Beverly National 10-Q 2008 Q3 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 September 30, 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 November 4, 2008: 2,663,545.

BEVERLY NATIONAL CORPORATION

INDEX

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at September 30, 2008 (Unaudited) and December 31, 2007	3
	Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2008 and 2007 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 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	9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4T.	Controls and Procedures	18
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Submission of Matters to a Vote of Security Holders	19
Item 5.	Other Information	19
Item 6.	Exhibits	19
	Signatures	20

2

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

BEVERLY NATIONAL CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

	September 30, 2008			December 31, 2007
	(unaudited)
ASSETS
Cash and due from banks	$	10,482		$	10,752
Federal funds sold		3,633			3,706
Interest-bearing demand deposits with other banks		758			115
Short-term investments		363			922
Cash and cash equivalents		15,236			15,495
Investments in available-for-sale securities (at fair value)		110,394			114,793
Federal Home Loan Bank stock, at cost		4,086			3,452
Federal Reserve Bank stock, at cost		553			553
Loans, net of the allowance for loan losses of $4,112 and $3,614, respectively		332,137			318,356
Premises and equipment		7,773			7,321
Bank owned life insurance		6,876			6,661
Accrued interest receivable		1,898			1,805
Other assets		5,758			4,355
Total assets	$	484,711		$	472,791
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	72,216		$	72,425
Interest-bearing		285,121			277,885
Total deposits		357,337			350,310
Federal Home Loan Bank advances		70,326			59,616
Securities sold under agreements to repurchase		10,763			11,638
Other liabilities		5,006			5,462
Total liabilities		443,432			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 2,912,437 shares as of September 30, 2008 and 2,890,690 shares as of December 31, 2007; outstanding, 2,663,545 shares as of September 30, 2008 and 2,641,798 shares as of December 31, 2007		7,281			7,227
Paid-in capital		22,913			22,586
Retained earnings		18,411			21,050
Treasury stock, at cost (248,892 shares as of September 30, 2008 and December 31, 2007)		(4,370	)		(4,370	)
Unearned shares, Restricted Stock Plan (15,755 shares as of September 30, 2008 and 9,005 shares as of December 31, 2007)		(323	)		(197	)
Accumulated other comprehensive loss		(2,633	)		(531	)
Total stockholders’ equity		41,279			45,765
Total liabilities and stockholders’ equity	$	484,711		$	472,791
Book value per share	$	15.50		$	17.32

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

3

BEVERLY NATIONAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share data)

(unaudited)

	Three Months Ended					Nine Months Ended
	September 30, 2008			September 30, 2007		September 30, 2008			September 30, 2007
Interest and dividend income:
Interest and fees on loans	$	5,026		$	5,272	$	15,218		$	15,440
Interest on debt securities:
Taxable		1,147			1,160		3,442			3,426
Tax-exempt		120			120		361			339
Dividends on marketable equity securities		285			162		878			477
Other interest		64			131		203			349
Total interest and dividend income		6,642			6,845		20,102			20,031
Interest expense:
Interest on deposits		1,498			2,119		5,035			5,797
Interest on other borrowed funds		710			784		2,138			2,329
Total interest expense		2,208			2,903		7,173			8,126
Net interest and dividend income		4,434			3,942		12,929			11,905
Provision for loan losses		225			75		588			325
Net interest and dividend income after provision for loan losses		4,209			3,867		12,341			11,580
Noninterest (charge) income:
Income from fiduciary activities		438			486		1,379			1,427
Fees from sale of non-deposit products		79			60		219			190
Service charges on deposit accounts		166			157		485			452
Other deposit fees		223			198		661			700
Write-down of available-for-sale securities		(3,724	)		—		(3,724	)		—
Gain on sales of loans, net		6			—		6			6
Income on cash surrender value of life insurance		77			54		225			165
Other income		142			304		531			760
Total noninterest (charge) income		(2,593	)		1,259		(218	)		3,700
Noninterest expense:
Salaries and employee benefits		2,235			2,185		6,696			6,460
Director fees		76			68		219			233
Occupancy expense		465			389		1,396			1,164
Equipment expense		213			216		690			638
Data processing fees		298			290		897			854
Marketing and public relations		100			102		320			344
Professional fees		155			186		486			752
Other expense		356			412		1,145			1,249
Total noninterest expense		3,898			3,848		11,849			11,694
(Loss) income before income taxes		(2,282	)		1,278		274			3,586
Income taxes		392			357		1,022			976
Net (loss) income	$	(2,674	)	$	921	$	(748	)	$	2,610
Comprehensive (loss) income	$	(3,576	)	$	1,760	$	(2,850	)	$	2,513
(Loss) earnings per share:
Weighted average shares outstanding		2,663,545			2,748,336		2,660,035			2,755,340
Weighted average diluted shares outstanding		2,663,545			2,764,357		2,660,035			2,770,712
(Loss) earnings per common share	$	(1.00	)	$	0.34	$	(0.28	)	$	0.95
(Loss) earnings per common share, assuming dilution	$	(1.00	)	$	0.33	$	(0.28	)	$	0.94
Dividends per share	$	0.20		$	0.20	$	0.60		$	0.60

