UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

______________________

FORM 10-Q

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

For the quarterly period ended June 30, 2013

OR

o	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 o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o

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 August 1, 2013, the registrant had 20,745,060 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) - June 30, 2013 and December 31, 2012	1
	Consolidated Statements of Net Income (Unaudited) - Three and Six Months Ended
	June 30, 2013 and 2012	2
	Consolidated Statements of Comprehensive Income (Unaudited) -
	Three and Six Months Ended June 30, 2013 and 2012	3
	Consolidated Statements of Changes in Shareholders' Equity (Unaudited) -
	Six Months Ended June 30, 2013 and 2012	4
	Consolidated Statements of Cash Flows (Unaudited) -Six Months Ended
	June 30, 2013 and 2012	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	40
Item 4.	Controls and Procedures	41
PART II -	OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	42

FORWARD–LOOKING STATEMENTS

We may, from time to time, make written or oral “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements contained in our filings with the Securities and Exchange Commission (the “SEC”), our reports to shareholders and in other communications by us. This Quarterly Report on Form 10-Q contains “forward-looking statements,” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “would,” “plan,” “estimate,” “potential” and other similar expressions.  Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operation and business that are subject to various factors which could cause actual results to differ materially from these estimates.  These factors include, but are not limited to:

●   changes in the interest rate environment that reduce margins;

●   changes in the regulatory environment;

●   the highly competitive industry and market area in which we operate;

●   general economic conditions, either nationally or regionally, resulting in, among other things, a deterioration in credit quality;

●   changes in business conditions and inflation;

●   changes in credit market conditions;

●   changes in the securities markets which affect investment management revenues;

●   increases in Federal Deposit Insurance Corporation deposit insurance premiums and assessments could adversely affect our financial condition;

●   changes in technology used in the banking business;

●   the soundness of other financial services institutions which may adversely affect our credit risk;

●   certain of our intangible assets may become impaired in the future;

●   our controls and procedures may fail or be circumvented;

●   new line of business or new products and services, which may subject us to additional risks;

●   changes in key management personnel which may adversely impact our operations;

●   the effect on our operations of recent legislative and regulatory initiatives that were or may be enacted in response to the ongoing financial crisis;

●   severe weather, natural disasters, acts of war or terrorism and other external events which could significantly impact our business; and

●   other factors detailed from time to time in our Securities and Exchange Commission (“SEC”) filings.

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.  We do not undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

i

PART I – FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS.
WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(Dollars in thousands)

	June 30,			December 31,
	2013			2012
ASSETS
CASH AND DUE FROM BANKS	$	12,100		$	9,847
FEDERAL FUNDS SOLD		104			459
INTEREST-BEARING  DEPOSITS AND OTHER SHORT-TERM INVESTMENTS		3,502			1,455
CASH AND CASH EQUIVALENTS		15,706			11,761
SECURITIES AVAILABLE FOR SALE – AT FAIR VALUE		417,053			621,507
SECURITIES HELD TO MATURITY  (Fair value of $165,990 at June 30, 2013)		173,982			-
FEDERAL HOME LOAN BANK OF BOSTON AND OTHER RESTRICTED STOCK - AT COST		15,629			14,269
LOANS - Net of allowance for loan losses of $7,473 and $7,794 at June 30, 2013 and  December 31, 2012, respectively		599,132			587,124
PREMISES AND EQUIPMENT, Net		11,311			11,077
ACCRUED INTEREST RECEIVABLE		4,461			4,602
BANK-OWNED LIFE INSURANCE		46,403			46,222
DEFERRED TAX ASSET, Net		6,987			123
OTHER REAL ESTATE OWNED		-			964
OTHER ASSETS		2,971			3,813
TOTAL ASSETS	$	1,293,635		$	1,301,462
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
DEPOSITS :
Noninterest-bearing	$	120,501		$	114,388
Interest-bearing		662,181			639,025
Total deposits		782,682			753,413
SHORT-TERM BORROWINGS		69,972			69,934
LONG-TERM DEBT		269,991			278,861
OTHER LIABILITIES		10,573			10,067
TOTAL LIABILITIES		1,133,218			1,112,275
SHAREHOLDERS' EQUITY:
Preferred stock - $.01 par value, 5,000,000 shares authorized, none outstanding at June 30, 2013 and     December 31, 2012, respectively		-			-
Common stock - $.01 par value, 75,000,000 shares authorized, 20,745,060 shares issued and outstanding     at June 30, 2013; 22,843,722 shares issued and outstanding at December 31, 2012		207			228
Additional paid-in capital		128,932			144,718
Unearned compensation - ESOP		(8,278	)		(8,553	)
Unearned compensation - Equity Incentive Plan		(263	)		(265	)
Retained earnings		42,196			42,364
Accumulated other comprehensive income (loss)		(2,377	)		10,695
Total shareholders' equity		160,417			189,187
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,293,635		$	1,301,462
See accompanying notes to unaudited consolidated financial statements.

