WNEB 10-Q Quarterly Report March 31, 2012

WESTERN NEW ENGLAND BANCORP, INC.

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10-Q 1 a50266156.htm WESTFIELD FINANCIAL INC. 10-Q a50266156.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

______________________

FORM 10-Q

S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

£ 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 001-16767

Westfield Financial, Inc.

(Exact name of registrant as specified in its charter)

Massachusetts	73-1627673
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

141 Elm Street, Westfield, Massachusetts 01086

(Address of principal executive offices)

(Zip Code)

(413) 568-1911

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve 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 S No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes S 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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer £	Accelerated filer S

Non-accelerated filer £	Smaller reporting company £

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

At May 1, 2012 the registrant had 26,602,101 shares of common stock, $.01 par value, issued and outstanding.

TABLE OF CONTENTS


		Page

FORWARD-LOOKING STATEMENTS		i

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements of Westfield Financial, Inc. and Subsidiaries

	Consolidated Balance Sheets (Unaudited) – March 31, 2012 and December 31, 2011	1

	Consolidated Statements of Income (Unaudited) – Three Months Ended
	March 31, 2012 and 2011	2

	Consolidated Statements of Comprehensive Income (Unaudited) –
	Three Months Ended March 31, 2012 and 2011	3

	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) –
	Three Months Ended March 31, 2012 and 2011	4

	Consolidated Statements of Cash Flows (Unaudited) – Three Months Ended
	March 31, 2012 and 2011	5

	Notes to Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and
	Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4.	Controls and Procedures	35


PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 3.	Defaults upon Senior Securities	36

Item 4.	Mine Safety Disclosures	36

Item 5.	Other Information	36

Item 6.	Exhibits	36

FORWARD– LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements.” These forward-looking statements are made in good faith pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” and similar expressions are intended to identify forward-looking statements. These forward-looking statements may be subject to significant known and unknown risks, uncertainties and other factors, including, but not limited to, changes in the real estate market or local economy, changes in interest rates, changes in laws and regulations to which we are subject, and competition in our primary market area.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from the results discussed in these forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Westfield Financial undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

PART I – FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS.

WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - UNAUDITED

(Dollars in thousands)

	March 31,			December 31,
	2012			2011
ASSETS
Cash and due from banks	$	11,585		$	10,953
Federal funds sold		165			131
Interest-bearing deposits and other short-term investments		5,454			10,021
Cash and cash equivalents		17,204			21,105

SECURITIES AVAILABLE FOR SALE – AT FAIR VALUE		645,913			617,537

FEDERAL HOME LOAN BANK OF BOSTON AND OTHER RESTRICTED STOCK - AT COST		12,243			12,438

LOANS - Net of allowance for loan losses of $7,803 at March 31, 2012 and $7,764 at December 31, 2011		550,570			546,392

PREMISES AND EQUIPMENT, NET		11,082			10,997

ACCRUED INTEREST RECEIVABLE		4,146			4,022

BANK-OWNED LIFE INSURANCE		44,153			44,040

DEFERRED TAX ASSET, NET		2,954			1,863

OTHER REAL ESTATE OWNED		1,130			1,130

OTHER ASSETS		4,218			3,740
TOTAL ASSETS	$	1,293,613		$	1,263,264

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
DEPOSITS :
Noninterest-bearing	$	103,417		$	100,157
Interest-bearing		645,213			632,801
Total deposits		748,630			732,958

SHORT-TERM BORROWINGS		70,237			52,985

LONG-TERM DEBT		248,275			247,320
SECURITIES PENDING SETTLEMENT		-			363
OTHER LIABILITIES		10,960			10,650
TOTAL LIABILITIES		1,078,102			1,044,276

SHAREHOLDERS' EQUITY:
Preferred stock - $.01 par value, 5,000,000 shares authorized, none outstanding at March 31, 2012 and
December 31, 2011		-			-
Common stock - $.01 par value, 75,000,000 shares authorized, 26,602,101 shares issued and
outstanding at March 31, 2012; 26,918,250 shares issued and outstanding at December 31, 2011		266			269
Additional paid-in capital		171,532			173,615
Unearned compensation - ESOP		(8,978	)		(9,119	)
Unearned compensation - Equity Incentive Plan		(940	)		(1,228	)
Retained earnings		47,867			47,735
Accumulated other comprehensive income		5,764			7,716
Total shareholders' equity		215,511			218,988
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,293,613		$	1,263,264
See accompanying notes to unaudited consolidated financial statements.

WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME – UNAUDITED

(Dollars in thousands, except per share data)

	Three Months
	Ended March 31,
	2012		2011
INTEREST AND DIVIDEND INCOME:
Debt securities, taxable	$	3,844	$	4,811
Residential and commercial real estate loans		5,039		4,674
Commercial and industrial loans		1,302		1,443
Debt securities, tax-exempt		423		419
Consumer loans		40		49
Equity securities		45		47
Other investments - at cost		22		14
Total interest and dividend income		10,715		11,457
INTEREST EXPENSE:
Deposits		1,637		2,106
Long-term debt		1,631		1,645
Short-term borrowings		30		59
Total interest expense		3,298		3,810
Net interest and dividend income		7,417		7,647
PROVISION FOR LOAN LOSSES		220		339
Net interest and dividend income after provision for loan losses		7,197		7,308

NONINTEREST INCOME (LOSS):
Total other-than-temporary impairment losses on debt securities		-		(345	)
Portion of other-than-temporary impairment losses recognized in accumulated other
comprehensive loss on debt securities		-		313
Net other-than-temporary impairment losses recognized in income		-		(32	)
Service charges and fees		509		441
Income from bank-owned life insurance		459		366
Gain on sales of securities, net		1,585		31
Total noninterest income		2,553		806
NONINTEREST EXPENSE:
Salaries and employees benefits		4,277		3,953
Occupancy		705		678
Computer operations		527		486
Professional fees		437		439
OREO expense		17		8
FDIC insurance assessment		143		208
Other		738		768
Total noninterest expense		6,844		6,540
INCOME BEFORE INCOME TAXES		2,906		1,574
INCOME TAX PROVISION		567		288
NET INCOME	$	2,339	$	1,286

EARNINGS PER COMMON SHARE:
Basic earnings per share	$	0.09	$	0.05
Weighted average shares outstanding		25,449,759		26,746,102
Diluted earnings per share	$	0.09	$	0.05
Weighted average diluted shares outstanding		25,502,311		26,875,244
See accompanying notes to unaudited consolidated financial statements.

WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – UNAUDITED

	Three Months Ended March 31,
	2012			2011
	(In thousands)

Net income	$	2,339		$	1,286

Other comprehensive income (loss):
Unrealized gains (losses) on securities:
Unrealized holding losses on available for sale securities	$	(1,443	)	$	(1,649	)
Reclassification adjustment for gains realized in income		(1,585	)		(31	)
Other-than-temporary impairment losses on available-for-sale securities		-			32
Net unrealized losses		(3,028	)		(1,648	)
Tax effect		1,051			570
Net-of-tax amount		(1,977	)		(1,078	)

Defined benefit plans:
Reclassification adjustments for items reflected in earnings:
Actuarial loss		39			29
Transition asset		(2	)		(3	)
Net adjustments pertaining to defined benefit plans		37			26
Tax effect		(12	)		(9	)
Net-of-tax amount		25			17

Other comprehensive loss		(1,952	)		(1,061	)

Comprehensive income	$	387		$	225

WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS ' EQUITY - UNAUDITED
THREE MONTHS ENDED MARCH 31, 2012 AND 2011
(Dollars in thousands, except share data)

	Common Stock						Additional Paid-in Capital			Unearned Compensation- ESOP			Unearned Compensation- Equity Incentive Plan			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
	Shares			Par Value			Additional Paid-in Capital			Unearned Compensation- ESOP			Unearned Compensation- Equity Incentive Plan			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total

BALANCE, DECEMBER 31, 2010		28,166,419		$	282		$	181,842		$	(9,701	)	$	(2,158	)	$	56,496		$	(5,516	)	$	221,245
Net income		-			-			-			-			-			1,286			-			1,286
Other comprehensive loss		-			-			-			-			-			-			(1,061	)		(1,061	)
Common stock held by ESOP committed to be released (86,586 shares)		-			-			46			145			-			-			-			191
Share-based compensation - stock options		-			-			200			-			-			-			-			200
Share-based compensation - equity incentive plan		-			-			-			-			291			-			-			291
Excess tax benefits from equity incentive plan		-			-			5			-			-			-			-			5
Common stock repurchased		(155,555	)		(2	)		(1,361	)		-			-			-			-			(1,363	)
Issuance of common stock in connection with stock option exercises		34,646			-			294			-			-			(141	)		-			153
Excess tax benefits in connection with stock option exercises		-			-			18			-			-			-			-			18
Cash dividends declared ($0.06 per share)		-			-			-			-			-			(1,609	)		-			(1,609	)
BALANCE, MARCH 31, 2011		28,045,510		$	280		$	181,044		$	(9,556	)	$	(1,867	)	$	56,032		$	(6,577	)	$	219,356

