Beverly National 10-Q 2008 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the Quarterly period ended March 31, 2008

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

Beverly National Corporation

(Name of registrant as specified in its charter)

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

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

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

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

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

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  x

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of May 8, 2008: 2,663,388.

BEVERLY NATIONAL CORPORATION

INDEX

PART I. FINANCIAL INFORMATION
Item 1.
	Financial Statements
	Condensed Consolidated Balance Sheets at March 31, 2008 (Unaudited) and December 31, 2007	3
	Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2008 and 2007 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007 (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	14
Item 4.
	Controls and Procedures	16
PART II. OTHER INFORMATION
Item 1.
	Legal Proceedings	17
Item 1A.
	Risk Factors	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	17
Item 6.
	Exhibits	17
	Signatures	18

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

BEVERLY NATIONAL CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

	March 31, 2008			December 31, 2007
	(unaudited)
ASSETS
Cash and due from banks	$	9,430		$	10,752
Federal funds sold		1,126			3,706
Interest-bearing demand deposits with other banks		141			115
Short-term investments		363			922
Cash and cash equivalents		11,060			15,495
Investments in available-for-sale securities (at fair value)		121,924			114,793
Federal Home Loan Bank stock, at cost		3,621			3,452
Federal Reserve Bank stock, at cost		553			553
Loans, net of the allowance for loan losses of $3,727 and $3,614, respectively		330,676			318,356
Premises and equipment		7,368			7,321
Bank owned life insurance		6,730			6,661
Accrued interest receivable		1,925			1,805
Other assets		4,011			4,355
Total assets	$	487,868		$	472,791
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	68,664		$	72,425
Interest-bearing		290,508			277,885
Total deposits		359,172			350,310
Federal Home Loan Bank advances		67,715			59,616
Securities sold under agreements to repurchase		9,746			11,638
Other liabilities		5,082			5,462
Total liabilities		441,715			427,026
Stockholders’ equity:
Preferred stock, $1.00 par value per share; 300,000 shares authorized; issued and outstanding none		—			—
Common stock, $2.50 par value per share; 5,000,000 shares authorized; issued 2,912,280 shares as of March 31, 2008 and 2,890,690 shares as of December 31, 2007; outstanding, 2,663,388 shares as of March 31, 2008 and 2,641,798 shares as of December 31, 2007		7,281			7,227
Paid-in capital		22,908			22,586
Retained earnings		21,134			21,050
Treasury stock, at cost (248,892 shares as of March 31, 2008 and December 31, 2007)		(4,370	)		(4,370	)
Unearned shares, Restricted Stock Plan (18,005 shares as of March 31, 2008 and 9,005 shares as of December 31, 2007)		(372	)		(197	)
Accumulated other comprehensive loss		(428	)		(531	)
Total stockholders’ equity		46,153			45,765
Total liabilities and stockholders’ equity	$	487,868		$	472,791
Book value per share	$	17.33		$	17.32

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

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BEVERLY NATIONAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share data)

(unaudited)

	Three Months Ended
	March 31, 2008		March 31, 2007
Interest and dividend income:
Interest and fees on loans	$	5,128	$	4,936
Interest on debt securities:
Taxable		1,122		1,121
Tax-exempt		120		104
Dividends on marketable equity securities		249		162
Other interest		89		133
Total interest and dividend income		6,708		6,456
Interest expense:
Interest on deposits		1,932		1,761
Interest on other borrowed funds		695		720
Total interest expense		2,627		2,481
Net interest and dividend income		4,081		3,975
Provision for loan losses		128		150
Net interest and dividend income after provision for loan losses		3,953		3,825
Noninterest income:
Income from fiduciary activities		474		462
Fees from sale of non-deposit products		50		63
Service charges on deposit accounts		159		142
Other deposit fees		226		245
Gain on sales of loans, net		—		6
Income on cash surrender value of life insurance		73		52
Other income		200		200
Total noninterest income		1,182		1,170
Noninterest expense:
Salaries and employee benefits		2,216		2,177
Director fees		77		79
Occupancy expense		465		383
Equipment expense		246		207
Data processing fees		289		266
Marketing and public relations		105		108
Professional fees		167		244
Other expense		377		420
Total noninterest expense		3,942		3,884
Income before income taxes		1,193		1,111
Income taxes		283		304
Net income	$	910	$	807
Comprehensive income	$	1,013	$	977
Earnings per share:
Weighted average shares outstanding		2,653,074		2,748,769
Weighted average diluted shares outstanding		2,656,952		2,766,104
Earnings per common share	$	0.34	$	0.29
Earnings per common share, assuming dilution	$	0.34	$	0.29
Dividends per share	$	0.20	$	0.20