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

4

BEVERLY NATIONAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

	Nine Months Ended
	September 30, 2008			September 30, 2007
Cash flows from operating activities:
Net (loss) income	$	(748	)	$	2,610
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Write-down of available-for-sale securities		3,724			—
Provision for loan losses		588			325
Depreciation and amortization		578			554
Decrease (increase) in taxes receivable		106			(33	)
Decrease in mortgage servicing rights		16			27
Decrease (increase) in other assets		12			(99	)
Stock-based compensation		6			12
Increase in prepaid expenses		(19	)		(43	)
Change in deferred loan costs, net		(30	)		13
Amortization of securities, net		(64	)		32
Decrease in accrued expenses		(74	)		(485	)
(Increase) decrease in RABBI Trust trading securities		(90	)		70
Increase in interest receivable		(93	)		(129	)
Decrease in other liabilities		(195	)		(43	)
Increase in cash surrender value of life insurance		(225	)		(165	)
(Decrease) increase in interest payable		(431	)		439
Net cash provided by operating activities		3,061			3,085
Cash flows from investing activities:
Proceeds from maturities of available-for-sale securities		19,642			11,157
Recoveries of loans previously charged off		59			188
Redemption of Federal Home Loan Bank stock		—			371
Purchase of Federal Reserve Bank stock		—			(365	)
Purchases of Federal Home Loan Bank stock		(634	)		(320	)
Capital expenditures		(1,030	)		(1,713	)
Loan originations and principal collections, net		(14,398	)		(15,233	)
Purchases of available-for-sale securities		(22,439	)		(13,932	)
Net cash used in investing activities		(18,800	)		(19,847	)
Cash flows from financing activities:
Advances from Federal Home Loan Bank		19,877			25,500
Net increase (decrease) in demand deposits, NOW, money market and savings accounts		13,410			(7,926	)
Proceeds from exercise of stock options		200			645
Purchase of treasury stock		—			(1,407	)
Decrease in securities sold under agreements to repurchase		(875	)		(5,431	)
Dividends paid		(1,582	)		(1,657	)
Payments on Federal Home Loan Bank advances		(1,737	)		(1,648	)
Net (decrease) increase in time deposits		(6,383	)		13,362
Net decrease in short term Federal Home Loan Bank advances		(7,430	)		(20,000	)
Net cash provided by financing activities		15,480			1,438
Net decrease in cash and cash equivalents		(259	)		(15,324	)
Cash and cash equivalents at beginning of period		15,495			29,723
Cash and cash equivalents at end of period	$	15,236		$	14,399
Supplemental disclosures:
Interest paid	$	7,605		$	7,686
Income taxes paid		916			1,009

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

5

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 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 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.