BALANCE, DECEMBER 31, 2011		26,918,250		$	269		$	173,615		$	(9,119	)	$	(1,228	)	$	47,735		$	7,716		$	218,988
Net income		-			-			-			-			-			2,339			-			2,339
Other comprehensive loss		-			-			-			-			-			-			(1,952	)		(1,952	)
Common stock held by ESOP committed to be released (84,261 shares)		-			-			25			141			-			-			-			166
Share-based compensation - stock options		-			-			196			-			-			-			-			196
Share-based compensation - equity incentive plan		-			-			-			-			288			-			-			288
Excess tax benefits from equity incentive plan		-			-			3			-			-			-			-			3
Common stock repurchased		(493,226	)		(5	)		(3,956	)		-			-			-			-			(3,961	)
Issuance of common stock in connection with stock option exercises		177,077			2			1,454			-			-			(678	)		-			778
Excess tax benefits in connection with stock option exercises		-			-			195			-			-			-			-			195
Cash dividends declared ($0.06 per share)		-			-			-			-			-			(1,529	)		-			(1,529	)
BALANCE, MARCH 31, 2012		26,602,101		$	266		$	171,532		$	(8,978	)	$	(940	)	$	47,867		$	5,764		$	215,511

See accompanying notes to unaudited consolidated financial statements

WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASHFLOWS
(Dollars in thousands)
	Three Months Ended March 31,
	2012			2011
OPERATING ACTIVITIES:
Net income	$	2,339		$	1,286
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		220			339
Depreciation and amortization of premises and equipment		266			307
Net amortization of premiums and discounts on securities and mortgage loans		952			904
Net amortization of premiums on modified debt		53			-
Share-based compensation expense		484			491
Amortization of ESOP expense		166			191
Excess tax benefits from equity incentive plan		(3	)		(5	)
Excess tax benefits in connection with stock option exercises		(195	)		(18	)
Net gains on sales of securities		(1,585	)		(31	)
Other than temporary impairment losses on securities		-			32
Deferred income tax benefit		(52	)		(53	)
Income from bank-owned life insurance		(459	)		(366	)
Changes in assets and liabilities:
Accrued interest receivable		(124	)		22
Other assets		(132	)		368
Other liabilities		544			(378	)
Net cash provided by operating activities		2,474			3,089
INVESTING ACTIVITIES:
Securities, available for sale:
Purchases		(152,055	)		(65,842	)
Proceeds from sales		100,285			50,893
Proceeds from calls, maturities, and principal collections		21,015			23,671
Purchase of residential mortgages		(14,696	)		(23,888	)
Loan originations and principal payments, net		10,272			7,580
Purchase of Federal Home Loan Bank of Boston stock		-			(72	)
Proceeds from redemption of Federal Home Loan Bank of Boston stock		195			-
Purchases of premises and equipment		(351	)		(72	)
Purchase of bank-owned life insurance		-			(2,000	)
Net cash used in investing activities		(35,335	)		(9,730	)
FINANCING ACTIVITIES:
Net increase in deposits		15,672			7,200
Net change in short-term borrowings		17,252			(7,799	)
Repayment of long-term debt		(46,731	)		(2,000	)
Proceeds from long-term debt		47,633			14,032
Cash dividends paid		(1,529	)		(1,609	)
Common stock repurchased		(4,313	)		(1,363	)
Issuance of common stock in connection with stock option exercises		778			153
Excess tax benefits in connection with equity incentive plan		3			5
Excess tax benefits in connection with stock option exercises		195			18
Net cash provided by financing activities		28,960			8,637

NET CHANGE IN CASH AND CASH EQUIVALENTS:		(3,901	)		1,996
Beginning of year		21,105			11,611
End of year	$	17,204		$	13,607

Supplemental cashflow information:
Interest paid	$	3,217		$	3,820
Taxes paid		70			51
Settlement of common stock repurchased		352			-

See the accompanying notes to unaudited consolidated financial statements

WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations – Westfield Financial, Inc. (“Westfield Financial,” “we” or “us”) is the bank holding company for Westfield Bank, a federally-chartered stock savings bank (the “Bank”).

The Bank’s deposits are insured to the limits specified by the Federal Deposit Insurance Corporation (“FDIC”). The Bank operates 11 branches in western Massachusetts and its primary sources of revenue are income from securities and earnings on loans to small and middle-market businesses and to residential property homeowners.

Elm Street Securities Corporation and WFD Securities Corporation, Massachusetts-chartered security corporations, were formed by Westfield Financial for the primary purpose of holding qualified securities. WB Real Estate Holdings, LLC, a Massachusetts-chartered limited liability company was formed for the primary purpose of holding real property acquired as security for debts previously contracted by the Bank.

Principles of Consolidation – The consolidated financial statements include the accounts of Westfield Financial, the Bank, Elm Street Securities Corporation, WB Real Estate Holdings, LLC and WFD Securities Corporation. All material intercompany balances and transactions have been eliminated in consolidation.

Estimates – The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of income and expenses for both at the date of the consolidated financial statements. Actual results could differ from those estimates. Estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses, other-than-temporary impairment of securities, and the valuation of deferred tax assets.

Basis of Presentation – In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of our financial condition as of March 31, 2012, and the results of operations, changes in shareholders’ equity and cash flows for the interim periods presented. The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results of operations for the year ending December 31, 2012. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission.

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2011, included in our Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Annual Report”).

Reclassifications - Certain amounts in the prior period financial statements have been reclassified to conform to the current year presentation.

2. EARNINGS PER SHARE

Basic earnings per share represent income available to shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by us relate solely to outstanding stock options and are determined using the treasury stock method.

Earnings per common share for the three months ended March 31, 2012 and 2011 have been computed based on the following:

	Three Months Ended
	March 31,
	2012			2011
	(In thousands, except per share data)

Net income applicable to common stock	$	2,339		$	1,286

Average number of common shares outstanding		26,743			28,152
Less: Average unallocated ESOP Shares		(1,286	)		(1,371	)
Average ungranted equity incentive plan shares		(7	)		(35	)

Average number of common shares outstanding used
to calculate basic earnings per common share		25,450			26,746

Effect of dilutive stock options		52			129

Average number of common shares outstanding used
to calculate diluted earnings per common share		25,502			26,875

Basic earnings per share	$	0.09		$	0.05

Diluted earnings per share	$	0.09		$	0.05

Stock options that would have an antidilutive effect on diluted earnings per share are excluded from the calculation. There were 1,654,024 and 1,576,024 shares that were antidilutive for the three months ended March 31, 2012 and 2011, respectively.

3. COMPREHENSIVE INCOME/LOSS

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities are reported as a separate component of the equity section of the balance sheet, such items, along with net income are components of comprehensive income.

The components of accumulated other comprehensive income (loss) included in shareholders’ equity are as follows:

	March 31, 2012			December 31, 2011
	(In thousands)

Net unrealized gain on securities available for sale	$	12,696		$	16,225
Tax effect		(4,352	)		(5,573	)
Net-of-tax amount		8,344			10,652

Noncredit portion of other-than-temporary impairment losses on
available-for-sale securities	$	-		$	(501	)
Tax effect		-			170
Net-of-tax amount		-			(331	)

Unrecognized transition asset pertaining to defined benefit plans		30			32
Unrecognized deferred loss pertaining to defined benefit plans		(3,939	)		(3,978	)
Net adjustments pertaining to defined benefit plans		(3,909	)		(3,946	)
Tax effect		1,329			1,341
Net-of-tax amount		(2,580	)		(2,605	)

	$	5,764		$	7,716

The following table presents changes in accumulated other comprehensive income for the quarter ended March 31, 2012 by component:

	Securities			Defined Benefit Plans			Accumulated Other Comprehensive Income
	(In thousands)

Balance at December 31, 2011	$	10,321		$	(2,605	)	$	7,716
Current-period other comprehensive income		(1,977	)		25			(1,952	)
Balance at March 31, 2012	$	8,344		$	(2,580	)	$	5,764

4. SECURITIES

Securities available for sale are summarized as follows:

	March 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)

Government-sponsored residential
mortgage-backed securities	$	402,421	$	6,933	$	(1,015	)	$	408,339
U.S. government guaranteed residential mortgage-backed securities		134,628		3,649		-			138,277
Corporate bonds		13,224		-		(22	)		13,202
State and municipal bonds		43,375		2,377		-			45,752
Government-sponsored enterprise
obligations		32,930		888		(145	)		33,673
Mutual funds		5,857		93		(60	)		5,890
Common and preferred stock		782		18		(20	)		780

Total	$	633,217	$	13,958	$	(1,262	)	$	645,913


	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)

Government sponsored residential mortgage-backed securities	$	377,447	$	8,802	$	(22	)	$	386,227
U.S. government guaranteed residential mortgage-backed securities		148,938		3,937		-			152,875
Private-label residential mortgage-backed securities		2,068		-		(501	)		1,567
State and municipal bonds		43,393		2,481		-			45,874
Government-sponsored enterprise obligations		23,761		991		-			24,752
Mutual funds		5,813		99		(58	)		5,854
Common and preferred stock		393		6		(11	)		388

Total	$	601,813	$	16,316	$	(592	)	$	617,537

U.S. government guaranteed mortgage-backed securities are collateralized by both residential and multifamily loans.