1

WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET INCOME – UNAUDITED
(Dollars in thousands, except per share data)

	Three Months					Six Months
	Ended June 30,					Ended June 30,
	2013			2012		2013			2012
INTEREST AND DIVIDEND INCOME:
Residential and commercial real estate loans	$	5,006		$	5,084	$	10,002		$	10,122
Commercial and industrial loans		1,267			1,253		2,507			2,555
Consumer loans		34			40		69			80
Debt securities, taxable		3,611			4,050		7,327			7,894
Debt securities, tax-exempt		270			415		574			839
Equity securities		36			42		73			86
Other Investments - at cost		21			25		40			47
Federal funds sold, interest-bearing deposits and other short-term investments		1			1		3			1
Total interest and dividend income		10,246			10,910		20,595			21,624
INTEREST EXPENSE:
Deposits		1,390			1,523		2,777			3,159
Long-term debt		1,188			1,623		2,446			3,254
Short-term borrowings		31			37		65			67
Total interest expense		2,609			3,183		5,288			6,480
Net interest and dividend income		7,637			7,727		15,307			15,144
(CREDIT) PROVISION FOR LOAN LOSSES		(70	)		260		(305	)		480
Net interest and dividend income after provision for loan losses		7,707			7,467		15,612			14,664
NONINTEREST INCOME (LOSS):
Service charges and fees		594			521		1,164			1,032
Income from bank-owned life insurance		387			278		773			661
Gain on bank-owned life insurance death benefit		563			5		563			80
Loss on prepayment of borrowings		(1,404	)		-		(2,830	)		-
Gain on sales of securities, net		823			97		2,250			1,681
Total noninterest income		963			901		1,920			3,454
NONINTEREST EXPENSE:
Salaries and employees benefit		3,817			4,127		7,625			8,404
Occupancy		730			703		1,434			1,408
Computer operations		602			523		1,152			1,050
Professional fees		527			532		1,037			969
OREO expense		-			21		22			38
FDIC insurance assessment		163			155		324			298
Other		950			772		1,709			1,510
Total noninterest expense		6,789			6,833		13,303			13,677
INCOME BEFORE INCOME TAXES		1,881			1,535		4,229			4,441
INCOME TAX PROVISION		297			561		863			1,128
NET INCOME	$	1,584		$	974	$	3,366		$	3,313
EARNINGS PER COMMON SHARE:
Basic earnings per share	$	0.08		$	0.04	$	0.16		$	0.13
Weighted average shares outstanding		20,276,261			25,141,989		20,686,860			25,295,875
Diluted earnings per share	$	0.08		$	0.04	$	0.16		$	0.13
Weighted average diluted shares outstanding		20,276,261			25,158,171		20,686,887			25,330,242
See accompanying notes to unaudited consolidated financial statements.