6

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 nine months ended September 30, 2008, stock-based employee compensation costs recorded as expenses amounted to $66,000, compared to $47,000 for the same period last year. These figures include compensation costs for grants made to employees pursuant to the Company’s Restricted Stock Plan.

7

6. PENSION BENEFITS

The following summarizes the net periodic cost for the three and nine months ended September 30:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2008			2007			2008			2007
	(in thousands)						(in thousands)
Service cost	$	—		$	—		$	—		$	—
Interest cost on benefit obligation		125			123			375			369
Expected return on plan assets		(161	)		(161	)		(483	)		(484	)
Amortization of prior service cost		—			—			—			—
Net periodic benefit cost	$	(36	)	$	(38	)	$	(108	)	$	(115	)

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 September 30, 2008 (in thousands):

			Fair Value Measurements at Reporting Date Using:
	September 30, 2008		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Available-for-sale securities	$	110,394	$	27,999	$	71,671		$	10,724
Trading securities		241		241		—			—
Total	$	110,635	$	28,240	$	71,671		$	10,724
					Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
					Available-for-sale Securities			Total
Beginning balance, July 1, 2008					$	7,707		$	7,707
Total gains or losses (realized/unrealized)
Included in earnings (or changes in net assets)						—			—
Included in other comprehensive income						(360	)		(360	)
Amortization of securities, net						(20	)		(20	)
Transfers in and/or out of Level 3						3,397			3,397
Ending balance, September 30, 2008					$	10,724		$	10,724
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date					$	—		$	—

8

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 September 30, 2008 were $484.7 million, compared to $472.8 million at December 31, 2007, an increase of $11.9 million, or 2.5%. Loans, net of the allowance for loan losses, increased $13.8 million, or 4.3% from $318.4 million at December 31, 2007. Investments in available-for-sale securities decreased $4.4 million, or 3.8% from $114.8 million at December 31, 2007. The Bank has been able to maintain steady asset growth over the last nine months, mainly using increases in deposit levels to fund expansion of the loan portfolio. Deposits increased $7.0 million, or 2.0%, and Federal Home Loan Bank advances increased $10.7 million, or 18.0% from $59.6 million at December 31, 2007. This growth in deposits reflects the Bank’s expanded retail operations and the introduction of an enhanced line of deposit products. The book value of the Company’s stock has decreased slightly as a result of the other than temporarily impaired (“OTTI”) write-down of Fannie Mae and Freddie Mac preferred stock and the increase in unrealized losses on available-for-sale securities. The Company and the Bank met all of the regulatory capital requirements of a well capitalized institution at September 30, 2008. 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 business development, improvement in operating efficiencies, identifying sound growth opportunities and closely monitoring management’s strategic focus in this ever-changing economic environment are also key components of the Bank’s strategy.

9

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 September 30, 2008 (unaudited) and December 31, 2007:

	Amortized Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in thousands)
Available-for-sale securities:
September 30, 2008 (unaudited):
Debt securities issued by U.S. government corporations and agencies	$	11,690	$	30	$	157	$	11,563
Debt securities issued by states of the United States and political subdivisions of the states		12,321		10		978		11,353
Corporate debt securities		1,926		—		31		1,895
Preferred stocks		15,087		6		2,148		12,945
Marketable equity securities		577		1		10		568
Mortgage-backed securities		72,190		235		754		71,671
Debt securities issued by foreign governments		400		—		1		399
	$	114,191	$	282	$	4,079	$	110,394
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

Loan Portfolio

The following table summarizes the distribution of the Bank’s loan portfolio as of September 30, 2008 and December 31, 2007:

	September 30, 2008			% of Total		December 31, 2007			% of Total
	(in thousands)					(in thousands)
	(unaudited)
Commercial, financial and agricultural	$	46,835		14.10	%	$	39,343		12.36	%
Real estate - construction and land development		8,383		2.52	%		17,042		5.35	%
Real estate - residential		124,941		37.62	%		120,512		37.85	%
Real estate - commercial		139,224		41.92	%		127,819		40.15	%
Consumer		2,379		0.72	%		2,392		0.76	%
Other		13,788		4.15	%		14,193		4.46	%
		335,550		101.03	%		321,301		100.93	%
Allowance for loan losses		(4,112	)	-1.24	%		(3,614	)	-1.14	%
Deferred loan costs, net		699		0.21	%		669		0.21	%
Net Loans	$	332,137		100.00	%	$	318,356		100.00	%

10

Deposits

The following table summarizes deposits as of September 30, 2008 and December 31, 2007:

	September 30, 2008		% of Total		December 31, 2007		% of Total
	(in thousands)				(in thousands)
	(unaudited)
Demand Deposits	$	72,216	20.21	%	$	72,425	20.67	%
NOW Accounts		58,012	16.23	%		58,841	16.80	%
Money Market Accounts		86,475	24.21	%		81,585	23.29	%
Savings Deposits		57,894	16.20	%		48,336	13.80	%
Time Deposits		82,740	23.15	%		89,123	25.44	%
Total	$	357,337	100.00	%	$	350,310	100.00	%

Comparison of operating results for the three months ended September 30, 2008 and 2007

The Company reported a net loss for the quarter ended September 30, 2008 of $2.7 million, or a basic and fully diluted loss of $1.00 per share, compared to net income of $921,000, or basic and fully diluted earnings of $0.34 per share, for the same quarter last year. Net income for the quarter was impacted by charges, pre-tax, of $3,724,000 related to the write-down of the Company’s investment in Fannie Mae and Freddie Mac preferred stocks as other than temporarily impaired. No tax benefit was recognized on these charges as changes signed into law that would allow financial institutions to treat these as ordinary losses was not signed and made effective until October 3, 2008. Therefore, a tax benefit of approximately $1.5 million was not recognized in the period ended September 30, 2008, and will be recognized in the period ending December 31, 2008. This tax benefit, had it been recognized in the same quarter as the losses were taken, would have added approximately $0.57 to the Company’s book value and would have reduced the third quarter loss by $0.57 per share.

Excluding these charges, the Company’s core net income for the quarter would have been $1.05 million, or basic and fully diluted earnings per share of $0.39. The adjusted results for the quarter would represent a 14.0% increase in net income and a 17.6% increase in earnings per share, compared to results for the same quarter last year. The primary reason for the increase in the core net income and earnings per share for the periods presented, before the charges, is the increase in net interest and dividend income after the provision for loan losses, which increased $342,000, or 8.8%, for the three months ended September 30, 2008 from the same period last year. The improvement is a result of the growth in earning assets, the reduction in cost of funds and the replacement of maturing certificates of deposit and FHLB advances at lower interest rates. The net interest margin improved to 3.96% for the quarter ended September 30, 2008, compared to 3.66% for the same period last year.

11

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 September 30, 2008							For the Three Months Ended September 30, 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	$	5,984	$	24		1.61	%	$	4,510	$	53		4.66	%
Investments		120,848		1,668	*	5.49	%		119,788		1,582	*	5.24	%
Loans		334,535		5,110	**	6.08	%		319,014		5,358	**	6.66	%
Total interest-earning assets	$	461,367		6,803		5.87	%	$	443,312		6,993		6.26	%
Liabilities
Savings deposits	$	56,406		171		1.21	%	$	48,670		107		0.87	%
NOW accounts		51,843		79		0.61	%		57,545		120		0.83	%
Money market accounts		96,144		544		2.25	%		88,980		823		3.67	%
Time deposits		85,388		704		3.28	%		89,030		1,069		4.76	%
Total interest-bearing deposits		289,781		1,498		2.06	%		284,225		2,120		2.96	%
Non-interest-bearing deposits		72,560		—		—			74,164		—		—
Total deposits		362,341		1,498		1.64	%		358,389		2,120		2.35	%
FHLB advances		65,924		648		3.91	%		58,523		719		4.87	%
Repurchase agreements		10,990		62		2.25	%		7,201		64		3.53	%
Total other borrowed funds		76,914		710		3.67	%		65,724		783		4.73	%
Total interest-bearing liabilities		366,695		2,208		2.40	%		349,949		2,902		3.29	%
Total deposits and interest-bearing liabilities	$	439,255		2,208		2.00	%	$	424,113		2,903		2.72	%
Net interest income			$	4,594						$	4,091
Net interest spread						3.87	%						3.55	%
Net interest margin						3.96	%						3.66	%
Tax Equivalent Income Adjustment:
State and Municipal Investment Income			$	62	*					$	62	*
Dividends Received Deduction Eligible Securities				15	*						—	*
Industrial Revenue Bond Income				84	**						87	**
Total Tax Equivalent Income Adjustment			$	161						$	149