Our repurchase agreements and advances from the Federal Home Loan Bank (“FHLB”) of Boston are collateralized by government-sponsored enterprise obligations and certain mortgage-backed securities (see Note 7).

The amortized cost and fair value of securities available for sale at March 31, 2012, by maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers have the right to call or repay obligations.

	Amortized Cost		Fair Value
	(In thousands)
Mortgage-backed securities:
Due after five years through ten years	$	18,147	$	18,878
Due after ten years		518,902		527,738

Total	$	537,049	$	546,616

	Amortized Cost		Fair Value
	(In thousands)
Debt securities:
Due in one year or less	$	575	$	578
Due after one year through five years		27,885		29,041
Due after five years through ten years		39,012		40,478
Due after ten years		22,057		22,530

Total	$	89,529	$	92,627

Gross realized gains and losses on sales of securities for the three months ended March 31, 2012 and 2011 are as follows:

	Three Months Ended
	March 31,
	2012			2011
	(In thousands)

Gross gains realized	$	2,141		$	562
Gross losses realized		(556	)		(531	)
Net gain realized	$	1,585		$	31

Proceeds from the sale of securities available for sale amounted to $100.3 million and $50.9 million for the three months ended March 31, 2012 and 2011, respectively.

The tax provision applicable to net realized gains and losses was $550,000 and $12,000 for the three months ended March 31, 2012 and 2011, respectively.

Information pertaining to securities with gross unrealized losses at March 31, 2012 and December 31, 2011, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	March 31, 2012
	Less Than Twelve Months					Over Twelve Months
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
	(In thousands)

Government-sponsored residential mortgage-
backed securities	$	(1,015	)	$	108,392	$	-		$	-
Corporate bonds		(22	)		13,202		-			-
Government-sponsored enterprise obligations		(145	)		13,994		-			-
Mutual funds		-			-		(60	)		1,642
Common and preferred stock		-			-		(20	)		19

Total	$	(1,182	)	$	135,588	$	(80	)	$	1,661

	December 31, 2011
	Less Than Twelve Months						Over Twelve Months
	Gross Unrealized Losses				Fair Value		Gross Unrealized Losses			Fair Value
	(In thousands)

Government-sponsored residential mortgage-
backed securities	$	(22	)	$		14,652	$	-		$	-
Private-label residential mortgage-backed
securities		-				-		(501	)		1,567
Mutual funds		-				-		(58	)		1,626
Common and preferred stock		-				-		(11	)		28

Total	$	(22	)		$	14,652	$	(570	)	$	3,221

At March 31, 2012, four government-sponsored mortgage-backed securities had gross unrealized losses with aggregate depreciation of 0.4% from our amortized cost basis existing for less than 12 months. At March 31, 2012, one government-sponsored enterprise obligation had gross unrealized loss with aggregate depreciation of 0.2% from our amortized cost basis existing for less than 12 months. At March 31, 2012, one municipal bond had gross unrealized loss of 0.7% from our amortized cost basis existing for less than 12 months. These unrealized losses are the result of interest rates and not credit quality. Because we do not intend to sell the securities and it is more likely than not that we will not be required to sell the investments before recovery of their amortized cost basis, no declines are deemed to be other-than-temporary.

At March 31, 2012, one mutual fund had a gross unrealized loss with depreciation of 3.5% from our cost basis existing for greater than 12 months and was principally related to fluctuations in interest rates. This loss relates to a mutual fund which invests primarily in short-term debt instruments and adjustable rate mortgage-backed securities. Because we do not intend to sell the security and it is more likely than not that we will not be required to sell it prior to the recovery of its amortized cost basis, the loss is deemed temporary.

The following table presents a roll-forward of the amount of credit losses on mortgage-backed securities for which a portion of other-than-temporary impairment was recognized in other comprehensive income:

	Three Months Ended March 31,
	2012			2011
	(In thousands)
Beginning balance	$	442		$	425

Reductions for securities sold during the period		(442	)		-
Additional credit losses for which other-than-temporary
impairment charge was previously recognized		-			32

Ending balance	$	-		$	457

5. LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans consisted of the following amounts:	March 31,			December 31,
	2012			2011
	(In thousands)

Commercial real estate	$	233,921		$	232,491
Residential real estate		164,859			155,994
Home equity		36,350			36,464
Commercial and industrial		119,979			125,739
Consumer		2,264			2,451
Total Loans		557,373			553,139
Unearned premiums and deferred loan fees and costs, net		1,000			1,017
Allowance for loan losses		(7,803	)		(7,764	)
	$	550,570		$	546,392

During the three months ended March 31, 2012 and 2011, we purchased residential real estate loans aggregating $14.7 million and $23.9 million, respectively.

We have transferred a portion of our originated commercial real estate loans to participating lenders. The amounts transferred have been accounted for as sales and are therefore not included in our accompanying consolidated balance sheets. We share ratably with our participating lenders in any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. We continue to service the loans on behalf of the participating lenders and, as such, collect cash payments from the borrowers, remit payments (net of servicing fees) to participating lenders and disburse required escrow funds to relevant parties. At March 31, 2012 and December 31, 2011, we serviced loans for participants aggregating $5.8 million and $5.7 million, respectively.

Loans are recorded at the principal amount outstanding, adjusted for charge-offs, unearned premiums and deferred loan fees and costs. Interest on loans is calculated using the effective yield method on daily balances of the principal amount outstanding and is credited to income on the accrual basis to the extent it is deemed collectible. Our general policy is to discontinue the accrual of interest when principal or interest payments are delinquent 90 days or more based on the contractual terms of the loan, or earlier if the loan is considered impaired. Any unpaid amounts previously accrued on these loans are reversed from income. Subsequent cash receipts are applied to the outstanding principal balance or to interest income if, in the judgment of management, collection of the principal balance is not in question. Loans are returned to accrual status when they become current as to both principal and interest and perform in accordance with contractual terms for a period of at least six months, reducing the concern as to the collectability of principal and interest. Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income over the estimated average lives of the related loans.

The allowance for loan losses is established through provisions for loan losses charged to expense. Loans are charged-off against the allowance when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance consists of general and allocated components, as further described below.

General component

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: residential real estate (includes one-to-four family and home equity), commercial real estate, commercial and industrial, and consumer. Management uses a rolling average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: trends in delinquencies and nonperforming loans; trends in volume and terms of loans; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; and national and local economic trends and industry conditions. There were no changes in our policies or methodology pertaining to the general component of the allowance for loan losses during the periods presented for disclosure.

The qualitative factors are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

Residential real estate – We require private mortgage insurance for all loans originated with a loan-to-value ratio greater than 80 percent and do not grant subprime loans. All loans in this segment are collateralized by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment. Home equity loans are secured by first or second mortgages on one-to-four family owner occupied properties.

Commercial real estate – Loans in this segment are primarily income-producing investment properties throughout New England. The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment. Management obtains rent rolls and tax returns annually and continually monitors the cash flows of these loans.

Commercial and industrial loans – Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.

Consumer loans – Loans in this segment are secured or unsecured and repayment is dependent on the credit quality of the individual borrower.

Allocated component

The allocated component relates to loans that are classified as impaired. Impaired loans are identified by analysis of loan performance, internal credit ratings and watch list loans that management believes are subject to a higher risk of loss. Impairment is measured on a loan by loan basis for commercial real estate and commercial and industrial loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. An allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, we do not separately identify individual consumer and residential real estate loans for impairment disclosures, unless such loans are subject to a troubled debt restructuring agreement.

A loan is considered impaired when, based on current information and events, it is probable that we 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. We determine 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.