2

WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME – UNAUDITED

(Dollars in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Net income	$	1,584		$	974		$	3,366		$	3,313
Other comprehensive income:
Unrealized (loss) gain on securities:
Unrealized holding (loss) gain on available for sale securities		(13,282	)		4,583			(17,701	)		3,139
Reclassification adjustment for gain realized in income		(823	)		(97	)		(2,250	)		(1,681	)
Net unrealized (loss) gain		(14,105	)		4,486			(19,951	)		1,458
Tax effect		4,857			(1,546	)		6,864			(495	)
Net-of-tax amount		(9,248	)		2,940			(13,087	)		963
Defined benefit pension plans:
Reclassification adjustment:
Actuarial loss		17			48			29			87
Transition asset		(3	)		(3	)		(6	)		(5	)
Net adjustments pertaining to defined benefit plans		14			45			23			82
Tax effect		(5	)		(15	)		(8	)		(27	)
Net-of-tax amount		9			30			15			55
Other comprehensive (loss) income		(9,239	)		2,970			(13,072	)		1,018
Comprehensive (loss) income	$	(7,655	)	$	3,944		$	(9,706	)	$	4,331
See accompanying notes to unaudited consolidated financial statements.

3

WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY - UNAUDITED
SIX MONTHS ENDED JUNE 30, 2013 AND 2012
(Dollars in thousands)
	Common Stock
	Shares			Par Value			Additional Paid-in Capital			Unearned Compensation- ESOP			Unearned Compensation- Equity Incentive Plan			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
BALANCE AT DECEMBER 31, 2011		26,918,250		$	269		$	173,615		$	(9,119	)	$	(1,228	)	$	47,735		$	7,716		$	218,988
Net income		-			-			-			-			-			3,313			-			3,313
Other comprehensive loss		-			-			-			-			-			-			1,018			1,018
Common stock held by ESOP committed to be released (84,261 shares)		-			-			44			283			-			-			-			327
Share-based compensation - stock options		-			-			392			-			-			-			-			392
Share-based compensation - equity incentive plan		-			-			-			-			576			-			-			576
Excess tax benefits from equity incentive plan		-			-			12			-			-			-			-			12
Common stock repurchased		(1,150,632	)		(12	)		(8,660	)		-			-			-			-			(8,672	)
Issuance of common stock in connection with stock option exercises		194,656			2			1,598			-			-			(746	)		-			854
Excess tax benefits from stock option exercises		-			-			203			-			-			-			-			203
Cash dividends declared ($0.22 per share)		-			-			-			-			-			(5,581	)		-			(5,581	)
BALANCE AT JUNE, 30 2012		25,962,274		$	259		$	167,204		$	(8,836	)	$	(652	)	$	44,721		$	8,734		$	211,430
BALANCE AT DECEMBER 31, 2012		22,843,722		$	228		$	144,718		$	(8,553	)	$	(265	)	$	42,364		$	10,695		$	189,187
Net income		-			-			-			-			-			3,366			-			3,366
Other comprehensive loss		-			-			-			-			-			-			(13,072	)		(13,072	)
Common stock held by ESOP committed to be released (81,803 shares)		-			-			32			275			-			-			-			307
Share-based compensation - stock options		-			-			27			-			-			-			-			27
Share-based compensation - equity incentive plan		-			-			-			-			55			-			-			55
Excess tax benefit from equity incentive plan		-			-			2			-			-			-			-			2
Common stock repurchased		(2,098,662	)		(21	)		(15,900	)		-			-			-			-			(15,921	)
Issuance of common stock in connection with equity incentive plan		-			-			53			-			(53	)		-			-			-
Cash dividends declared ($0.17 per share)		-			-			-			-			-			(3,534	)		-			(3,534	)
BALANCE AT JUNE, 30 2013		20,745,060		$	207		$	128,932		$	(8,278	)	$	(263	)	$	42,196		$	(2,377	)	$	160,417
See accompanying notes to unaudited consolidated financial statements.

