• adverse changes in the local real estate market, could result in a deterioration of credit quality and an increase in the allowance for loan loss, as most of the Company's loans are concentrated in southeastern Massachusetts, including Cape Cod and Rhode Island and a substantial portion of these loans have real estate as collateral;

• the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, could affect the Company's business environment or affect the Company's operations;

• the effects of, any changes in, and any failure by the Company to comply with tax laws generally and requirements of the federal New Markets Tax Credit program in particular could adversely affect the Company's tax provision and its financial results;

• inflation, interest rate, market and monetary fluctuations could reduce net interest income and could increase credit losses;

• adverse changes in asset quality could result in increasing credit risk-related losses and expenses;

• competitive pressures could intensify and affect the Company's profitability, including as a result of continued industry consolidation, the increased financial services provided by non-banks and banking reform;

• a deterioration in the conditions of the securities markets could adversely affect the value or credit quality of the Company's assets, the availability and terms of funding necessary to meet the Company's liquidity needs and the Company's ability to originate loans;

• the potential to adapt to changes in information technology could adversely impact the Company's operations and require increased capital spending;

• changes in consumer spending and savings habits could negatively impact the Company's financial results;

• acquisitions may not produce results at levels or within time frames originally anticipated and may result in unforeseen integration issues or impairment of goodwill and/or other intangibles;

• adverse conditions in the securities markets could lead to impairment in the value of securities in the Company's investment portfolios and consequently have an adverse effect on the Company's earnings; and

• laws and programs designed to address capital and liquidity issues in the banking system, including, but not limited to, the Federal Deposit Insurance Corporation's Temporary Liquidity Guaranty Program and the U.S. Treasury Department's Capital Purchase Program and Troubled Asset Relief Program may have significant effects on the financial services industry, the exact nature and extent of which cannot be determined at this time.

If one or more of the factors affecting the Company's forward-looking information and statements proves incorrect, then the Company's actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Form 10-Q. Therefore, the Company cautions you not to place undue reliance on the Company's forward-looking information and statements.
The Company does not intend to update the Company's forward-looking information and statements, whether written or oral, to reflect change. All forward-looking statements attributable to the Company are expressly qualified by these cautionary statements.

EXECUTIVE LEVEL OVERVIEW
The Company reported net income of $660,000 and $7.0 million for the three and six month periods ending June 30, 2009 compared to $5.8 million and $12.1 million for the same periods in 2008 respectively. The decrease in net income from the prior quarter is primarily due to merger and acquisition expenses associated with the Benjamin Franklin Bancorp. Inc. ("Ben Franklin") acquisition, increased FDIC deposit premium fees, and other-than-temporary impairment charges on investment securities partially offset by a gain resulting from an early termination of an interest rate swap agreement.
On a diluted earnings per share basis the Company reported a loss of $0.19 and earnings of $0.07 for the three and six month periods ending June 30, 2009 compared to earnings of $0.36 and $0.79 for the comparative 2008 periods. The Company's repayment of the United States Treasury Department's ("Treasury") Capital Purchase Program ("CPP") preferred stock, resulted in a one time $4.4 million deemed dividend charge, which decreased net income available to common shareholders by $0.22 per diluted share, negatively impacting the second quarter's performance.
When management assesses the Company's financial performance for purposes of making day-to-day and strategic decisions it does so based upon the performance of its core banking business, which is primarily derived from the combination of net interest income and non-interest or fee income, as reduced by operating expenses, the provision for loan losses, and the impact of income taxes. The Company's financial performance as determined in accordance with Generally Accepted Accounting Principles ("GAAP"), however, sometimes also includes gain or loss due to items that management does not believe are related to its core banking business, such as gains or losses on the sales of securities, merger & acquisition expenses, and other items. Management, therefore, also computes the Company's non-GAAP operating earnings, which excludes these items, to measure the strength of the Company's core banking business and to identify trends that may to some extent be obscured by gains or losses which management deems not to be core to the Company's operations. Management believes that the financial impact of the items excluded when computing non-GAAP operating earnings will disappear or become immaterial within a near-term finite period.
Management's computation of the Company's non-GAAP operating earnings are set forth below because management believes it may be useful for investors to have access to the same analytical tool used by management to evaluate the Company's core operational performance so that investors may assess the Company's overall financial health and identify business and performance trends that may be more difficult to identify and evaluate when non-core items are included. Management also believes that the computation of non-GAAP operating earnings may facilitate the comparison of the Company to other companies in the financial services industry.
Non-GAAP operating earnings should not be considered a substitute for GAAP operating results. An item which management deems to be non-core and excludes when computing non-GAAP operating earnings can be of substantial importance to the Company's results for any particular quarter or year. The Company's non-GAAP operating earnings set

forth below are not necessarily comparable to non-GAAP information which may be presented by other companies.
The following table summarizes management's computation of non-GAAP operating earnings for the time periods indicated:

                                                         Net Income
                                                     Available to Common                       Diluted
                                                        Shareholders                     Earnings Per Share
                                                    2009              2008              2009              2008

AS REPORTED (GAAP)                              $   (3,865 )        $ 5,820          $   (0.19 )        $ 0.36

Non-Interest Income Components
Net Loss on Sale of Securities                          16                -                  -               -
Gain Resulting from Early Termination of
Hedging Relationship                                (2,456 )              -              (0.12 )             -
Non-Interest Expense Components
Litigation Reserve                                       -              975                  -            0.06
Merger & Acquisition Expenses                        8,676              244               0.42            0.01
Deemed Preferred Stock Dividend                      4,384                -               0.22               -

TOTAL IMPACT OF NON-CORE ITEMS                      10,621            1,219               0.52            0.07

AS ADJUSTED (NON-GAAP)                          $    6,756          $ 7,039          $    0.33          $ 0.43




                                                         Net Income
                                                     Available to Common                       Diluted
                                                        Shareholders                     Earnings Per Share
                                                   2009               2008              2009             2008

AS REPORTED (GAAP)                              $   1,349          $ 12,128          $   0.07          $  0.79

Non-Interest Income Components
Net Loss on Sale of Securities                          -               396                 -             0.03
Net Gain on Sale of Securities                       (881 )               -             (0.05 )              -
Gain Resulting from Early Termination of
Hedging Relationship                               (2,456 )               -             (0.13 )              -
Non-Interest Expense Components
WorldCom Bond Loss Recovery                             -              (272 )               -            (0.02 )
Litigation Reserve                                      -               975                 -             0.06
Merger & Acquisition Expenses                       9,675               728              0.53             0.05
Deemed Preferred Stock Dividend                     4,384                 -              0.24                -

TOTAL IMPACT OF NON-CORE ITEMS                     10,723             1,827              0.59             0.12

AS ADJUSTED (NON-GAAP)                          $  12,072          $ 13,955          $   0.66          $  0.91

As indicated above second quarter 2009 results included certain items which management considers non-core. These items, net of tax, are merger and acquisition expenses of $8.7 million, a gain of $2.5 million on the termination of an interest rate swap agreement and the aforementioned deemed preferred stock dividend of $4.4 million. Excluding certain non-core items, net operating earnings were $6.8 million, or $0.33 per diluted common share and $12.1 million, or $0.66 per diluted common share for the three and six month ended June 30, 2009, respectively, down 23.3% and 27.5%, respectively, from the same period in the prior year.
Not reflected in the table above are two additional large variance items impacting the second quarter of 2009, a special FDIC assessment of $2.1 million pre-tax or $0.07 per share and securities impairment charges of $1.7 million or $0.05 per share.