An analysis of changes in the allowance for loan losses by segment for the periods ended March 31, 2012 and 2011 is as follows:

	Residential Real Estate		Commercial Real Estate			Commercial and Industrial			Consumer			Total
	(In thousands)
Balance at December 31, 2011	$	1,531	$	3,504		$	2,712		$	17		$	7,764
Provision		104		20			95			1			220
Charge-offs		-		(195	)		-			(4	)		(199	)
Recoveries		1		14			1			2			18
Balance at March 31, 2012	$	1,636	$	3,343		$	2,808		$	16		$	7,803

Balance at December 31, 2010	$	877	$	3,182		$	2,849		$	26		$	6,934
Provision		127		(9	)		234			(13	)		339
Charge-offs		-		-			(355	)		(4	)		(359	)
Recoveries		1		4			69			11			85
Balance at March 31, 2011	$	1,005	$	3,177		$	2,797		$	20		$	6,999

Further information pertaining to the allowance for loan losses by segment at March 31, 2012 and December 31, 2011 follows:

	Residential Real Estate		Commercial Real Estate		Commercial and Industrial		Consumer		Total
	(In thousands)
March 31, 2012
Allowance for loan and lease losses:
Individually evaluated for loss potential	$	110	$	187	$	71	$	-	$	368
Collectively evaluated for loss potential		1,526		3,156		2,737		16		7,435
Total	$	1,636	$	3,343	$	2,808	$	16	$	7,803

Loans and leases outstanding:
Individually evaluated for loss potential	$	421	$	15,521	$	1,181	$	-	$	17,123
Collectively evaluated for loss potential		200,788		218,400		118,798		2,264		540,250
Total	$	201,209	$	233,921	$	119,979	$	2,264	$	557,373

December 31, 2011
Allowance for loan and lease losses:
Individually evaluated for loss potential	$	109	$	449	$	39	$	-	$	597
Collectively evaluated for loss potential		1,422		3,055		2,673		17		7,167
Total	$	1,531	$	3,504	$	2,712	$	17	$	7,764

Loans and leases outstanding:
Individually evaluated for loss potential	$	422	$	15,739	$	1,145	$	-	$	17,306
Collectively evaluated for loss potential		192,036		216,752		124,594		2,451		535,833
Total	$	192,458	$	232,491	$	125,739	$	2,451	$	553,139

The following is a summary of past due and non-accrual loans by class at March 31, 2012 and December 31, 2011:

	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Past Due 90 Days or More and Still Accruing		Loans in Non- Accrual
	(In thousands)
March 31, 2012
Residential real estate:
Residential 1-4 family	$	589	$	171	$	189	$	949	$	-	$	660
Home equity		286		-		155		441		-		226
Commercial real estate		2,925		-		1,062		3,987		-		1,660
Commercial and industrial		69		2		187		258		-		189
Consumer		3		-		22		25		-		24
Total	$	3,872	$	173	$	1,615	$	5,660	$	-	$	2,759

December 31, 2011
Residential real estate:
Residential 1-4 family	$	562	$	-	$	184	$	746	$	-	$	670
Home equity		128		-		204		332		-		230
Commercial real estate		840		-		740		1,580		-		1,879
Commercial and industrial		111		183		-		294		-		154
Consumer		22		2		-		24		-		-
Total	$	1,663	$	185	$	1,128	$	2,976	$	-	$	2,933

The following is a summary of impaired loans by class at March 31, 2012 and December 31, 2011:

							Three Months Ended
	At March 31, 2012						March 31, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Impaired loans without a valuation allowance:
Residential real estate	$	120	$	126	$	-	$	120	$	-
Commercial real estate		1,521		1,674		-		1,532		-
Total		1,641		1,800		-		1,652		-

Impaired loans with a valuation allowance:
Residential real estate		186		186		70		187		-
Home equity		115		115		40		115		-
Commercial real estate		14,000		14,000		187		14,097		149
Commercial and industrial		1,181		1,187		71		1,163		11
Total		15,482		15,488		368		15,562		160

Total impaired loans	$	17,123	$	17,288	$	368	$	17,214	$	160

							Three Months Ended
	At December 31, 2011						March 31, 2011
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Impaired loans without a valuation allowance:
Residential real estate	$	120	$	126	$	-	$	124	$	-
Commercial real estate		1,545		1,679		-		795		-
Commercial and industrial		-		-		-		1,765		-
Total		1,665		1,805		-		2,684		-

Impaired loans with a valuation allowance:
Residential real estate		187		187		70		-		-
Home equity		115		115		39		-		-
Commercial real estate		14,194		14,225		449		6,900		195
Commercial and industrial		1,145		1,150		39		622		15
Total		15,641		15,677		597		7,522		210

Total impaired loans	$	17,306	$	17,482	$	597	$	10,206	$	210

No interest income was recognized for impaired loans on a cash-basis method during the three months ended March 31, 2012 or 2011.

We may periodically agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”). These concessions could include a reduction in the interest rate on the loan, payment extensions, postponement or forgiveness of principal, forbearance or other actions intended to maximize collection. All TDRs are initially classified as impaired.

When we modify loans in a TDR, we evaluate any possible impairment similar to other impaired loans based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan agreement, or use the current fair value of the collateral, less selling costs for collateral dependent loans. If we determine that the value of the modified loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance. In periods subsequent to modification, we evaluate all TDRs, including those that have payment defaults, for possible impairment and recognize impairment through the allowance.

No loans were modified as a TDR during the three months ended March 31, 2012. Performing loans modified as troubled debt restructurings during the year ended December 31, 2011, segregated by class, are shown in the table below. The modifications reduced the interest rate and extended the interest-only period. Both loans were performing assets at the date of modification and remained on accrual status. Nonperforming TDRs are shown as nonperforming assets.

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Troubled Debt Restructurings
Commercial real estate		1	$	14,000	$	14,000
Commercial and industrial		1		1,000		1,000
Total		2	$	15,000	$	15,000

Default occurs when a loan is 30 days or more past due and is within twelve months of restructuring. No TDRs defaulted during the three months ended March 31, 2012. As of March 31, 2012, we have not committed to lend additional amounts to customers with outstanding loans and leases that are classified as TDR’s. There were no charge-offs on TDRs during the three months ended March 31, 2012.

Credit Quality Information

We utilize an eight-grade internal loan rating system for commercial real estate and commercial and industrial loans as follows:

Loans rated 1 – 3: Loans in these categories are considered “Pass” rated loans with low to average risk.

Loans rated 4: Loans in this category are considered “Pass Watch,” which represent loans to borrowers with declining earnings, losses, or strained cash flow.

Loans rated 5: Loans in this category are considered “Special Mention.” These loans exhibit potential credit weaknesses or downward trends and are being closely monitored by us.

Loans rated 6: Loans in this category are considered “Substandard.” Generally, a loan is considered substandard if the borrower exhibits a well-defined weakness that may be inadequately protected by the current net worth and cash flow capacity to pay the current debt.

Loans rated 7: Loans in this category are considered “Doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable and that a partial loss of principal is likely.

Loans rated 8: Loans in this category are considered uncollectible (“Loss”) and of such little value that their continuance as loans is not warranted.

On an annual basis, or more often if needed, we formally review the ratings on all commercial real estate and commercial and industrial loans. Construction loans are reported within commercial real estate loans and total $8.9 and $10.1 million at March 31, 2012 and December 31, 2011, respectively. We engage an independent third-party to review a significant portion of loans within these segments on at least an annual basis. We use the results of these reviews as part of our annual review process.

The following table presents our loans by risk rating at March 31, 2012 and December 31, 2011:

	Residential 1-4 Family		Home Equity		Commercial Real Estate		Commercial and Industrial		Consumer		Total
	(In thousands)
March 31, 2012
Loans rated 1 – 3	$	164,199	$	36,124	$	182,236	$	78,286	$	2,240	$	463,085
Loans rated 4		-		-		22,934		15,542		-		38,476
Loans rated 5		-		-		5,715		7,359		-		13,074
Loans rated 6		660		226		23,036		18,792		24		42,738
Loans rated 7		-		-		-		-		-		-
	$	164,859	$	36,350	$	233,921	$	119,979	$	2,264	$	557,373

December 31, 2011
Loans rated 1 – 3	$	155,324	$	36,234	$	182,453	$	87,287	$	2,451	$	463,749
Loans rated 4		-		-		22,855		16,129		-		38,984
Loans rated 5		-		-		7,104		7,678		-		14,782
Loans rated 6		670		230		19,885		14,645		-		35,430
Loans rated 7		-		-		194		-		-		194
	$	155,994	$	36,464	$	232,491	$	125,739	$	2,451	$	553,139

6. SHARE-BASED COMPENSATION

Under our 2007 Recognition and Retention Plan and 2007 Stock Option Plan, we may grant up to 624,041 stock awards and 1,631,682 stock options, respectively, to our directors, officers, and employees.

Stock award allocations are recorded as unearned compensation based on the market price at the date of grant. Unearned compensation is amortized over the vesting period. No stock awards were granted during the three months ended March 31, 2012 or 2011. At March 31, 2012, 6,941 stock awards were available for future grants.