* Amount included in investment income.

** Amount included in loan income.

The following table sets forth the various components of noninterest income and noninterest expense for the quarters ended September 30, 2008 and 2007 and the dollar amount and percentage change between the periods:

	September 30,					Increase (Decrease)
	2008			2007		$			%
	(Dollars in thousands)
	(unaudited)
Noninterest (charge) income:
Income from fiduciary activities	$	438		$	486	$	(48	)	-9.88	%
Fees from sale of non-deposit products		79			60		19		31.67	%
Service charges on deposit accounts		166			157		9		5.73	%
Other deposit fees		223			198		25		12.63	%
Write-down of available-for-sale securities		(3,724	)		—		(3,724	)	—
Gain on sales of loans, net		6			—		6		—
Income on cash surrender value of life insurance		77			54		23		42.59	%
Other income		142			304		(162	)	-53.29	%
Total noninterest (charge) income	$	(2,593	)	$	1,259	$	(3,852	)	-305.96	%
Noninterest expense:
Salaries and employee benefits	$	2,235		$	2,185	$	50		2.29	%
Director fees		76			68		8		11.76	%
Occupancy expense		465			389		76		19.54	%
Equipment expense		213			216		(3	)	-1.39	%
Data processing fees		298			290		8		2.76	%
Marketing and public relations		100			102		(2	)	-1.96	%
Professional fees		155			186		(31	)	-16.67	%
Other expense		356			412		(56	)	-13.59	%
Total noninterest expense	$	3,898		$	3,848	$	50		1.30	%

The income tax provision for the quarter increased by $35,000, or 9.8%, compared to the same period last year. The increase is due to the increase in income before income taxes, as the effective rate is consistent for the quarters ended September 30, 2008 and 2007.

12

Comparison of operating results for the nine months ended September 30, 2008 and 2007

The Company reported a net loss for the nine months ended September 30, 2008 of $748,000, or a basic and fully diluted loss of $0.28 per share, compared to net income of $2.6 million, or basic and fully diluted earnings of $0.95 and $0.94 per share, respectively, for the same period last year. Net income for the period was impacted by charges, pre-tax, of $3,724,000 related to the write-down of the Company’s investment in Fannie Mae and Freddie Mac preferred stocks as other than temporarily impaired. No tax benefit was recognized on these charges as changes signed into law that would allow financial institutions to treat these as ordinary losses was not signed and made effective until October 3, 2008. Therefore, a tax benefit of approximately $1.5 million was not recognized in the quarter ended September 30, 2008, and will be recognized in the quarter ending December 31, 2008. This tax benefit, had it been recognized in the same period as the losses were taken, would have added approximately $0.57 to the Company’s book value and would have reduced the loss for the nine months ended September 30, 2008 by $0.57 per share.

Net income for the nine months ended September 30, 2008, excluding the charges, would have been $2.98 million, with basic and fully diluted earnings per share of $1.12. These results would represent a 14.0% increase in net income and an 18.1% increase in earnings per share, compared to the same period last year. The primary reason for the increase in the core net income and earnings per share for the periods presented, before the charges, is the increase in net interest and dividend income after the provision for loan losses, which increased $761,000, or 6.6%, for the nine months ended September 30, 2008 from the same periods last year. The improvement is a result of the growth in earning assets, the reduction in cost of funds and the replacement of maturing certificates of deposit and FHLB advances at lower interest rates. The net interest margin improved to 3.91% for the nine months ended September 30, 2008, compared to 3.78% for the same period last year.