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

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BEVERLY NATIONAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Three Months Ended
	March 31, 2008			March 31, 2007
Cash flows from operating activities:
Net income	$	910		$	807
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease in taxes receivable		257			214
Decrease (increase) in other assets		228			(44	)
Depreciation and amortization		148			180
Provision for loan losses		128			150
Decrease in RABBI Trust trading securities		33			26
Decrease in mortgage servicing rights		5			8
Stock-based compensation		3			—
Change in deferred loan costs, net		(6	)		(6	)
Amortization of securities, net		(8	)		6
Increase in cash surrender value of life insurance		(73	)		(52	)
(Decrease) increase in interest payable		(82	)		2
(Decrease) increase in other liabilities		(83	)		368
Increase in interest receivable		(120	)		(158	)
(Increase) decrease in prepaid expenses		(143	)		6
Decrease in accrued expenses		(510	)		(755	)
Net cash provided by operating activities		687			752
Cash flows from investing activities:
Proceeds from maturities of available-for-sale securities		8,564			4,628
Redemption of Federal Home Loan Bank stock		—			90
Recoveries of loans previously charged off		—			2
Purchases of Federal Home Loan Bank stock		(169	)		—
Capital expenditures		(195	)		(442	)
Loan originations and principal collections, net		(12,442	)		(7,215	)
Purchases of available-for-sale securities		(15,630	)		(7,259	)
Net cash used in investing activities		(19,872	)		(10,196	)
Cash flows from financing activities:
Advances from Federal Home Loan Bank		18,000			29,500
Net increase (decrease) in demand deposits, NOW, money market and savings accounts		8,868			(6,300	)
Proceeds from exercise of stock options		198			615
Net increase in time deposits		(6	)		(4,596	)
Dividends paid		(517	)		(548	)
Payments on Federal Home Loan Bank advances		(571	)		(544	)
Decrease in securities sold under agreements to repurchase		(1,892	)		(9,945	)
Net decrease in short term Federal Home Loan Bank advances		(9,330	)		(15,000	)
Net cash provided by financing activities		14,750			(6,818	)
Net decrease in cash and cash equivalents		(4,435	)		(16,262	)
Cash and cash equivalents at beginning of period		15,495			29,723
Cash and cash equivalents at end of period	$	11,060		$	13,461
Supplemental disclosures:
Interest paid	$	2,710		$	2,479
Income taxes paid		26			104

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

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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, 2008.

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

2. EARNINGS PER SHARE

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

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

3. RECLASSIFICATION

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

4. IMPACT OF NEW ACCOUNTING STANDARDS

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

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

In June 2006 the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 did not have a material impact on the Company’s financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting

6

principles (GAAP) and enhances disclosures about fair value measurements. SFAS 157 retains the exchange price notion and clarifies that the exchange price is the price that would be received for an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. SFAS 157 is effective for the Company’s consolidated financial statements for the year beginning on January 1, 2008, with earlier adoption permitted. The adoption of this statement did not have a material impact on the Company’s financial condition and results of operations.

In September 2006, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) on Issue No. 06-4 “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements,” (“EITF Issue 06-4”). EITF 06-4 requires companies with an endorsement split-dollar life insurance arrangement to recognize a liability for future postretirement benefits. The effective date is for fiscal years beginning after December 15, 2007, with earlier application permitted. Companies should recognize the effects of applying this issue through either (a) a change in accounting principle through a cumulative effect adjustment to retained earnings or (b) a change in accounting principle through retrospective application to all periods. The adoption of this issue did not have a material impact on the Company’s financial position and results of operations.

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

In December 2007, the FASB issued SFAS No. 141 (Revised 2008), “Business Combinations” (SFAS 141(R)). SFAS 141(R) will significantly change the accounting for business combinations. Under SFAS 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. It also amends the accounting treatment for certain specific items including acquisition costs and non controlling minority interests and includes a substantial number of new disclosure requirements. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after January 1, 2009. The Company does not expect the adoption of this statement to have a material impact on its financial condition and results of operations.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133” (SFAS 161). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The guidance in SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company does not expect the adoption of this statement to have a material impact on its financial condition and results of operations.