We may grant both incentive and non-statutory stock options. The exercise price of each option equals the market price of our stock on the date of grant with a maximum term of ten years. The fair value of each option grant is estimated on the date of grant using the binomial option pricing model.

No stock options were granted during the three months ended March 31, 2012 or 2011. All stock awards and stock options currently vest at 20% per year. At March 31, 2012, 56,232 stock options were available for future grants.

Our stock award and stock option plans activity for the three months ended March 31, 2012 and 2011 is summarized below:

	Unvested Stock Awards Outstanding				Stock Options Outstanding
	Shares		Weighted Average Grant Date Fair Value		Shares			Weighted Average Exercise Price

Outstanding at December 31, 2011		155,206	$	9.54		1,907,744		$	9.32
Stock options exercised		-		-		(177,077	)		4.39
Outstanding at March 31, 2012		155,206	$	9.54		1,730,667		$	9.82

Outstanding at December 31, 2010		248,612	$	9.92		1,911,485		$	9.08
Stock options exercised		-		-		(34,646	)		4.39
Outstanding at March 31, 2011		248,612	$	9.92		1,876,839		$	9.17

We recorded compensation costs relating to stock options of $196,000 and $200,000 with related tax benefits of $52,000 and $53,000 for the three months ended March 31, 2012 and 2011, respectively.

We recorded compensation costs relating to stock awards of $288,000 and $291,000 for the three months ended March 31, 2012 and 2011, respectively.

7. SHORT-TERM BORROWINGS AND LONG-TERM DEBT

We utilize short-term borrowings and long-term debt as an additional source of funds to finance our lending and investing activities and to provide liquidity for daily operations.

Short-term borrowings are made up of FHLB advances with an original maturity of less than one year as well as customer repurchase agreements, which have an original maturity of one day. Short-term borrowings issued by the FHLB were $47.0 million and $36.0 million at March 31, 2012 and December 31, 2011, respectively. Customer repurchase agreements were $23.2 million at March 31, 2012, and $17.0 million at December 31, 2011. A customer repurchase agreement is an agreement by us to sell to and repurchase from the customer an interest in specific securities issued by or guaranteed by the U.S. government. This transaction settles immediately on a same day basis in immediately available funds. Interest paid is commensurate with other products of equal interest and credit risk.

All of our customer repurchase agreements at March 31, 2012 and December 31, 2011 were held by commercial customers.

Long-term debt consists of FHLB advances, securities sold under repurchase agreements and customer repurchase agreements with an original maturity of one year or more. At March 31, 2012, we had $161.6 million in long-term debt with the FHLB and $81.3 million in securities sold under repurchase agreements with an approved broker-dealer. This compares to $160.0 million in long-term debt with FHLB advances and $81.3 million in securities sold under repurchase agreements with an approved broker-dealer at December 31, 2011. Customer repurchase agreements were $5.4 million at March 31, 2012 and at December 31, 2011. The securities sold under agreements to repurchase are callable at the issuer’s option beginning in the year 2012.

During the first quarter of 2012, advances totaling $40.2 million with an average rate of 2.16% were modified. A prepayment penalty of $1.7 million was paid upon modification and is being amortized to interest expense on a level yield method over the remaining maturity of the modified advances.

All FHLB advances are collateralized by a blanket lien on our residential real estate loans and certain mortgage-backed securities.

8. PENSION BENEFITS

The following table provides information regarding net pension benefit costs for the periods shown:

		Three Months Ended
		March 31,
		2012			2011
		(In thousands)
Service cost	$	256		$	247
Interest cost		200			223
Expected return on assets		(214	)		(219	)
Transition obligation		(2	)		(3	)
Actuarial loss		39			29
Net periodic pension cost	$	279		$	277

We maintain a pension plan for our eligible employees. We plan to contribute to the pension plan the amount required to meet the minimum funding standards under Section 412 of the Internal Revenue Code, as amended. Additional contributions will be made as deemed appropriate by management in conjunction with the pension plan’s actuaries. We have not yet determined how much we expect to contribute to our pension plan in 2012. No contributions have been made to the plan for the three months ended March 31, 2012.

9. FAIR VALUE OF ASSETS AND LIABILITIES

Determination of Fair Value

We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for our various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

Fair Value Hierarchy

We group our assets generally measured at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Methods and assumptions for valuing our financial instruments are set forth below. Estimated fair values are calculated based on the value without regard to any premium or discount that may result from concentrations of ownership of a financial instrument, possible tax ramifications or estimated transaction cost.

Cash and cash equivalents - The carrying amounts of cash and short-term instruments approximate fair values based on the short-term nature of the assets.

Interest-bearing deposits in banks - The carrying amounts of interest-bearing deposits maturing within ninety days approximate their fair values. Fair values of other interest-bearing deposits are estimated using discounted cash flow analyses based on current market rates for similar types of deposits.

Securities and mortgage-backed securities – Fair value of securities are primarily measured using unadjusted information from an independent pricing service. The securities measured at fair value in Level 1 are based on quoted market prices in an active exchange market. These securities include marketable equity securities. All other securities are measured at fair value in Level 2 and are based on pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data.

Federal Home Loan Bank and other stock - These investments are carried at cost which is their estimated redemption value.

Loans receivable - For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for other loans (e.g., commercial real estate and investment property mortgage loans, commercial and industrial loans) are estimated using discounted cash flow analyses, using market interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Accrued interest - The carrying amounts of accrued interest approximate fair value.

Deposit liabilities - The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-term borrowings and long-term debt - The fair values of our debt instruments are estimated using discounted cash flow analyses based on the current incremental borrowing rates in the market for similar types of borrowing arrangements.

Commitments to extend credit - Fair values for off-balance sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the term and credit risk. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. Such differences are not considered significant.

Assets measured at fair value on a recurring basis are summarized below:

	March 31, 2012
	Level 1		Level 2		Level 3		Total
Securities available for sale:	(In thousands)
Mutual funds	$	5,890	$	-	$	-	$	5,890
Common and preferred stock		780		-		-		780
U.S. government and federal agency debt securities		-		33,673		-		33,673
Corporate bonds		-		13,202		-		13,202
State and municipal bonds		-		45,752		-		45,752
Government sponsored mortgage-backed
securities		-		408,339		-		408,339
U.S. government guaranteed mortgage-backed securities		-		138,277		-		138,277
Total assets	$	6,670	$	639,243	$	-	$	645,913

	December 31, 2011
	Level 1		Level 2		Level 3		Total
Securities available for sale:	(In thousands)
Mutual funds	$	5,854	$	-	$	-	$	5,854
Common and preferred stock		388		-		-		388
U.S. government and federal agency debt securities		-		24,752		-		24,752
Private label residential mortgage-backed securities		-		1,567		-		1,567
State and municipal bonds		-		45,874		-		45,874
Government sponsored mortgage-backed
securities		-		386,227		-		386,227
U.S. government guaranteed mortgage-backed securities		-		152,875		-		152,875
Total assets	$	6,242	$	611,295	$	-	$	617,537

Also, we may be required, from time to time, to measure certain other assets on a non-recurring basis in accordance with U.S. GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. The following table summarizes the fair value hierarchy used to determine each adjustment and the carrying value of the related assets at March 31, 2012 and 2011. Total losses represent the change in carrying value as a result of fair value adjustments related to assets still held at March 31, 2012 and 2011.

	At						Three Months Ended
	March 31, 2012						March 31, 2012
							Total
	Level 1		Level 2		Level 3		Gains (Losses)
	(In thousands)
Impaired loans	$	-	$	-	$	1,172	$	157
Total Assets	$	-	$	-	$	1,172	$	157

	At						Three Months Ended
	March 31, 2011						March 31, 2011
							Total
	Level 1		Level 2		Level 3		Gains (Losses)
	(In thousands)
Impaired loans	$	-	$	-	$	1,036	$	(219	)
Other real estate owned		-		-		223		-
Total Assets	$	-	$	-	$	1,259	$	(219	)

The amount of loans represents the carrying value and related write-down and valuation allowance of impaired loans for which adjustments are based on the estimated fair value of the underlying collateral. The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on real estate appraisals performed by independent licensed or certified appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Management will discount appraisals as deemed necessary based on the date of the appraisal and new information deemed relevant to the valuation. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. The resulting losses were recognized in earnings through the provision for loan losses. Impaired loans with adjustments resulting from discounted cash flows or without a specific reserve are not included in this disclosure.

The amount of other real estate owned represents the carrying value of the collateral based on the appraised value of the underlying collateral using a market approach less selling costs. During the three months ended March 31, 2012, there were no fair value adjustments on other real estate owned.

There were no transfers to or from Level 1 and 2 during the three months ended March 31, 2012 and 2011.