While the quarter reflects certain items that negatively impacted reported earnings, there were many positive aspects of the quarter reflective of the Company's strong core performance:
The Company's net interest margin improved to 3.88% in the second quarter, up from the 3.57% reported in first quarter of 2009. A number of actions helped to improve the net interest margin including managing down a large Federal Funds sold position that existed at the end of the first quarter in addition to careful management of deposit costs.
Capital strengthened in the second quarter as the company's tangible equity ratio increased to 5.86% at the end of the second quarter as compared to 5.33% at the end of first quarter. In the same periods the non-GAAP measurement of these ratios which includes the tax deductibility of certain goodwill and other intangibles were 6.33% and 5.83%, respectively.
The Company's asset quality is stable. Non-performing loans as a percentage of loans decreased to 93 basis points in the second quarter from 108 basis points at the end of the first quarter of 2009. Loan net charge-offs were $1.9 million in second quarter of 2009 or 23 basis points on an annualized basis compared to $3.6 million or 53 basis points on an annualized basis in the first quarter.
Excluding the loans acquired from Ben Franklin at fair value, the reserve to loan ratio at June 30, 2009 was 1.49%, a 9 basis point increase from the quarter ended March 31, 2009. The provision for loan losses was $4.5 million and $4.0 million, for the quarter ended June 30, 2009 and March 31, 2009, respectively. Net charge-offs were $5.4 million and $3.6 million for the periods ended June 30, 2009 and March 31, 2009, respectively.
Loan delinquency is also stable at 171 basis points at the end of second quarter of 2009 as compared to 175 basis points at the end of first quarter. Commercial lending growth was strong in the second quarter amounting to $62 million of organic growth or 15% on an annualized basis, driven by commercial and industrial lending opportunities. Growth opportunities remain strong as the pipeline is still quite high.
The Company experienced strong deposit growth in the core deposit categories particularly demand deposits, which increased $35.7 million during the quarter. This growth was mitigated by reductions in the time deposit category as Certificates of Deposits were managed down to help reduce a large excess cash position and to manage our cost of funds.
The Ben Franklin acquisition closed in the second quarter and added $1.0 billion in total assets prior to de-leverage. The majority of the Ben Franklin securities and borrowings were repaid, resulting in approximately $700 million in loans and deposits, respectively, added to the Company's balance sheet.
In addition in May, the Company was awarded $50.0 million in tax credit allocation authority under the Federal New Markets Tax Credit Program. This program focuses on making credit available to qualified entities and low income communities. The Company was the only bank in Massachusetts and one of only 30 institutions nationally to receive this designation in this round. This marks the third time the Company has received these tax credits since the program's inception in 2000.

Critical Accounting Policies
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. The Company believes that the Company's most critical accounting policies upon which the Company's financial condition depends, and which involve the most complex or subjective decisions or assessments are as follows:
Allowance for Loan Losses: The Company's allowance for loan losses provides for probable losses based upon evaluations of known and inherent risks in the loan portfolio. Arriving at an appropriate amount of allowance for loan losses involves a high degree of judgment.
The Company makes use of two components of allowances for loan losses:
specific and general. A specific allowance may be assigned to a loan that is considered to be impaired. Certain loans are evaluated individually for impairment and are judged to be impaired when management believes it is probable that Rockland Trust Company ("the Bank") will not collect all of the contractual interest and principal payments as scheduled in the loan agreement. Judgment is required with respect to designating a loan as impaired and determining the amount of the required specific allowance. Management's judgment is based upon its assessment of probability of default, loss given default, and exposure at default. Changes in these estimates could be due to a number of circumstances which may have a direct impact on the provision for loan losses and may result in changes to the amount of allowance.
The general allowance is determined based upon the application of the Company's methodology for assessing the adequacy of the allowance for loan losses, which considers historical and expected loss factors, loan portfolio composition and other relevant indicators. This methodology involves management's judgment regarding the application and use of such factors including the effects of changes to the prevailing economic environment in its estimate of the required amounts of general allowance.
The allowance is increased by provisions for loan losses and by recoveries of loans previously charged-off and is reduced by loans charged-off. For a full discussion of the Company's methodology of assessing the adequacy of the allowance for loan losses, see the "Allowance for Loan Losses" and "Provision for Loan Losses" sections within Management's Discussion and Analysis of Financial Condition and Results of Operations. For a discussion regarding Ben Franklin loans see the "Loan Portfolio" and "Allowance for Loan Losses" sections within Management's Discussion and Analysis of Financial Condition and Results of Operations.
Income Taxes: The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes" as interpreted by FASB Interpretation No. 48 ("FIN No. 48"), "Accounting for Uncertainty in Income Taxes," resulting in two components of income tax expense, current and deferred. Taxes are discussed in more detail in Note 12, "Income Taxes" within Notes to the Consolidated Financial Statements included in Item 8 of the