4

WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(Dollars in thousands)
	Six Months Ended June 30,
	2013			2012
OPERATING ACTIVITIES:
Net income	$	3,366		$	3,313
Adjustments to reconcile net income to net cash provided by operating activities:
(Credit) provision for loan losses		(305	)		480
Depreciation and amortization of premises and equipment		530			532
Net amortization of premiums and discounts on securities and mortgage loans		2,307			1,937
Net amortization of premiums on modified debt		312			214
Share-based compensation expense		82			968
Amortization of ESOP expense		307			327
Excess tax benefits from equity incentive plan		(2	)		(12	)
Excess tax benefits in connection with stock option exercises		-			(203	)
Net gains on sales of securities		(2,250	)		(1,681	)
Gain on sale of other real estate owned		6			-
Deferred income tax benefit		(8	)		(102	)
Income from bank-owned life insurance		(773	)		(661	)
Gain on bank-owned life insurance death benefit		(563	)		(80	)
Changes in assets and liabilities:
Accrued interest receivable		141			(661	)
Other assets		842			(332	)
Other liabilities		531			755
Net cash provided by operating activities		4,523			4,804
INVESTING ACTIVITIES:
Securities, held to maturity:
Purchases		(2,636	)		-
Proceeds from calls, maturities, and principal collections		363			-
Securities, available for sale:
Purchases		(150,972	)		(255,877	)
Proceeds from sales		122,092			189,949
Proceeds from calls, maturities, and principal collections		41,654			44,884
Purchase of residential mortgages		(28,491	)		(45,690	)
Loan originations and principal payments, net		16,751			15,588
Purchase of Federal Home Loan Bank of Boston stock		(1,391	)		(1,802	)
Proceeds from redemption of other restricted stock		31			195
Proceeds from sale of other real estate owned		958			-
Purchases of premises and equipment		(764	)		(713	)
Purchase of banked-owned life insurance		-			(2,600	)
Surrender of bank-owned life insurance		-			1,585
Disbursement of bank-owned life insurance gain		(282	)		-
Proceeds from payout on bank-owned life insurance		1,437			-
Net cash used in investing activities		(1,250	)		(54,481	)
FINANCING ACTIVITIES:
Net increase in deposits		29,269			14,593
Net change in short-term borrowings		38			5,589
Repayment of long-term debt		(41,250	)		(48,231	)
Proceeds from long-term debt		32,068			90,667
Cash dividends paid		(3,534	)		(5,581	)
Common stock repurchased		(15,921	)		(9,024	)
Issuance of common stock in connection with stock option exercises		-			854
Excess tax benefits in connection with equity incentive plan		2			12
Excess tax benefits in connection with stock option exercises		-			203
Net cash (used) provided by financing activities		672			49,082
NET CHANGE IN CASH AND CASH EQUIVALENTS:		3,945			(595	)
Beginning of period		11,761			21,105
End of period	$	15,706		$	20,510
Supplemental cashflow information:
Securities reclassified from available-for-sale to held-to-maturity	$	172,091		$	-
Interest paid		5,359			6,408
Taxes paid		313			1,604
Net cash paid to broker for common stock repurchased		-			352
See the accompanying notes to unaudited consolidated financial statements.

5

WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

JUNE 30, 2013

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations – Westfield Financial, Inc. (“Westfield Financial,” “we” or “us”) is a Massachusetts-chartered stock holding company and the parent company of Westfield Bank (the “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 1 branch in Granby, Connecticut.  The Bank’s primary source of revenue is 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 unaudited 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 unaudited 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 unaudited 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 June 30, 2013, and the results of operations, changes in shareholders’ equity and cash flows for the interim periods presented.  The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the results of operations for the year ending December 31, 2013.  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, 2012, included in our Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Annual Report”).

Reclassifications - Amounts in the prior period financial statements are reclassified when necessary to conform to the current year presentation.

6

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 and six months ended June 30, 2013 and 2012 have been computed based on the following:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
	(In thousands, except per share data)
Net income applicable to common stock	$	1,584		$	974		$	3,366		$	3,313
Average number of common shares issued		21,464			26,414			21,885			26,578
Less: Average unallocated ESOP shares		(1,181	)		(1,265	)		(1,191	)		(1,275	)
Less: Average ungranted equity incentive plan shares		(7	)		(7	)		(7	)		(7	)
Average number of common shares outstanding used
to calculate basic earnings per common share		20,276			25,142			20,687			25,296
Effect of dilutive stock options		-			16			-			34
Average number of common shares outstanding used
to calculate diluted earnings per common share		20,276			25,158			20,687			25,330
Basic earnings per share	$	0.08		$	0.04		$	0.16		$	0.13
Diluted earnings per share	$	0.08		$	0.04		$	0.16		$	0.13
Antidilutive shares (1)		1,669			1,670			1,665			1,662
___________________
(1) Shares outstanding but not included in the computation of earnings per share because they were anti-dilutive, meaning the exercise price of such options exceeded the market value of the Company’s common stock