We did not measure any liabilities at fair value on a recurring or non-recurring basis on the consolidated balance sheets.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument. Where quoted market prices are not available, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment. Changes in assumptions could significantly affect the estimates. The estimated fair values of our financial instruments are as follows:

	March 31, 2012
	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total

Assets:
Cash and cash equivalents	$	17,204	$	17,204	$	-	$	-	$	17,204
Securities available for sale		645,913		6,670		639,243		-		645,913
Federal Home Loan Bank of
Boston and other restricted stock		12,243		-		-		12,243		12,243
Loans - net		550,570		-		-		554,301		554,301
Accrued interest receivable		4,146		-		-		4,146		4,146

Liabilities:
Deposits		748,630		-		-		750,603		750,603
Short-term borrowings		70,237		-		70,235		-		70,235
Long-term debt		248,275		-		260,781		-		260,781
Accrued interest payable		656		-		-		656		656

	December 31, 2011
	Carrying		Estimated
	Value		Fair Value
Assets:	(In thousands)
Cash and cash equivalents	$	21,105	$	21,105
Securities available for sale		617,537		617,537

Federal Home Loan Bank of Boston and
other restricted stock		12,438		12,438
Loans - net		546,392		552,422
Accrued interest receivable		4,022		4,022

Liabilities:
Deposits		732,958		731,294
Short-term borrowings		52,985		52,982
Long-term debt		247,320		258,470
Accrued interest payable		656		656

10. RECENT ACCOUNTING PRONOUNCEMENTS

ASU 2011-04, “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”) amends Topic 820, “Fair Value Measurements and Disclosures,” to converge the fair value measurement guidance in U.S. generally accepted accounting principles and International Financial Reporting Standards (“IFRS”). ASU 2011-04 clarifies the application of existing fair value measurement requirements, changes certain principles in Topic 820 and requires additional fair value disclosures. ASU 2011-04 is effective for annual periods beginning after December 15, 2011, and did not have a significant impact on our financial statements.

ASU 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income” (“ASU 2011-05”) amends Topic 220, “Comprehensive Income,” to require that all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, ASU 2011-05 requires entities to present, on the face of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement or statements where the components of net income and the components of other comprehensive income are presented. The option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. ASU 2011-05 is effective for annual and interim periods beginning after December 15, 2011; however certain provisions related to the presentation of reclassification adjustments have been deferred by ASU 2011-12 “Comprehensive Income (Topic 820) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” ASU 2011-05 did not have a significant impact on our financial statements.

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

Overview

We strive to remain a leader in meeting the financial service needs of our local community and to provide quality service to the individuals and businesses in the market areas that we have served since 1853. Historically, we have been a community-oriented provider of traditional banking products and services to business organizations and individuals, including products such as residential and commercial real estate loans, consumer loans and a variety of deposit products. We meet the needs of our local community through a community-based and service-oriented approach to banking.

We have adopted a growth-oriented strategy that has focused on increasing commercial lending. Our strategy also calls for increasing deposit relationships and broadening our product lines and services. We believe that this business strategy is best for our long-term success and viability, and complements our existing commitment to high-quality customer service. In connection with our overall growth strategy, we seek to:

·	grow our commercial and industrial and commercial real estate loan portfolios by targeting businesses in our primary market area and in northern Connecticut as a means to increase the yield on and diversify our loan portfolio and build transactional deposit account relationships;

·	focus on expanding our retail banking franchise and increase the number of households served within our market area; and

to supplement the commercial focus, grow the residential loan portfolio to diversify risk and deepen customer relationships. We will maintain our arrangement with a third-party mortgage company which assists in originating and servicing residential real estate loans. By doing this, we reduce the overhead costs associated with these loans.

You should read the following financial results for the three months ended March 31, 2012 in the context of this strategy.

Net income was $2.3 million, or $0.09 per diluted share, for the quarter ended March 31, 2012, compared to $1.3 million, or $0.05 per diluted share, for the same period in 2011. The increase in earnings for the quarter ended March 31, 2012 was the result of a $1.6 million increase in the net gains on the sales of securities, compared to the same period in 2011. With mortgage rates declining to new lows, we experienced a high level of prepayment activity in its mortgage-backed securities, which negatively affected the yield of the portfolio. In an effort to improve portfolio performance, management sold certain mortgage-backed securities that were prepaying rapidly and expected to continue to prepay. Rather than receive principal payments back at par value, management sold the securities at a net gain, which created greater economic value for us.

·	The provision for loan losses was $220,000 for the three months ended March 31, 2012, compared to $339,000 for the same period in 2011. The decrease in provision for loan losses was due to a decrease in loan charge-offs and positive trends in the national and local economy.

Net interest income decreased $230,000 to $7.4 million for the three months ended March 31, 2012, compared to $7.6 million for the same period in 2011. The net interest margin, on a tax-equivalent basis, was 2.55% for the three months ended March 31, 2012, compared to 2.72% for the same period in 2011. The decrease in the net interest margin was due to the yield on interest-earning assets decreasing 36 basis points as a result of the low interest rate environment. This was primarily due to rapid prepayments in the mortgage-backed securities portfolio.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements are prepared in accordance with U.S. GAAP and practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Actual results could differ from those estimates.

Critical accounting estimates are necessary in the application of certain accounting policies and procedures, and are particularly susceptible to significant change. 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. For additional information on our critical accounting policies, please refer to the information contained in Note 1 of the accompanying unaudited consolidated financial statements and Note 1 of the consolidated financial statements included in our 2011 Annual Report.

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2012 AND DECEMBER 31, 2011

Total assets were $1.3 billion at March 31, 2012, showing an increase of $30.3 million compared to December 31, 2011. Securities increased $28.2 million to $658.2 million at March 31, 2012 from $630.0 million at December 31, 2011. Securities were funded by growth in deposits and short-term borrowings.

Total loans increased by $4.2 million to $558.4 million at March 31, 2012 from $554.2 million at December 31, 2011. Residential loans increased $8.7 million to $201.2 million at March 31, 2012 from $192.5 million at December 31, 2011. Through the Company’s long standing relationship with a third-party mortgage company, it originated and purchased a total of $14.7 million in residential loans within and contiguous to its market area.

Commercial real estate loans increased $1.4 million to $233.9 million at March 31, 2012 from $232.5 at December 31, 2011. Owner occupied commercial real estate loans increased $1.1 million to $110.8 million at March 31, 2012 from $109.7 million at December 31, 2011, while non-owner occupied commercial real estate loans increased $378,000 to $123.2 million at March 31, 2012 from $122.8 million at December 31, 2011. This was partially offset by a decrease in commercial and industrial loans of $5.7 million to $120.0 million at March 31, 2012. A significant component of the decrease was because three commercial loan customers decreased their line of credit utilization by a total of $3.7 million during the first quarter of 2012.

All loans where the interest payment is 90 days or more in arrears as of the closing date of each month are placed on nonaccrual status. Nonperforming loans decreased $174,000 to $2.8 million at March 31, 2012 compared to $2.9 million at December 31, 2011. If all nonaccrual loans had been performing in accordance with their terms, we would have earned additional interest income of $43,000 and $188,000 for the three months ended March 31, 2012 and 2011, respectively. At both March 31, 2012 and December 31, 2011, we had $1.1 million in foreclosed real estate. At March 31, 2012 and December 31, 2011, our nonperforming loans to total loans were 0.49% and 0.53%, respectively, while our nonperforming assets to total assets were 0.30% and 0.32%, respectively. A summary of our nonaccrual and past due loans by class are listed in Note 5 of the accompanying consolidated financial statements.

Total deposits increased $15.6 million to $748.6 million at March 31, 2012 from $733.0 million at December 31, 2011. The increase in deposits was due to a $17.6 increase in money market accounts, which were $164.5 million and $146.9 million at March 31, 2012 and December 31, 2011, respectively. This was the result of a relationship-based money market product established in second half of 2011 which continues to grow. Checking accounts decreased $1.5 million to $170.1 million at March 31, 2012 from $171.6 million at December 31, 2011. We modified the interest rate structure on consumer checking accounts which resulted in some funds from consumer checking have shifted to the relationship-based money market account. Time deposit accounts increased $255,000 to $316.0 million at March 31, 2012, from $315.8 million at December 31, 2011.

Short-term borrowings increased $17.3 million to $70.3 million at March 31, 2012 from $53.0 million at December 31, 2011. Short-term borrowings increased to take advantage of low cost funding in this interest rate environment.

Long-term debt increased $955,000 to $248.3 million from $247.3 million at December 31, 2011. Our short-term borrowings and long-term debt are discussed in Note 7 of the accompanying consolidated financial statements.