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

	For the Nine Months Ended September, 2008							For the Nine Months Ended September 30, 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	$	3,762	$	52		1.83	%	$	2,836	$	102		4.81	%
Investments		123,339		5,095	*	5.52	%		119,635		4,663	*	5.21	%
Loans		332,624		15,470	**	6.21	%		314,402		15,701	**	6.68	%
Total interest-earning assets	$	459,725		20,617		5.99	%	$	436,873		20,466		6.26	%
Liabilities
Savings deposits	$	53,238		470		1.18	%	$	48,323		266		0.74	%
NOW accounts		54,211		260		0.64	%		58,784		347		0.79	%
Money market accounts		94,152		1,816		2.58	%		86,102		2,334		3.62	%
Time deposits		87,133		2,489		3.82	%		82,122		2,849		4.64	%
Total interest-bearing deposits		288,734		5,035		2.33	%		275,331		5,796		2.81	%
Non-interest-bearing deposits		70,103		—		—			73,451		—		—
Total deposits		358,837		5,035		1.87	%		348,782		5,796		2.22	%
FHLB advances		64,842		1,931		3.98	%		56,873		2,107		4.95	%
Repurchase agreements		10,882		207		2.54	%		8,253		222		3.60	%
Total other borrowed funds		75,724		2,138		3.77	%		65,126		2,329		4.78	%
Total interest-bearing liabilities		364,458		7,173		2.63	%		340,457		8,125		3.19	%
Total deposits and interest-bearing liabilities	$	434,561		7,173		2.20	%	$	413,908		8,125		2.62	%
Net interest income			$	13,444						$	12,341
Net interest spread						3.79	%						3.64	%
Net interest margin						3.91	%						3.78	%
Tax Equivalent Income Adjustment:
State and Municipal Investment Income			$	186	*					$	174	*
Dividends Received Deduction Eligible Securities				77	*						—	*
Industrial Revenue Bond Income				253	**						261	**
Total Tax Equivalent Income Adjustment			$	516						$	435

* Amount included in investment income.

** Amount included in loan income.

13

The following table sets forth the various components of noninterest income and noninterest expense for the nine months ended September 30, 2008 and 2007 and the dollar amount and percentage change between the periods:

	September 30,					Increase (Decrease)
	2008			2007		$			%
	(Dollars in thousands)
	(unaudited)
Noninterest (charge) income:
Income from fiduciary activities	$	1,379		$	1,427	$	(48	)	-3.36	%
Fees from sale of non-deposit products		219			190		29		15.26	%
Service charges on deposit accounts		485			452		33		7.30	%
Other deposit fees		661			700		(39	)	-5.57	%
Write-down of available-for-sale securities		(3,724	)		—		(3,724	)	0.00	%
Gain on sales of loans, net		6			6		—		0.00	%
Income on cash surrender value of life insurance		225			165		60		36.36	%
Other income		531			760		(229	)	-30.13	%
Total noninterest (charge) income	$	(218	)	$	3,700	$	(3,918	)	-105.89	%
Noninterest expense:
Salaries and employee benefits	$	6,696		$	6,460	$	236		3.65	%
Director fees		219			233		(14	)	-6.01	%
Occupancy expense		1,396			1,164		232		19.93	%
Equipment expense		690			638		52		8.15	%
Data processing fees		897			854		43		5.04	%
Marketing and public relations		320			344		(24	)	-6.98	%
Professional fees		486			752		(266	)	-35.37	%
Other expense		1,145			1,249		(104	)	-8.33	%
Total noninterest expense	$	11,849		$	11,694	$	155		1.33	%

The income tax provision for the nine months ended September 30, 2008 increased by $46,000, or 4.7%, compared to the same period last year despite the 14.0% increase in net income before non-recurring, pre-tax charges. This is primarily due to the increase in assets eligible for preferential tax treatment. As a result, the effective tax rate decreased by 1.6% for the nine months ended September 30, 2008, compared to the same period last year.

