BFBC Benjamin Franklin Bancorp (MM)

Benjamin Franklin Bancorp, Inc.(the "Company" or "Benjamin Franklin") (Nasdaq: BFBC), the bank holding company for Benjamin Franklin Bank (the �Bank�), today reported net income of $1.0 million, or $.13 per share (basic and diluted), for the quarter ended December 31, 2006. In the comparable 2005 quarter, the Company earned $1.3 million or $.16 per share (basic and diluted). Fourth quarter 2006 results included two non-recurring items: 1. After-tax income of $1.5 million, or $.19 per share, recorded in conjunction with the sale and leaseback of six of the Bank�s branch locations. The positive effect of this transaction on fourth quarter 2006 earnings is primarily due to the capital gain generated by the transaction, which allowed the Bank to use a capital loss carryover, the tax benefit of which was previously unrecorded. The total purchase price of the six branches was $9.8 million. The gain recognized on the sale ($3.8 million) will be deferred and recognized ratably over the initial lease term of 15 years. Details are as follows: Sale/Leaseback of Six Branch Locations: (in thousands) Income tax benefit recorded related to use of capital loss carryforward: $ 1,759� Loss, for book purposes, on sale of one branch ($3.8 million book gain on remaining 5 branches has been deferred and will be recognized over 15 years) (495) Income tax benefit on loss 203� Net effect on 2006 financial results $ 1,467� 2. After-tax loss of $1.4 million, or $.18 per share, incurred upon the designation of $63.7 million of adjustable-rate mortgage loans as �held for sale� at December 31, 2006. These loans, which bear below-market interest rates, will be sold in the first quarter of 2007. Proceeds realized will be reinvested in securities and in future loan growth. Details are as follows: Balance Sheet Restructuring: Transfer of $63.7 million in Loans to Loans Held For Sale: (in thousands) Write-down to record loans transferred at lower of cost or market value: $ (2,361) Income tax benefit on writedown of loans transferred: 966� Net effect on 2006 financial results $ (1,395) For the year ended December 31, 2006, the Company reported earnings of $4.7 million or $.60 per share (basic and diluted). In 2005, the Company earned $431,000, results that were adversely affected by two non-recurring charges aggregating $3.7 million after-tax. The Company also today announced that its Board of Directors declared a quarterly cash dividend of $.04 per common share. This dividend will be payable on February 23, 2007 to stockholders of record as of February 9, 2007. Thomas R. Venables, President and CEO, noted: �Margin pressure has continued to be a challenge, resulting from the significant inversion of the yield curve in the second half of 2006. We are optimistic that our growth plans, focused on commercial loans and core deposits, will work over time to offset the effects of an unfavorable interest rate environment. The restructuring of the balance sheet, once our loan sale is completed in the first quarter of 2007, will also assist in this effort.� In 2006, the Company�s balance sheet increased by $46.6 million, or 5.4%, to $913.7 million. Asset growth was focused primarily in total loans (including loans held for sale), which increased by $34.7 million or 5.7% during the year. This growth was funded by increases in deposit balances totaling $21.5 million or 3.5%, and in borrowed funds, which increased by $18.6 million or 13.3% during 2006. Deposit growth was centered in time deposit accounts, which increased by $45.2 million or 17.2% during 2006, offset by decreases in transaction and savings accounts, which declined in the aggregate by $23.7 million or 6.8% during the year. Short-term market interest rates increased by approximately 100 basis points during 2006, and this increase intensified a shift in demand toward higher-yielding certificate accounts and away from lower-rate savings and transaction accounts. The increase in loans during 2006 was largely the result of growth in the Bank�s commercial and construction