5. STOCK BASED COMPENSATION

The Company maintains five stock-based employee compensation plans. Effective January 1, 2006, the Company adopted SFAS 123R. For the three months ended March 31, 2008, stock-based employee compensation costs recorded as expenses amounted to $18,000, compared to $4,000 for the same period last year. These figures include compensation costs for grants made to employees pursuant to the Company’s Restricted Stock Plan.

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6. PENSION BENEFITS

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

	For the Three Months Ended March 31,
	2008			2007
	(in thousands)
Service cost	$	—		$	—
Interest cost on benefit obligation		125			123
Expected return on plan assets		(161	)		(161	)
Amortization of prior service cost		—			—
Net periodic benefit cost	$	(36	)	$	(38	)

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

7. ASSETS MEASURED AT FAIR VALUE ON A RECURRING BASIS

The following summarizes assets measured at fair value for the period ending March 31, 2008:

(in thousands)

			Fair Value Measurements at Reporting Date Using:
	March 31, 2008		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Observable Inputs (Level 3)
Available-for-sale securities	$	121,924	$	121,924	$	—	$	—
Trading securities		273		273		—		—
Total	$	122,197	$	122,197	$	—	$	—

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Introduction

The following discussion includes Beverly National Corporation (“Company”) and its subsidiary, Beverly National Bank (“Bank”) and the Bank’s wholly owned subsidiary, Beverly National Security Corporation (“BNSC”). BNSC was established to buy, sell and hold securities for the Bank’s investment portfolios.

Critical Accounting Estimates

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

Summary

Total assets as of March 31, 2008 increased $15.1 million, or 3.2%, to $487.9 million compared to $472.8 million at December 31, 2007. Investments increased $7.1 million, or 6.2%, and loans, net of the allowance for loan losses, increased $12.3 million, or 3.9%. Cash and cash equivalents decreased $4.4 million, or 28.6%.

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The considerable asset growth during the past quarter was due to the Bank taking advantage of certain opportunities to increase interest earning assets at very attractive yields. This included utilizing available funding sources and reallocating existing resources to increase investment activity and expand the loan portfolio. The strategic focus of the Bank is to grow the loan portfolio and pursue potential investment alternatives, using avenues with the lowest feasible cost available to the Bank. Deposits increased $8.9 million, or 2.5%, repurchase agreements decreased $1.9 million, or 16.3%, and Federal Home Loan Bank advances increased $8.1 million, or 13.6%. This growth in deposits reflects the Bank’s expanded retail operations and the introduction of an enhanced line of deposit products. Management’s focus continues to be on maintaining the appropriate strategic direction during these challenging and uncertain economic times and resources are allocated to areas providing the most beneficial returns, without compromising the Bank’s high standards for strong asset quality. Emphasis on augmenting earnings through noninterest income related activities as well as maintaining operating expenses and improved efficiencies are also key components of the Bank’s strategy.

Investment Portfolio

Debt and equity securities have been classified in the consolidated balance sheets according to management’s intent. The following table presents the amortized cost of securities and their approximate fair values as of March 31, 2008 (unaudited) and December 31, 2007:

	Amortized Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in thousands)
Available-for-sale securities:
March 31, 2008:
Debt securities issued by U.S. government corporations and agencies	$	13,690	$	281	$	1	$	13,970
Debt securities issued by states of the United States and political subdivisions of the states		12,324		124		126		12,322
Preferred stocks		18,884		371		1,646		17,609
Marketable equity securities		565		1		3		563
Mortgage-backed securities		76,265		1,107		311		77,061
Debt securities issued by foreign governments		400		—		1		399
	$	122,128	$	1,884	$	2,088	$	121,924
December 31, 2007:
Debt securities issued by U.S. government corporations and agencies	$	12,690	$	127	$	8	$	12,809
Debt securities issued by states of the United States and political subdivisions of the states		12,325		24		155		12,194
Preferred stocks		12,407		91		382		12,116
Marketable equity securities		560		2		7		555
Mortgage-backed securities		76,672		383		335		76,720
Debt securities issued by foreign governments		400		—		1		399
	$	115,054	$	627	$	888	$	114,793

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Loan Portfolio

The following table summarizes the distribution of the Bank’s loan portfolio as of March 31, 2008 and December 31, 2007:

	March 31, 2008			% of Total		December 31, 2007			% of Total
	(in thousands)					(in thousands)
	(unaudited)
Commercial, financial and agricultural	$	45,199		13.67	%	$	39,343		12.36	%
Real estate - construction and land development		16,495		4.99	%		17,042		5.35	%
Real estate - residential		124,813		37.74	%		120,512		37.85	%
Real estate - commercial		130,806		39.56	%		127,819		40.15	%
Consumer		2,366		0.72	%		2,392		0.76	%
Other		14,049		4.25	%		14,193		4.46	%
		333,728		100.93	%		321,301		100.93	%
Allowance for loan losses		(3,727	)	-1.13	%		(3,614	)	-1.14	%
Deferred loan costs, net		675		0.20	%		669		0.21	%
Net Loans	$	330,676		100.01	%	$	318,356		100.00	%

Deposits

The following table summarizes deposits as of March 31, 2008 and December 31, 2007:

	March 31, 2008		% of Total		December 31, 2007		% of Total
	(in thousands)				(in thousands)
	(unaudited)
Demand Deposits	$	68,664	19.12	%	$	72,425	20.67	%
NOW Accounts		56,203	15.65	%		58,841	16.80	%
Money Market Accounts		92,932	25.87	%		81,585	23.29	%
Savings Deposits		52,256	14.55	%		48,336	13.80	%
Time Deposits		89,117	24.81	%		89,123	25.44	%
Total	$	359,172	100.00	%	$	350,310	100.00	%

Comparison of operating results for the three months ended March 31, 2008 and 2007

The Company reported net income for the quarter of $910,000, or basic and fully diluted earnings of $0.34 per share, compared to net income of $807,000, or basic and fully diluted earnings of $0.29 per share for the same quarter last year. These results represent an increase in net income of $103,000, or 12.8%, and a 17.2% increase in basic and fully diluted earnings per share. Such increase is primarily a result of an increase in net interest income. The improvement in net interest income is a result of the Bank maximizing opportunities presented in this volatile interest rate environment and maintaining its strong asset quality. Continuing to show strong performance improvement in a very challenging and competitive environment highlights the positive results that efforts placed on business development and improving operating efficiencies are netting the Company.

Total interest and dividend income, when compared to the same period last year, increased by $252,000, or 3.9%. This was primarily the result of the increase in interest-earning assets, as yields on these assets have actually decreased from the same quarter last year due to the decrease in market interest rates.

Total interest expense increased by $146,000, or 5.9%, compared to the same quarter last year. The increase was primarily due to the increase in interest-bearing liabilities, as market interest rates have resulted in a decrease in the cost of these liabilities.

A provision of $128,000 was made to the allowance for loan losses during the three months ended March 31, 2008, compared to $150,000 for the same period last year. Despite the decrease in the comparable period’s provision, the allowance for loan losses was 1.11% and 1.02% of total loans at March 31, 2008 and 2007, respectively. Non-performing loans represented less than 0.1% of total loans at March 31, 2008 and 2007, totaling $245,000 and $39,000, respectively. These results reflect the continuing enhancement of the practices that have allowed for a history of consistently strong asset quality.

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The above changes in interest income and expense resulted in an increase in net interest and dividend income after provision for loan losses of $128,000, or 3.3% from the comparable quarter last year.

The Company’s net interest margin decreased by approximately eleven basis points, from 3.90% to 3.79%, from the comparable quarter last year.

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

	For the Three Months Ended March 31, 2008							For the Three Months Ended March 31, 2007
	Average Balance		Interest Inc/Exp			Yield/ Rate		Average Balance		Interest Inc/Exp			Yield/ Rate
	(in thousands)		(in thousands)					(in thousands)		(in thousands)
	(unaudited)		(unaudited)					(unaudited)		(unaudited)
Assets
Federal funds sold and interest-bearing deposits	$	3,857	$	21		2.23	%	$	2,859	$	39		5.60	%
Investments		121,787		1,645	*	5.43	%		119,219		1,534	*	5.22	%
Loans		326,099		5,213	**	6.43	%		305,901		5,023	**	6.66	%
Total interest-earning assets	$	451,743		6,879		6.12	%	$	427,979		6,596		6.25	%
Liabilities
Savings deposits	$	49,062		136		1.11	%	$	47,967		69		0.58	%
NOW accounts		55,598		99		0.72	%		59,396		106		0.73	%
Money market accounts		95,730		740		3.11	%		81,211		711		3.55	%
Time deposits		87,499		957		4.40	%		79,203		875		4.48	%
Total interest-bearing deposits		287,889		1,932		2.70	%		267,777		1,761		2.67	%
Non-interest-bearing deposits		66,020		—		—			74,603		—		—
Total deposits		353,909		1,932		2.20	%		342,380		1,761		2.09	%
FHLB advances		59,001		612		4.17	%		51,086		628		4.98	%
Repurchase agreements		10,994		83		3.03	%		9,990		92		3.75	%
Total other borrowed funds		69,995		695		3.99	%		61,076		720		4.78	%
Total interest-bearing liabilities		357,884		2,627		2.95	%		328,853		2,481		3.06	%
Total deposits and interest-bearing liabilities	$	423,904		2,627		2.49	%	$	403,456		2,481		2.49	%
Net interest income			$	4,252						$	4,115
Net interest spread						3.63	%						3.76	%
Net interest margin						3.79	%						3.90	%
Tax Equivalent Income Adjustment:
State and Municipal Investment Income			$	62	*					$	53	*
Dividends Received Deduction Eligible Securities				25	*						—	*
Industrial Revenue Bond Income				85	**						87	**
Total Tax Equivalent Income Adjustment			$	172						$	140