Provisions and Allowance for Loan Losses

Credit risk is inherent in the business of extending loans. The Bank maintains an allowance for loan losses through charges to earnings. Provisions of $225,000 and $588,000 were made to the allowance for loan losses during the three and nine months ended September 30, 2008, respectively, compared to $75,000 and $325,000 for the same periods last year. The allowance for loan losses was equivalent to 1.22% and 1.11% of total loans at September 30, 2008 and 2007, respectively. The increase was driven by growth in the loan portfolio, uncertain economic conditions, concerns over further potential reduction in real estate values and the impact a prolonged recession or economic downturn would have on the Company’s commercial and small business loan portfolios.

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.

14

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 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 nine months ended September 30, 2008 and 2007:

	2008			2007
	(in thousands)
	(unaudited)
Balance as of January 1st	$	3,614		$	3,044
Loans charged off		(149	)		(5	)
Provision for loan losses		588			325
Recoveries of loans previously charged off		59			190
Balance as of September 30th	$	4,112		$	3,554

The allowance for loan losses represented 1,613% and 13,669% of non-performing loans, which totaled $255,000 and $26,000, at September 30, 2008 and 2007, respectively. Non-performing loans represented less than 0.1% of total loans and mortgages held-for-sale at September 30, 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 September 30, 2008, the Company had total capital of $41.3 million, a decrease of $4.5 million, or 9.8%, from total capital as of December 31, 2007. The net change in the Company’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 each 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 September 30, 2008, the Bank’s Tier 1 capital amounted to 8.96% of average total assets. At September 30, 2008, the Bank’s ratio of risk-based capital to risk-weighted assets amounted to 13.40%, 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.

15

Liquidity

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

Certain marketable investment securities, particularly those of shorter maturities, are the principal source of asset liquidity. The Company maintains such securities in an available-for-sale account as a liquidity resource. Securities maturing in one year or less amounted to $4.5 million at September 30, 2008; additionally, a minimum amount of contractual payments in the amount of $12.6 million for the mortgage-backed securities portfolio is due within one year at September 30, 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 September 30, 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 $61.0 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.

16

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

The Company’s net interest margin for the three and nine months ended September 30, 2008 was 3.96% and 3.91%, respectively, in comparison to 3.66% and 3.78%, respectively, for the three and nine months ended September 30, 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 September 30, 2008, the capital ratio of the Company on an EVE basis, at current rate levels, is 11.73%. 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 10.63%. Alternatively, if interest rates were to decrease over the next year by 100 basis points, the EVE capital ratio is estimated to be 11.53%. 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.

17

The following table summarizes the net interest income simulation as of September 30, 2008:

	September 30, 2008
	Projected net interest income		Change from year 1 base case
	(Dollars in thousands)
Year 1 projections:
Down 100BP	$	18,101	$	136		0.76	%
Base		17,965		—		—
Up 200BP		17,719		(246	)	- 1.37	%
Year 2 projections:
Down 100BP	$	17,946	$	(19	)	- 0.11	%
Base		18,232		267		1.49	%
Up 200BP		18,165		200		1.11	%

ITEM 4T. CONTROLS AND PROCEDURES.

The Company’s Chief Executive Officer and Chief Financial Officer concluded that based upon an evaluation as of September 30, 2008, as required by Rule 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 September 30, 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.

18

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

19

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: November 13, 2008	By:	/s/ Donat A. Fournier
		Donat A. Fournier
		President and Chief Executive Officer
Date: November 13, 2008	By:	/s/ Michael O. Gilles
		Michael O. Gilles
		Senior Executive Vice President, Chief Financial Officer and
		Chief Operating Officer

20