Company's Annual Report on Form 10-K for the year ended December 31, 2008. Accrued taxes represent the net estimated amount due to or to be received from taxing authorities in the current year. In estimating accrued taxes, management assesses the relative merits and risks of the appropriate tax treatment of transactions taking into account statutory, judicial, and regulatory guidance in the context of our tax position. Deferred tax assets/liabilities represent differences between when a tax benefit or expense is recognized for book purposes and on the Company's tax return. Future tax assets are assessed for recoverability. The Company would record a valuation allowance if it believes based on available evidence, that it is more likely than not that the future tax assets recognized will not be realized before their expiration. The amount of the future income tax asset recognized and considered realizable could be reduced if projected income is not achieved due to various factors such as unfavorable business conditions. If projected income is not expected to be achieved, the Company would record a valuation allowance to reduce its future tax assets to the amount that it believes can be realized in its future tax returns. The Company had no recorded tax valuation allowance as of June 30, 2009. Additionally, deferred tax assets/liabilities are calculated based on tax rates expected to be in effect in future periods. Previously recorded tax assets and liabilities need to be adjusted when the expected date of the future event is revised based upon current information.
Valuation of Goodwill/Intangible Assets and Analysis for Impairment: The Company has increased its market share through the acquisition of entire financial institutions accounted for under the acquisition method of accounting, as well as from the acquisition of branches (not the entire institution) and other non-banking entities. For all acquisitions the Company is required to record assets acquired and liabilities assumed at their fair value which is an estimate determined by the use of internal or other valuation techniques. Goodwill is subject to ongoing periodic impairment tests and is evaluated using a two step impairment approach. Step one of the impairment testing compares book value to the market value of the Company's stock, or to the fair value of the reporting unit. If test one is failed a more detailed analysis is performed, which involves measuring the excess of the fair value of the reporting unit, as determined in step one, over the aggregate fair value of the individual assets, liabilities, and identifiable intangibles by utilizing a comparable analysis of relevant price multiples in recent market transactions. The Company's intangible assets are also subject to ongoing periodic impairment testing. The Company tests each of the intangibles by comparing the carrying value of the intangible to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. The Company performs undiscounted cash flow analyses to determine if impairment exists. As a result of such impairment testing, the Company determined goodwill and other intangibles were was not impaired.
Valuation of Securities and Analysis for Impairment: Securities that the Company has the ability and intent to hold until maturity are classified as securities held-to-maturity and are accounted for using historical cost, adjusted for amortization of premium and accretion of discount. Trading securities are carried at fair value, with unrealized gains and losses recorded in other non-interest income. All other securities are classified as securities available-for-sale and are carried at fair market value. The fair values of securities are based on either quoted market price, third party pricing services, or third party valuations. Unrealized gains and losses on securities available-for-sale are reported, on an after-tax basis, as a separate component of stockholders' equity in accumulated other comprehensive income.

On a quarterly basis, the Company makes an assessment to determine whether there have been any events or circumstances to indicate that a security for which there is an unrealized loss is impaired on an other-than-temporary basis. The Company considers many factors including the severity and duration of the impairment; the Company's intent to sell the security or whether it is more likely than not that the Company will be required to sell the debt security before its anticipated recovery, recent events specific to the issuer or industry; and for debt securities, external credit ratings and recent downgrades. The term other-than-temporary is not intended to indicate that the decline is permanent. It indicates that the prospects for near-term recovery are not necessarily favorable or that there is a lack of evidence to support fair values greater than or equal to the carrying value of the investment. Management prepares an estimate of the expected cash flows for investment securities that potentially may be deemed to have OTTI. This estimate begins with the contractual cash flows of the security. This amount is then reduced by an estimate of probable credit losses associated with the security. When estimating the extent of probable losses on the securities, management considers the strength of the underlying issuers of the securities. Indicators of diminished credit quality of the issuers includes defaults, interest deferrals, or "payments in kind." Management also considers those factors listed in paragraph 25 of FSP FAS 115-2 and 124-2 when estimating the ultimate realizability of the cash flows for each individual security. The resulting estimate of cash flows after considering credit is then subject to a present value computation using a discount rate equal to the current yield used to accrete the beneficial interest or, if not within the scope of EITF Issue No. 99-20, the effective interest rate implicit in the security at the date of acquisition. If the present value of the estimated cash flows is less than the current amortized cost basis, an OTTI is considered to have occurred and the security is written down to the fair value indicated by the cash flows analysis. Any portion of decline in fair value considered to be OTTI charge that is not due to the reduction in cash flows due to credit is considered a decline due to other factors such as liquidity or interest rates. As part of the analysis, management considers whether it intends to sell the security or whether it is more than likely that it would be required to sell the security before the recovery of its amortized cost basis.
In determining which portion of the OTTI charge is related to credit, and what portion is related to other factors, management considers the reductions in the cash flows due to credit and ascribe that portion of the OTTI charge to credit. Simply, to the extent the estimated cash flows do not support the amortized cost, that amount is considered credit loss and the remainder of the OTTI charge is considered due to other factors, thus not recognized in earnings, but rather through other comprehensive income.
Loan Servicing: Servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of financial assets with servicing retained. Capitalized servicing rights are reported as mortgage servicing rights and are amortized into non-interest income in proportion to, . . .