loan portfolios, which increased in total by $40.6 million or 14.1% during the year. This growth was spread across each of the Bank�s commercial portfolios, as commercial real estate loans increased by $22.4 million or 10.7%, commercial business loans increased by $9.7 million or 50.7% and construction loans increased by $8.5 million or 14.0%. Consumer loans also increased during the year, rising by $4.8 million or 13.9%, due to growth in the Company�s portfolio of home equity loans and lines of credit. Within the Bank�s residential mortgage loan portfolio, loans totaling $63.7 million were designated as held for sale at December 31, 2006, reflecting the Bank�s intention to sell these loans in the first quarter of 2007. Non-performing assets as a percentage of total assets stood at 0.17% at December 31, 2006. The Bank reduced its allowance for loan losses by $141,000 in the fourth quarter of 2006, due primarily to the elimination of the allowance for losses for loans transferred to held for sale at year end 2006. The allowance for loan losses as a percent of loans was 0.99% as of December 31, 2006, compared to 0.93% at year end 2005. The Company�s net interest margin (�NIM�) was 2.80% for the three months ended December 31, 2006, a decrease of 37 basis points compared to the fourth quarter of 2005. The reduction in the NIM compared to the year earlier period is due to increases in funding costs, which have outpaced increases in yields earned on loans and securities. Overall, rates paid on interest-bearing deposits have increased by 106 basis points compared to the fourth quarter of 2005, as customers have preferred short-term time deposits over lower-rate savings and transaction accounts. The intense competitive pressure for certificate accounts in the Bank�s market area has continued unabated for much of the last half of 2006, and management does not anticipate that it will lessen in the near term. Fourth quarter results benefited from an increase in non-interest income which, excluding one-time losses of $2.9 million, rose by $218,000 or 15.2% on a normalized basis when measured against the comparable 2005 period. For a reconciliation, see the table at the end of this release. This growth is primarily attributable to increases in gross revenue generated by ATM servicing activities, and to an increase in income earned on bank-owned life insurance. The Company�s operating expenses increased by $579,000 or 10.9% in the fourth quarter of 2006 compared to the fourth quarter of 2005. $374,000 of the increase between periods is attributable to the expense associated with stock options and restricted stock, incurred for the first time in the third quarter of 2006. In 2007, total expense for these awards will amount to $1.3 million, a figure that reflects the Company�s recognition of stock compensation expense using an accelerated method allowed by SFAS No. 123R. The Company�s growth plans call for establishing new branch locations in Massachusetts. A new office was opened in Wellesley in August of 2006. A new branch location in Watertown is expected to open early in the second quarter of 2007, while a third new location is also likely in the first half of 2007. These new branch openings will adversely affect the Company�s profits in the year 2007. Certain statements herein constitute �forward-looking statements� and actual results may differ from those contemplated by these statements. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like �believe,� �expect,� �anticipate,� �estimate,� and �intend� or future or conditional verbs such as �will,� �would,� �should,� �could� or �may.