* Amount included in investment income.

** Amount included in loan income.

Noninterest income and expense results were consistent with those of the same quarter last year. This is despite the Bank’s asset growth over the same period, as the Bank continues to increasingly benefit from changes made to improve overall efficiencies.

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The following table sets forth the various components of noninterest income and noninterest expense for the quarters ended March 31, 2008 and 2007 and the dollar amount and percentage change between the periods:

	March 31,				Increase (Decrease)
	2008		2007		$			%
	(Dollars in thousands)
	(unaudited)
Noninterest income:
Income from fiduciary activities	$	474	$	462	$	12		2.60	%
Fees from sale of non-deposit products		50		63		(13	)	-20.63	%
Service charges on deposit accounts		159		142		17		11.97	%
Other deposit fees		226		245		(19	)	-7.76	%
Gain on sales of loans, net		—		6		(6	)	-100.00	%
Income on cash surrender value of life insurance		73		52		21		40.38	%
Other income		200		200		—		0.00	%
Total noninterest income	$	1,182	$	1,170	$	12		1.03	%
Noninterest expense:
Salaries and employee benefits	$	2,216	$	2,177	$	39		1.79	%
Director fees		77		79		(2	)	-2.53	%
Occupancy expense		465		383		82		21.41	%
Equipment expense		246		207		39		18.84	%
Data processing fees		289		266		23		8.65	%
Marketing and public relations		105		108		(3	)	-2.78	%
Professional fees		167		244		(77	)	-31.56	%
Other expense		377		420		(43	)	-10.24	%
Total noninterest expense	$	3,942	$	3,884	$	58		1.49	%

The income tax provision for the quarter decreased by $21,000, or 6.9%, compared to the same period last year. The decrease, despite the increase in income before income taxes, is due to the increase in tax-exempt securities, such as municipal investments, and securities eligible for the dividends received deduction, such as certain preferred stock purchases. These changes netted the Company a decrease of 3.7% in its 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 loan losses through charges to earnings. A provision of $128,000 was made to the allowance for loan losses during the three months ended March 31, 2008, compared to $150,000 for the same period last year. The allowance for loan losses was equivalent to 1.11% and 1.02% of total loans at March 31, 2008 and 2007, respectively.

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

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

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of 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.

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

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

Changes in the allowance for loan losses were as follows for the three months ended March 31, 2008 and 2007:

	2008			2007
	(in thousands)
	(unaudited)
Balance as of January 1st	$	3,614		$	3,044
Loans charged off		(15	)		(4	)
Provision for loan losses		128			150
Recoveries of loans previously charged off		—			2
Balance as of March 31st	$	3,727		$	3,192

The allowance for loan losses represented 1,521.2% and 8,184.6% of non-performing loans, which totaled $245,000 and $39,000, at March 31, 2008 and 2007, respectively. Non-performing loans represented less than 0.1% of total loans and mortgages held-for-sale March 31, 2008 and 2007.

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 March 31, 2008, the Company had total capital of $46.2 million, an increase of $388,000, or 0.8%, from total capital as of December 31, 2007. The net change in the Bank’s capital reflects current year income, dividends paid, an entry made for the cumulative effect of a change in accounting principle, the decrease in accumulated other comprehensive loss, the granting of stock awards and the exercise of stock options.

The Company’s policy has been to pay dividends out of funds in excess of the needs of the business. The Company declared and paid cash dividends to shareholders on a quarterly basis at a rate of $0.20 per share during 2007 and for the first quarter of 2008.

