rates paid on deposits, approves loan pricing and reviews investment transactions. This Asset/Liability Management Committee reports to the 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 a number of various interest rate
scenarios, or rate shocks, and the impact on the market 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.



15



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In the event that interest rates increase or decrease, the value of net assets (the liquidation, or market value, of
stockholders equity) would change because the market value of the Companys assets and liabilities would also change. Changes in interest rates could cause the Company to become liability sensitive, the assets of the Company
extend out, and as a result the liabilities will re-price faster than its assets; or asset sensitive, the liabilities of the Company extend out, and as a result the assets will re-price faster. As of June 30, 2005, it is estimated that
an immediate increase in interest rates of 300 basis points (for example, an increase in the prime rate from 6.25% to 9.25%) would decrease the market value capital ratio by 16 basis points, or 0.16%, and correspondingly, if interest rates were to
have an immediate decrease of 200 basis points, the market value of the Companys equity would decrease by 183 basis points, or 1.83%.



The fluctuation of interest rates also has an effect on the Companys net interest income. In the event that interest rates were to experience an immediate decrease
of 200 basis points (for example, a decrease in the prime rate from 6.25% to 4.25%) it is estimated that net interest income would decrease by $1,174,000 over the next twelve months. If interest rates were to experience an immediate increase of 300
basis points, the Company would become asset sensitive and net interest income would increase by $103,000 over the next twelve months.



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.



As of June 30, 2005, the Company carried out an evaluation, under
the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls
and procedures. Based on the foregoing, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective.



During the quarter ended June 30, 2005, there were no significant changes in the
Companys internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.



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PART II - Other Information



|        |  |                                                             |  |     
|------- |  | ----------------------------------------------------------- |  | ----
|Item 1. |  | Legal Proceedings                                           |  | None
|        |  |                                                            
|Item 2. |  | Unregistered Sales of Equity Securities and Use of Proceeds |  | None
|        |  |                                                            
|Item 3. |  | Defaults Upon Senior Securities                             |  | None
|        |  |                                                            
|Item 4. |  | Submission of Matters to a Vote of Security Holders         |  |     



The Companys
Annual Meeting of Stockholders was held at the Danvers office of Beverly National Bank, Danvers, Massachusetts, on the 26thday of April 2005 at 9:00 a.m. At the meeting, the following matters were submitted to a vote with the results as follows:



| | 1. | The votes cast FOR, AGAINST and ABSTAIN on the proposal to fix the number of directors at eleven (11) who shall constitute the full Board of
Directors were as follows:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|               |  |                    |  |          
|-------------- |  | ------------------ |  | ---------
|FOR APPROVAL |  | AGAINST APPROVAL |  | ABSTAIN
|1,544,801      |  | 2,858              |  | 3,999    
|Number         |  | Number             |  | Number   



| | 2. | The votes cast FOR, AGAINST and ABSTAIN on the proposal to elect each of the following three (3) Directors of the Company, who, together with the
Directors whose terms of office do not expire at this meeting, will constitute the full Board of Directors and will serve for a term of three (3) years are as follows:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                  |  |                |  |                    |  |          
|----------------- |  | -------------- |  | ------------------ |  | ---------
|                  |  | FOR APPROVAL |  | AGAINST APPROVAL |  | ABSTAIN
|Donat A. Fournier |  | 1,542,694      |  | 4,258              |  | 4,707    
|                  |  | Number         |  | Number             |  | Number   
|                  |  |                | 
|Mark B. Glovsky   |  | 1,535,803      |  | 10,490             |  | 5,366    
|                  |  | Number         |  | Number             |  | Number   
|                  |  |                | 
|Kevin M. Burke    |  | 1,541,109      |  | 3,876              |  | 6,673    
|                  |  | Number         |  | Number             |  | Number   



| | 3. | The votes cast FOR, AGAINST and ABSTAIN on the proposal to ratify the appointment of Shatswell, MacLeod & Company, P.C. to act as independent
auditors for the fiscal year ended December 31, 2005 are as follows:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|               |  |                    |  |          
|-------------- |  | ------------------ |  | ---------
|FOR APPROVAL |  | AGAINST APPROVAL |  | ABSTAIN
|1,550,483      |  | 942                |  | 234      
|Number         |  | Number             |  | Number   



| | 4. | The votes cast FOR, AGAINST and ABSTAIN on the proposal to adopt the 2005 Restricted Stock Plan are as follows:
| | -- | ---------------------------------------------------------------------------------------------------------------------



|               |  |                    |  |          
|-------------- |  | ------------------ |  | ---------
|FOR APPROVAL |  | AGAINST APPROVAL |  | ABSTAIN
|1,031,645      |  | 148,480            |  | 18,280   
|Number         |  | Number             |  | Number   



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|        |  |                                                                                                                                                                                                             |  |     
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|Item 5. |  | Other Information                                                                                                                                                                                           |  | None
|        |  |                                                                                                                                                                                                            
|Item 6. |  | Exhibits                                                                                                                                                                                                    |  |     
|        | 
|        |  | a.      Exhibits                                                                                                                                                                                           
|        | 
|        |  | 10 Resignation and Consulting Agreement by and between Beverly National Corporation and Peter E. Simonsen dated April 29, 2005,
incorporated by reference to Exhibit 10.1 to Form 8-K filed April 29, 2005.



|     |  |                                       
|---- |  | --------------------------------------
|11   |  | Computation of Per Share Earnings     
|     | 
|31.1 |  | Rule 13a-14(a)/15d-14(a) Certification
|     | 
|31.2 |  | Rule 13a-14(a)/15d-14(a) Certification
|     | 
|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: August 15, 2005 |  | By:                          |  | /s/ Donat A. Fournier             
|                      |  |                              |  | Donat A. Fournier                 
|                      |  |                              |  | President, Chief Executive Officer



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