7

3.  COMPREHENSIVE INCOME/LOSS

U.S. GAAP generally requires 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 (loss) income included in shareholders’ equity are as follows:

	June 30, 2013			December 31, 2012
	(In thousands)
Net unrealized (loss) gain on securities available for sale	$	(3,817	)	$	20,188
Tax effect		1,324			(6,935	)
Net-of-tax amount		(2,493	)		13,253
Net unrealized gains on securities resulting from the transfer of available-for-sale to held-to-maturity		4,054			-
Tax effect		(1,395	)		-
Net-of-tax amount		2,659			-
Unrecognized transition asset pertaining to defined benefit plan		15			21
Unrecognized deferred loss pertaining to defined benefit plan		(3,868	)		(3,897	)
Net adjustments pertaining to defined benefit plans		(3,853	)		(3,876	)
Tax effect		1,310			1,318
Net-of-tax amount		(2,543	)		(2,558	)
Accumulated other comprehensive (loss) income	$	(2,377	)	$	10,695

The following table presents changes in accumulated other comprehensive (loss) income for the six months ended June 30, 2013 and 2012 by component:

	Securities			Defined Benefit Plans (1)			Accumulated Other  Comprehensive  Loss
	(In thousands)
Balance at December 31, 2012	$	13,253		$	(2,558	)	$	10,695
Change in unrealized gain/loss		(21,755	)		23			(21,732	)
Tax effect on change in unrealized gain/loss		6,780			(8	)		6,772
Reclassification adjustment for gains realized in income		(2,250	)		-			(2,250	)
Tax effect on gain/loss realized in income		1,479			-			1,479
Unrealized gains on securities resulting from the transfer of         available-for-sale to held-to-maturity		4,054			-			4,054
Tax effect on unrealized gains on securities resulting from the         transfer of available-for-sale to held-to-maturity		(1,395	)		-			(1,395	)
Net current-period other comprehensive income		(13,087	)		15			(13,072	)
Balance at June 30, 2013	$	166		$	(2,543	)	$	(2,377	)
(1) Amounts represent the reclassification of defined benefit plans amortization and have been recognized through the Consolidated Statements of Income as a component of salaries and benefits expense
	Securities			Defined Benefit Plans			Accumulated Other  Comprehensive  Income
	(In thousands)
Balance at December 31, 2011	$	10,321		$	(2,605	)	$	7,716
Net current-period other comprehensive income		963			55			1,018
Balance at June 30, 2012	$	11,284		$	(2,550	)	$	8,734

8

4.      SECURITIES

Securities available for sale and held to maturity are summarized as follows:

	June 30, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Available for sale securities:
Government sponsored mortgage-backed securities	$	233,978	$	1,580	$	(6,904	)	$	228,654
U.S. government guaranteed  mortgage-backed securities		95,725		1,395		(598	)		96,522
Corporate bonds		31,032		469		(449	)		31,052
State and municipal bonds		24,087		837		(10	)		24,914
Government sponsored enterprise obligations		28,668		626		(845	)		28,449
Mutual funds		6,071		-		(161	)		5,910
Common and preferred stock		1,309		243		-			1,552
Total available for sale securities		420,870		5,150		(8,967	)		417,053
Held to maturity securities:
Government sponsored mortgage-backed securities	$	90,274	$	9	$	(4,101	)	$	86,182
U.S. government guaranteed  mortgage-backed securities		21,843		-		(879	)		20,964
Corporate bonds		23,038		-		(844	)		22,194
State and municipal bonds		4,736		-		(302	)		4,434
Government sponsored enterprise obligations		34,091		-		(1,875	)		32,216
Total held to maturity securities		173,982		9		(8,001	)		165,990
Total	$	594,852	$	5,159	$	(16,968	)	$	583,043
	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Available for sale securities:
Government sponsored mortgage-backed securities	$	318,951	$	9,703	$	(631	)	$	328,023
U.S. government guaranteed  mortgage-backed securities		124,650		6,085		-			130,735
Corporate bonds		50,782		1,618		(63	)		52,337
State and municipal bonds		38,788		2,067		(9	)		40,846
Government sponsored enterprise obligations		60,840		1,257		(37	)		62,060
Mutual funds		5,998		117		(69	)		6,046
Common and preferred stock		1,310		150		-			1,460
Total	$	601,319	$	20,997	$	(809	)	$	621,507