Shareholders’ equity was $215.5 million and $219.0 million, which represented 16.7% and 17.3% of total assets at March 31, 2012 and December 31, 2011, respectively. The decrease in shareholders’ equity reflects the repurchase of 493,226 shares of our common stock at a cost of $4.0 million, pursuant to our stock repurchase program, the payment of regular dividends amounting to $1.5 million, and an increase in other comprehensive loss of $2.0 million primarily due to the change in market value of securities. This was partially offset by net income of $2.3 million for the quarter ended March 31, 2012, an increase of $1.6 million related to the recognition of share-based compensation and the exercise of 177,077 stock options.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND MARCH 31, 2011

General

Net Interest and Dividend Income

The following tables set forth the information relating to our average balance and net interest income for the three months ended March 31, 2012 and 2011, and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated. Yields and costs are derived by dividing interest income by the average balance of interest-earning assets and interest expense by the average balance of interest-bearing liabilities for the periods shown. The interest rate spread is the difference between the total average yield on interest-earning assets and the cost of interest-bearing liabilities. Net interest margin represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets. Average balances are derived from actual daily balances over the periods indicated. Interest income includes fees earned from making changes in loan rates and terms and fees earned when the real estate loans are prepaid or refinanced. For analytical purposes, the interest earned on tax-exempt assets is adjusted to a tax-equivalent basis to recognize the income tax savings which facilities comparison between taxable and tax-exempt assets.

	Three Months Ended March 31,
	2012								2011
	Average					Avg Yield/			Average					Avg Yield/
	Balance		Interest			Cost			Balance		Interest			Cost
	(Dollars in thousands)
ASSETS:
Interest-earning assets
Loans(1)(2)	$	555,460	$	6,420			4.62	%	$	518,397	$	6,206			4.79	%
Securities(2)		622,854		4,497			2.89			632,678		5,453			3.45
Other investments - at cost		14,298		22			0.62			13,948		14			0.40
Short-term investments(3)		14,040		-			0.00			6,007		1			0.07
Total interest-earning assets		1,206,652		10,939			3.63			1,171,030		11,674			3.99
Total noninterest-earning assets		64,916								72,029

Total assets	$	1,271,568							$	1,243,059

LIABILITIES AND EQUITY:
Interest-bearing liabilities
NOW accounts	$	68,230		102			0.60		$	85,767		227			1.06
Savings accounts		97,957		65			0.27			105,345		157			0.60
Money market accounts		157,086		228			0.58			77,815		118			0.61
Time certificates of deposit		315,493		1,242			1.57			348,198		1,604			1.84
Total interest-bearing deposits		638,766		1,637						617,125		2,106
Short-term borrowings and long-term debt		305,014		1,661			2.18			312,153		1,704			2.18
Interest-bearing liabilities		943,780		3,298			1.40			929,278		3,810			1.64
Noninterest-bearing deposits		99,491								84,358
Other noninterest-bearing liabilities		10,317								9,464
Total noninterest-bearing liabilities		109,808								93,822

Total liabilities		1,053,588								1,023,100
Total equity		217,980								219,959
Total liabilities and equity	$	1,271,568							$	1,243,059
Less: Tax-equivalent adjustment(2)				(224	)							(217	)
Net interest and dividend income			$	7,417							$	7,647
Net interest rate spread(4)							2.23	%							2.35	%
Net interest margin(5)							2.55	%							2.72	%
Ratio of average interest-earning
assets to average interest-bearing liabilities							127.85								126.02

________________________

(1)	Loans, including non-accrual loans, are net of deferred loan origination costs, and unadvanced funds.

(2)	Securities and loan income are presented on a tax-equivalent basis using a tax rate of 34%. The tax-equivalent adjustment is deducted from tax-equivalent net interest and dividend income to agree to the amount reported in the statements of income.

(3)	Short-term investments include federal funds sold.

(4)	Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(5)	Net interest margin represents tax-equivalent net interest and dividend income as a percentage of average interest earning assets.

The following table shows how changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated. Information is provided in each category with respect to:

interest income changes attributable to changes in volume (changes in volume multiplied by prior rate);

interest income changes attributable to changes in rate (changes in rate multiplied by current volume); and

the net change.

The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

	Three Months Ended March 31, 2012 compared to Three Months Ended March 31, 2011
	Increase (Decrease) Due to
	Volume			Rate			Net
Interest-earning assets	(Dollars in thousands)
Loans (1)	$	444		$	(230	)	$	214
Securities (1)		(85	)		(871	)		(956	)
Other investments - at cost		-			8			8
Short-term investments		1			(2	)		(1	)
Total interest-earning assets		360			(1,095	)		(735	)

Interest-bearing liabilities
NOW accounts		(46	)		(79	)		(125	)
Savings accounts		(11	)		(81	)		(92	)
Money market accounts		120			(10	)		110
Time deposits		(151	)		(211	)		(362	)
Short-term borrowing and long-time debt		(39	)		(4	)		(43	)
Total interest-bearing liabilities		(127	)		(385	)		(512	)
Change in net interest and dividend income	$	487		$	(710	)	$	(223	)

__________________________

(1)	Securities, loan income and change in net interest and dividend income are presented on a tax-equivalent basis using a tax rate of 34%. The tax-equivalent adjustment is deducted from tax-equivalent net interest income.

Interest on earning-assets decreased $735,000 to $10.9 million for the three months ended March 31, 2012, from $11.7 million for the same period in 2011. The average yield on interest-earning assets decreased 36 basis points to 3.63% for the three months ended March 31, 2012, from 3.99% for the same period in 2011. The average yield on interest-earning assets decreased primarily due to rapid prepayments in the mortgage-backed securities portfolio. Cash flows from their pay downs being subsequently reinvested in products having a lower yield, which is reflective of the current market rate environment. The decrease in average yield was partially mitigated by increases in the average balances of loans, which increased $37.1 million for the three months ended March 31, 2012.

The decrease in interest income was partially offset by a decrease in interest expense. Interest expense decreased $512,000 to $3.3 million for the three months ended March 31, 2012, from $3.8 million for the same period in 2011. The average cost of interest-bearing liabilities decreased 24 basis points to 1.40% for the three months ended March 31, 2012, from 1.64% for the same period in 2011. The decrease in the cost of interest-bearing liabilities was primarily due to a decrease in rates on deposits.

Provision for Loan Losses

The amount that we provided for loan losses during the three months ended March 31, 2012 was based upon the changes that occurred in the loan portfolio during that same period. The changes in the loan portfolio, described in detail below, include a decrease in net loan charge-offs and commercial and industrial loans, partially offset by an increase in residential real estate loans and commercial real estate loans. After evaluating these factors, we provided $220,000 for loan losses for the three months ended March 31, 2012, compared to $339,000 for the same period in 2011. The allowance was $7.8 million at March 31, 2012 and $7.7 million at December 31, 2011. The allowance for loan losses was 1.40% of total loans at both March 31, 2012 and December 31, 2011.

Net charge-offs were $181,000 for the three months ended March 31, 2012. This was comprised of charge-offs of $199,000 for the three months ended March 31, 2012, partially offset by recoveries of $18,000 for the same period.

Net charge-offs were $274,000 for the three months ended March 31, 2011. This was comprised of charge-offs of $359,000 for the three months ended March 31, 2011, partially offset by recoveries of $85,000.

At March 31, 2012, commercial and industrial loans decreased $5.7 million to $120.0 million at March 31, 2012 from $125.7 million at December 31, 2011. Commercial real estate loans increased $1.4 million to $233.9 million at March 31, 2012 from $232.5 million at December 31, 2011. Residential real estate loans increased $8.7 million to $201.2 million compared to December 31, 2011. We consider these types of loans to contain less credit risk and market risk than both commercial and industrial and commercial real estate loans. A summary of our provision for loan losses by loan segment is listed in Note 5 of the accompanying consolidated financial statements.

Although we believe that we have established and maintained the allowance for loan losses at adequate levels, future adjustments may be necessary if economic, real estate and other conditions differ substantially from the current operating environment.

Noninterest Income

Noninterest income increased $1.7 million to $2.6 million for the three months ended March 31, 2012, compared to $806,000 for the same period in 2011. This was primarily due to $1.6 million increase in net gains on the sales of securities, compared to $31,000 the same period in 2011. With mortgage rates declining to new lows, we experienced a high level of prepayment activity in its mortgage-backed securities, which negatively affected the yield of the portfolio. In an effort to improve portfolio performance, management sold certain mortgage-backed securities that were prepaying rapidly and were expected to continue to prepay. Rather than receive principal payments back at par value, management sold the securities at a net gain, which created greater economic value for us.

Noninterest Expense

Noninterest expense increased $304,000 to $6.8 million for the three months ended March 31, 2012, compared to $6.5 million for the same period in 2011. Salaries and benefits increased $324,000 to $4.3 million for the three months ended March 31, 2012. This was mainly the result of new personnel, particularly in the commercial lending and compliance divisions, along with normal increases in this category.