� Certain factors that could cause actual results to differ materially from expected results include changes in the interest rate environment, changes in general economic conditions, legislative and regulatory changes that adversely affect the businesses in which Benjamin Franklin Bancorp is engaged and changes in the securities market. The Company disclaims any intent or obligation to update any forward-looking statements, whether in response to new information, future events or otherwise. BENJAMIN FRANKLIN BANCORP, INC AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS � (Dollars in thousands) � � � December 31, December 31, 2006� 2005� ASSETS (Unaudited) (Audited) � Cash and due from banks $ 16,115� $ 16,499� Cash supplied to ATM customers 39,732� 37,200� Short-term investments 16,748� 12,051� Total cash and cash equivalents 72,595� 65,750� � Securities available for sale, at fair value 126,982� 122,379� Securities held to maturity, at amortized cost 31� 109� Restricted equity securities, at cost 10,951� 10,012� Total securities 137,964� 132,500� � Loans Residential real estate 212,131� 286,204� Commercial real estate 231,372� 209,009� Construction 68,877� 60,399� Commercial business 28,871� 19,162� Consumer 39,656� 34,814� Net deferred loan costs 913� 1,214� Total loans, gross 581,820� 610,802� Allowance for loan losses (5,781) (5,670) Loans, net 576,039� 605,132� � Loans held for sale 63,730� -� Premises and equipment, net 5,202� 11,167� Accrued interest receivable 3,480� 3,045� Bank-owned life insurance 10,298� 7,451� Goodwill 33,763� 33,763� Identifiable intangible asset 3,069� 4,133� Other assets 7,538� 4,116� � $ 913,678� $ 867,057� � LIABILITIES AND STOCKHOLDERS' EQUITY � Deposits: Regular savings $ 81,569� $ 97,960� Money market accounts 93,988� 94,347� NOW accounts 28,606� 32,147� Demand deposit accounts 120,966� 124,396� Time deposit accounts 308,050� 262,823� Total deposits 633,179� 611,673� � Long-term debt 158,969� 140,339� Deferred gain on sale of premises 3,783� -� Other liabilities 8,342� 6,933� Total liabilities 804,273� 758,945� � Common stock, no par value; 75,000,000 shares authorized; 8,468,137 shares issued and 8,249,802 shares outstanding at December 31, 2006; 8,488,898 shares issued and outstanding at December 31, 2005 Additional paid-in capital 82,908� 82,849� Retained earnings 36,635� 32,942� Unearned compensation (7,937) (5,353) Accumulated other comprehensive loss (2,201) (2,326) Total stockholders' equity 109,405� 108,112� � $ 913,678� $ 867,057� BENJAMIN FRANKLIN BANCORP, INC AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share and share data) � � Three Months Ended Year Ended December 31, December 31, 2006� 2005� 2006� 2005� (Unaudited) (Unaudited) � Interest and dividend income: Loans, including fees $ 9,978� $ 8,753� $ 37,676� $ 30,409� Debt securities 1,339� 1,155� 5,374� 3,811� Dividends 163� 128� 551� 400� Short-term investments 122� 170� 658� 515� Total interest and dividend income 11,602� 10,206� 44,259� 35,135� � Interest expense: Interest on deposits 4,218� 2,701� 14,547� 8,500� Interest on borrowings 1,798� 1,494� 6,316� 4,617� Total interest expense 6,016� 4,195� 20,863� 13,117� Net interest income 5,586� 6,011� 23,396� 22,018� � Provision (credit) for loan losses (141) 38� 186� 686� � Net interest income, after provision for loan losses 5,727� 5,973� 23,210� 21,332� � Other income (loss): ATM servicing fees 813� 638� 3,059� 1,639� Deposit service fees 383� 372� 1,428� 1,233� Loan servicing fees 105� 115� 487� 442� Investment sales commissions 29� 80� 139� 292� Gain/(loss) on sale of loans, net (2,278) 44� (2,030) 116� Gain on sale of securities -� -� 10� -� Security impairment writedown -� -� (35) -� Loss on sale/write-down of premises, net (495) -� (495) (1,020) Income from bank-owned life insurance 98� 55� 347� 269� Miscellaneous 143� 132� 614� 516� Total other income (loss) (1,202) 1,436� 3,524� 3,487� � Operating expenses: Salaries and employee benefits 3,173� 2,872� 11,682� 9,882� Occupancy and equipment 661� 621� 2,631� 2,374� Data processing 532� 395� 1,945� 1,734� Professional fees 325� 374� 1,289� 1,021� Marketing and advertising 254� 192� 778� 738� Contribution to Benjamin Franklin Bank Charitable Foundation -� -� -� 4,000� Amortization of core deposit intangible 232� 356� 1,064� 1,400� Other general and administrative 734� 522� 2,963� 2,127� Total operating expenses 5,911� 5,332� 22,352� 23,276� � Income (loss) before income taxes (1,386) 2,077� 4,382� 1,543� � Provision/(benefit) for income taxes (2,430) 764� (358) 1,112� � Net income $ 1,044� $ 1,313� $ 4,740� $ 431� � � � Weighted-average shares outstanding: Basic 7,807,439� 8,025,607� 7,949,042� N/A� Diluted 7,820,663� 8,025,607� 7,953,739� N/A� � Earnings per share: Basic $ 0.13� $ 0.16� $ 0.60� N/A� Diluted $ 0.13� $ 0.16� $ 0.60� N/A� BENJAMIN FRANKLIN BANCORP, INC. AND SUBSIDIARY SELECTED FINANCIAL HIGHLIGHTS AND OTHER DATA (Dollars in thousands, except per share data) � At or For the Three Months At or For the Year Ended December 31, � � Ended December 31, 2006� 2005� � 2006� 2005� (Unaudited) (Unaudited) Financial Highlights: Net interest income $ 5,586� $ 6,011� $ 23,396� $ 22,018� Net income $ 1,044� $ 1,313� $ 4,740� $ 431� Shares outstanding - end of period 8,249,802� 8,488,898� 8,249,802� 8,488,898� Weighted average shares outstanding: Basic 7,807,439� 8,025,607� 7,949,042� n/a� Diluted 7,820,663� 8,025,607� 7,953,739� n/a� Shareholders' equity $ 109,405� $ 108,112� Book value per share $ 13.26� $ 12.74� Tangible book value per share $ 8.80� $ 8.27� � Ratios and Other Information: Return on average assets 0.46% 0.60% 0.53% 0.06% Return on average equity 3.80% 4.85% 4.35% 0.49% Average interest rate spread (1) 2.14% 2.72% 2.45% 2.79% Net interest margin (2) 2.80% 3.17% 3.01% 3.21% Efficiency ratio (3) 79.96% 67.22% 72.24% 67.69% Non-interest expense to average total assets (4) 2.59% 2.44% 2.51% 2.99% Average interest-earning assets to average interest-bearing liabilities 118.95% 119.96% 120.06% 121.90% � At period end: Non-performing assets to total assets 0.17% 0.05% Non-performing loans to total loans 0.27% 0.08% Allowance for loan losses to non-performing loans 373.46% 1214.13% Allowance for loan losses to total loans 0.99% 0.93% � Equity to total assets 11.97% 12.47% Tier 1 leverage capital ratio 9.60% 9.85% Total risk-based capital ratio 14.41% 15.30% � Number of full service offices 10� 9� � (1) The average interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the period. (2) The net interest margin represents net interest income divided by average total interest-earning assets for the period. (3) The efficiency ratio represents non-interest expense minus expenses related to the amortization of intangible assets and (in 2005) the contribution to the Benjamin Franklin Bank Charitable Foundation, divided by the sum of net interest income (before the loan loss provision) plus non-interest income (excluding net gains (losses) on sale of bank assets). Without those non-GAAP adjustments the efficiency ratio based on GAAP numbers for the periods shown were 134.83%, 71.60%, 83.03% and 91.26%, respectively. For a reconciliation, see the table at the end of this release. (4) For the twelve-month 2005 period, if the Charitable Foundation contribution were excluded, the ratio of non-interest expense to average total assets would have been 2.48%. BENJAMIN FRANKLIN BANCORP, INC AND SUBSIDIARY ANALYSIS OF NET INTEREST INCOME � Three Months Ended December 31, 2006� 2005� AverageOutstanding Balance Interest Yield/Rate(1) AverageOutstandingBalance Interest Yield/Rate(1) � (Dollars in thousands) Interest-earning assets: Loans (5) $643,454� $9,978� 6.12% $604,934� $8,753� 5.77% Securities 138,413� 1,502� 3.87% 130,977� 1,283� 3.89% Short-term inves-tments 10,005� 122� 4.76% 17,115� 171� 3.97% Total interest-earning assets 791,872� 11,602� 5.71% 753,026� 10,207� 5.40% Non-interest-earning assets 112,715� 112,733� Total assets $904,587� $865,759� � Interest-bearing liabi-lities: Savings deposits $83,384� 104� 0.50% $100,644� 127� 0.50% Money market accounts 93,725� 571� 2.42% 101,319� 453� 1.78% NOW accounts 27,284� 45� 0.65% 32,218� 11� 0.14% Certi-ficates ofdeposit 310,976� 3,498� 4.46% 255,194� 2,111� 3.28% Total deposits 515,369� 4,218� 3.25% 489,375� 2,702� 2.19% Borrowings 150,339� 1,798� 4.68% 138,331� 1,494� 4.42% Total interest-bearing liabi-lities 665,708� 6,016� 3.57% 627,706� 4,196� 2.68% Non-interest bearing liab-ilities 129,846� 130,595� Total liabi-lities 795,554� 758,301� Equity 109,033� 107,458� Total liab-ilities and equity $904,587� $865,759� � Net