Generally, banks are required to maintain Tier 1 capital at a level equal to or greater than 4.0% of their average total assets. As of March 31, 2008, the Bank's Tier 1 capital amounted to 9.45% of average total assets. At March 31, 2008, the Bank's ratio of risk-based capital to risk-weighted assets amounted to 13.67%, which satisfies the applicable risk-based capital requirements. As of December 31, 2007, the Bank's Tier 1 capital amounted to 9.39% of average assets and risk-based capital amounted to 14.07% of total risk-based assets.

The capital ratios of the Bank exceed all regulatory requirements, and the entity is considered “well capitalized” by its federal supervisory agencies.

Liquidity

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

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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 $3.5 million at March 31, 2008; additionally, a minimum amount of contractual payments in the amount of $22.2 million for the mortgage-backed securities portfolio is due within one year at March 31, 2008. Assets such as federal funds sold, mortgages held for sale, pre-payments and payoffs on mortgage-backed securities, as well as maturing loans, are also sources of liquidity. The Company's objectives are to be substantially neutral with respect to interest rate sensitivity and maintain a net cumulative gap at one year of less than 15% of total earning assets. The Company’s current practices are consistent with these objectives.

Off Balance Sheet Arrangements

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its customers. In the opinion of Management, these off-balance sheet arrangements are not likely to have a material effect on the Company’s financial condition, results of operations, or liquidity. As of March 31, 2008, total off-balance sheet financial commitments, which include unadvanced funds on loans and commitments to fund loans and letters of credit, amounted to approximately $58.6 million.

Forward-Looking Statements

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

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

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

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

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

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

(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.

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The Company’s net interest margin for the three months ended March 31, 2008 was 3.79%, in comparison to the 3.90% net interest margin for the three months ended March 31, 2007. 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 Asset/Liability Management Committee is comprised of the President and Chief Executive Officer of the Company; the Senior Executive Vice President, Chief Financial Officer and Chief Operating Officer; the Executive Vice President and Senior Loan Officer; the Executive Vice President of Retail Banking; the Senior Vice President, Secretary and Chief Operations Officer; the Senior Vice President and Chief Risk Officer; and various lending, retail and finance officers. The Committee is responsible for managing interest rate risk in accordance with policies approved by the Board of Directors regarding acceptable levels of interest rate risk, liquidity and capital. The Committee meets bi-weekly and develops new products, sets the rates paid on deposits, approves loan pricing and reviews investment transactions. This Asset/Liability Management Committee reports to the Board of Directors’ Asset/Liability Management Committee, which is comprised of several Directors and the President and Chief Executive Officer.

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

The Bank works with a consultant to calculate and review these various measurements.

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

As of March 31, 2008, the capital ratio of the Company on an EVE basis, at current rate levels, is 11.24%. Based on the most recent analysis it is estimated that an increase in interest rates over the next year of 200 basis points (for example, an increase in the prime rate from 5.00% to 7.00%) would result in an EVE capital ratio of 10.23%. Alternatively, if interest rates were to decrease over the next year by 200 basis points, the EVE capital ratio is estimated to be 9.72%. These changes are within the risk tolerance levels established by the Company policies.

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

The following table summarizes the net interest income simulation as of March 31, 2008:

	March 31, 2008
	Projected net interest income		Change from year 1 base case
	(Dollars in thousands)
Year 1 projections:
Down 200BP	$	17,654	$	(241	)	-1.35	%
Base		17,895		—		—
Up 200BP		17,493		(402	)	-2.25	%
Year 2 projections:
Down 200BP	$	16,775	$	(1,120	)	-6.26	%
Base		18,293		398		2.22	%
Up 200BP		18,064		169		0.94	%

15

ITEM 4. CONTROLS AND PROCEDURES.

The Company’s Chief Executive Officer and Chief Financial Officer concluded that based upon an evaluation as of March 31, 2008, as required by Rules 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) of the Exchange Act are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed 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. 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.

During the quarter ended March 31, 2008, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.	Legal Proceedings.	None
Item 1A.	Risk Factors	Not applicable
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.	None
Item 5.	Other Information.	None
Item 6.	Exhibits.

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

17

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BEVERLY NATIONAL CORPORATION
	(Registrant)
Date: May 13, 2008	By:	/s/ Donat A. Fournier
		Donat A. Fournier
		President and Chief Executive Officer
Date: May 13, 2008	By:	/s/ Michael O. Gilles
		Michael O. Gilles
		Senior Executive Vice President, Chief Financial Officer and Chief Operating Officer

18