Income Taxes

For the three months ended March 31, 2012, we had a tax provision of $567,000 as compared to $288,000 for the same period in 2011. This was primarily due to higher pre-tax earnings for the three months ended March 31, 2012. The effective tax rate was 19.5% for the three months ended March 31, 2012 and 18.3% for the same period in 2011. The change in effective tax rate from March 31, 2011 is due primarily to the effect of higher pre-tax income while maintaining the same level of tax-advantaged income such as BOLI and tax-exempt municipal obligations.

LIQUIDITY AND CAPITAL RESOURCES

The term “liquidity” refers to our ability to generate adequate amounts of cash to fund loan originations, loan purchases, withdrawals of deposits and operating expenses. Our primary sources of liquidity are deposits, scheduled amortization and prepayments of loan principal and mortgage-backed securities, maturities and calls of securities and funds provided by operations. We also can borrow funds from the FHLB based on eligible collateral of loans and securities. Our maximum additional borrowing capacity from the FHLB at March 31, 2012 was $97.1 million.

Liquidity management is both a daily and long-term function of business management. The measure of a company’s liquidity is its ability to meet its cash commitments at all times with available cash or by conversion of other assets to cash at a reasonable price. Loan repayments and maturing securities are a relatively predictable source of funds. However, deposit flow, calls of securities and repayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and local economic conditions and competition in the marketplace. These factors reduce the predictability of the timing of these sources of funds. Management believes that we have sufficient liquidity to meet its current operating needs.

At March 31, 2012, we exceeded each of the applicable regulatory capital requirements. As of March 31, 2012, the most recent notification from the Office of Comptroller of the Currency categorized us as “well-capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well-capitalized” we must maintain minimum total risk-based, Tier 1 risk based and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes would change our category. Our actual capital ratios of March 31, 2012 and December 31, 2011 are also presented in the following table.

	Actual					Minimum for Capital Adequacy Purposes					Minimum To Be Well- Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
						(Dollars in thousands)
March 31, 2012

Total Capital (to Risk Weighted Assets ):
Consolidated	$	215,742		31.79	%	$	54,287		8	%		N/A		-
Bank		208,528		30.83			54,108		8		$	67,636		10	%
Tier 1 Capital ( to Risk Weighted Assets ):
Consolidated		207,939		30.64			27,144		4			N/A		-
Bank		200,825		29.69			27,054		4			40,581		6
Tier 1 Capital ( to Adjusted Total Assets ):
Consolidated		207,939		16.25			51,170		4			N/A		-
Bank		200,825		15.73			51,071		4			63,839		5
Tangible Equity ( to Tangible Assets ):
Consolidated		N/A		-			N/A		-			N/A		-
Bank		200,825		15.73			19,152		1.5			N/A		-

December 31, 2011

Total Capital (to Risk Weighted Assets ):
Consolidated	$	216,363		31.6	%	$	54,780		8	%		N/A		-
Bank		207,899		30.47			54,590		8		$	68,238		10	%
Tier 1 Capital ( to Risk Weighted Assets ):
Consolidated		208,599		30.46			27,390		4			N/A		-
Bank		200,673		29.41			27,295		4			40,943		6
Tier 1 Capital ( to Adjusted Total Assets ):
Consolidated		208,599		16.76			49,796		4			N/A		-
Bank		200,673		16.17			49,639		4			62,049		5
Tangible Equity ( to Tangible Assets ):
Consolidated		N/A		-			N/A		-			N/A		-
Bank		200,673		16.17			18,615		1.5			N/A		-

We also have outstanding, at any time, a significant number of commitments to extend credit and provide financial guarantees to third parties. These arrangements are subject to strict credit control assessments. Guarantees specify limits to our obligations. Because many commitments and almost all guarantees expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows. We are obligated under leases for certain of our branches and equipment. A summary of contractual obligations and credit commitments at March 31, 2012 follows:

	Within 1 Year		After 1 Year But Within 3 Years		After 3 Year But Within 5 Years		After 5 Years		Total
	(Dollars in thousands)
Lease Obligations
Operating lease obligations	$	629	$	1,238	$	1,012	$	9,703	$	12,582

Borrowings and Debt
Federal Home Loan Bank		62,436		50,991		95,159		0		208,586
Securities sold under agreements to repurchase		33,626		37,800		0		38,500		109,926
Total borrowings and debt		96,062		88,791		95,159		38,500		318,512

Credit Commitments
Available lines of credit		63,880		-		-		21,763		85,643
Other loan commitments		10,674		52		-		-		10,726
Letters of credit		8,254		-		-		253		8,507
Total credit commitments		82,808		52		-		22,016		104,876

Total Obligations	$	179,499	$	90,081	$	96,171	$	70,219	$	435,970

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our assessment of our sensitivity to market risk since its presentation in our 2011 Annual Report. Please refer to Item 7A of the 2011 Annual Report for additional information.

ITEM 4: CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.

Management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of the end of the period covered by this report. Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, to ensure that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely discussion regarding required disclosure.

Changes in Internal Control Over Financial Reporting.

There have been no changes in our internal control over financial reporting identified in connection with the evaluation that occurred during our last fiscal quarter that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We are subject to claims and legal actions in the ordinary course of business. We believe that all such claims and actions currently pending against us, if any, are either adequately covered by insurance or would not have a material adverse effect on us if decided in a manner unfavorable to us.

ITEM 1A. RISK FACTORS.

For a summary of risk factors relevant to our operations, see Part 1, Item 1A, “Risk Factors” in our 2011 Annual Report on Form 10-K. There are no material changes in the risk factors relevant to our operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The following table sets forth information with respect to purchases made by us of our common stock during the three months ended March 31, 2012.

Period	Total Number of Shares Purchased		Average Price Paid per Share ($)		Total Number of Shares Purchased as Part of Publicly Announced Programs		Maximum Number of Shares that May Yet Be Purchased Under the Program (1)(2)
January 1 - 31, 2012		248,326		7.88		248,326		-
February 1 - 29, 2012		219,206		8.21		219,206		1,114,290
March 1 - 31, 2012		25,694		7.96		25,694		1,088,596
Total		493,226		8.03		493,226		1,088,596

(1)	On May 25, 2010, the Board of Directors voted to authorize the commencement of a repurchase program, authorizing the repurchase of 2,924,367 shares, or ten percent of its outstanding shares of common stock.

(2)

On December 22, 2011, the Board of Directors voted to authorize the commencement of a new repurchase program, authorizing the repurchase of 1,333,496 shares, or five percent of its outstanding shares of common stock. On January 31, 2012, the new repurchase program commenced upon the completion of the previously announced program.

There were no sales by us of unregistered securities during the three months ended March 31, 2012.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURE.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6 . EXHIBITS.

The exhibits required to be filed as part of this Quarterly Report on Form 10-Q are listed in the Exhibit Index attached hereto and are incorporated herein by reference.

SIGNATURES

Pursuant to 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 on May 8, 2012.

	Westfield Financial, Inc.


	By:	/s/ James C. Hagan
		James C. Hagan
		President and Chief Executive Officer




	By:	/s/ Leo R. Sagan, Jr.
		Leo R. Sagan, Jr.
		Vice President and Chief Financial Officer

EXHIBIT INDEX

2.1	Amended and Restated Plan of Conversion and Stock Issuance of Westfield Mutual Holding Company, Westfield Financial, Inc. and Westfield Bank (incorporated by reference to Exhibit 2.1 of the Registration Statement No. 333-137024 on Form S-1 filed with the Securities and Exchange Commission on August 31, 2006.)

3.1	Articles of Organization of Westfield Financial, Inc. (incorporated by reference to Exhibit 3.3 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 5, 2007.)

3.2	Amended and Restated Bylaws of Westfield Financial, Inc. (incorporated by reference to Exhibit 3.2 of the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2011.)

4.1	Form of Stock Certificate of Westfield Financial, Inc. (incorporated by reference to Exhibit 4.1 of the Registration Statement No. 333-137024 on Form S-1 filed with the Securities and Exchange Commission on August 31, 2006.)

10.1	Amended and Restated Employee Stock Ownership Plan of Westfield Financial, Inc. (incorporated by reference to Exhibit 10.1 of the Form 10-Q filed with the Securities and Exchange Commission on November 8, 2011.)

31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101**	Financial statements from the quarterly report on Form 10-Q of Westfield Financial, Inc. for the quarter ended March 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Shareholders’ Equity and Comprehensive Income, (iv) the Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements.

_______________________________

*	Filed herewith.

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

TABLE OF CONTENTS

Part I Financial Information Item 1: Financial Statements Item 2: Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3: Quantitative and Qualitative Disclosures About Market Risk Item 4: Controls and Procedures Part II Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosure Item 5. Other Information Item 6. Exhibits

WNEB 10-Q Quarter ended March 31, 2012