interest income $5,586� $6,011� Net interest rate spread (2) 2.14% 2.72% Net interest-earning assets (3) $126,164� $125,320� Net interest margin (4) 2.80% 3.17% Average interest-earning assets to interest-bearing liabi-lities 118.95% 119.96% � (1) Yields and rates for the three months ended December 31, 2006 and 2005 are annualized. (2) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. (3) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. (4) Net interest margin represents net interest income divided by average total interest-earning assets. (5) Loans include loans held for sale. BENJAMIN FRANKLIN BANCORP, INC AND SUBSIDIARY ANALYSIS OF NET INTEREST INCOME � Year Ended December 31, 2006� 2005� Average Outstanding Balance Interest Yield/Rate(1) Average Outstanding Balance Interest Yield/Rate(1) � (Dollars in thousands) Interest-earning assets: Loans (5) $626,715� $37,676� 5.97% $547,542� $30,409� 5.56% Securities 137,765� 5,925� 4.30% 120,007� 4,211� 3.51% Short-term inves-tments 13,906� 658� 4.66% 18,701� 515� 2.75% Total interest-earning assets 778,386� 44,259� 5.65% 686,250� 35,135� 5.13% Non-interest-earning assets 113,930� 91,508� Total assets $892,316� $777,758� � Interest-bearing liab-ilities: Savings deposits $91,201� 456� 0.50% $102,781� 518� 0.50% Money market accounts 100,741� 2,299� 2.28% 95,638� 1,553� 1.62% NOW accounts 27,155� 75� 0.27% 31,742� 63� 0.20% Certi-ficates ofdeposit 288,969� 11,717� 4.05% 222,500� 6,366� 2.86% Total deposits 508,066� 14,547� 2.86% 452,661� 8,500� 1.88% Borrowings 140,281� 6,316� 4.44% 110,281� 4,617� 4.19% Total interest-bearing liab-ilities 648,347� 20,863� 3.20% 562,942� 13,117� 2.34% Non-interest bearing liab-ilities 135,082� 126,455� Total liab-ilities 783,429� 689,397� Equity 108,887� 88,361� Total liab-ilities and equity $892,316� $777,758� � Net interest income $23,396� $22,018� Net interest rate spread (2) 2.45% 2.79% Net interest-earning assets (3) $130,039� $123,308� Net interest margin (4) 3.01% 3.21% Average interest-earning assets to interest-bearing liab-ilities 120.06% 121.90% � (1) Yields and rates for the year ended December 31, 2006 and 2005 are annualized. (2) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. (3) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. (4) Net interest margin represents net interest income divided by average total interest-earning assets. (5) Loans include loans held for sale. Reconciliation of Non-GAAP Financial Measures This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (�GAAP�). The Company�s management uses these non-GAAP measures in its analysis of the Company�s performance. These measures typically adjust GAAP performance measures to exclude significant gains or losses that are expected to be non-recurring and to exclude the effects of amortization of intangible assets (in the case of the efficiency ratio). Because these items and their impact on the Company�s performance are difficult to predict, management believes that presentations of financial measures excluding the impact of these items provide useful supplemental information that is essential to a proper understanding of the operating results of the Company�s core businesses. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Three months ended December 31, Year ended December 31, 2006� 2005� 2006� 2005� Efficiency ratio based on GAAP numbers 134.83 % 71.60 % 83.03% 91.26 % Effect of amortization of intangible assets Effect of contribution to the Benjamin Franklin Bank Charitable Foundation (3.27) � -� (4.81) � -� (3.61) � -� (5.30) � (15.15) Effect of net gain/(loss/write-down) on sale of bank assets (51.60) 0.43� (7.18) (3.12) Efficiency ratio - Reported 79.96 % 67.22 % 72.24 % 67.69 % Three months ended December 31, Year ended December 31, 2006� 2005� 2006� 2005� Other income, based on GAAP numbers: $ (1,202) $ 1,436� $ 3,524� $ 3,487� Effect of write-down of loans transferred to 'held for sale�: 2,361� -� 2,361� -� Effect of loss on sale/write-down of premises, net: 495� -� 495� 1,020� Other income, reported: $ 1,654� $ 1,436� $ 6,380� $ 4,507