9

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 of Boston (“FHLBB”) 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 and held to maturity at June 30, 2013, by maturity, are shown below.  Actual maturities may differ from contractual maturities because certain issuers have the right to call or repay obligations.

	June 30, 2013
	Securities				Securities
	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Mortgage-backed securities:
Due after five years through ten years	$	36,787	$	35,535	$	44,875	$	42,473
Due after ten years		292,916		289,641		67,242		64,673
Total	$	329,703	$	325,176	$	112,117	$	107,146
Debt securities:
Due in one year or less	$	4,449	$	4,540	$	-	$	-
Due after one year through five years		38,367		39,348		8,723		8,397
Due after five years through ten years		40,011		39,545		38,326		36,382
Due after ten years		960		982		14,816		14,065
Total	$	83,787	$	84,415	$	61,865	$	58,844

Gross realized gains and losses on sales of securities for the three and six months ended June 30, 2013 and 2012 are as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
	(In thousands)
Gross gains realized	$	879		$	594		$	2,321		$	2,734
Gross losses realized		(56	)		(497	)		(71	)		(1,053	)
Net gain realized	$	823		$	97		$	2,250		$	1,681

Proceeds from the sale of securities available for sale amounted to $122.1 million and $189.9 million for the six months ended June 30, 2013 and 2012, respectively.

The tax provision applicable to net realized gains was $283,000 and $771,000 for the three and six months ended June 30, 2013, respectively.  The tax provision applicable to net realized gains was $32,000 and $582,000 for the three and six months ended June 30, 2012, respectively.

10

Information pertaining to securities with gross unrealized losses at June 30, 2013, and December 31, 2012, aggregated by investment category and length of time that individual securities have been in a continuous loss position are as follows:

	June 30, 2013
	Less Than 12 Months				Over 12 Months
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
	(In thousands)
Available for sale:
Government sponsored mortgage-backed securities	$	6,904	$	176,006	$	-	$	-
U.S. government guaranteed  mortgage-backed securities		598		26,037		-		-
Corporate bonds		449		15,064		-		-
State and municipal bonds		10		379		-		-
Government sponsored enterprise obligations		845		16,614		-		-
Mutual funds		29		4,261		132		1,650
Total available for sale		8,835		238,361		132		1,650
Held to maturity:
Government sponsored mortgage-backed securities		4,101		83,536		-		-
U.S. government guaranteed  mortgage-backed securities		879		20,964		-		-
Corporate bonds		844		22,195		-		-
State and municipal bonds		302		4,434		-		-
Government sponsored enterprise obligations		1,875		32,216		-		-
Total held to maturity		8,001		163,345		-		-
Total	$	16,836	$	401,706	$	132	$	1,650

	December 31, 2012
	Less Than 12 Months				Over 12 Months
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
	(In thousands)
Available for sale:
Government sponsored mortgage-backed securities	$	631	$	49,081	$	-	$	-
Corporate bonds		63		4,330		-		-
State and municipal bonds		9		1,178		-		-
Government sponsored enterprise obligations		37		17,918		-		-
Mutual funds		-		-		69		1,684
Total	$	740	$	72,507	$	69	$	1,684

11

At June 30, 2013, 66 mortgage-backed securities had gross unrealized losses with aggregate depreciation of 3.9% from our amortized cost basis existing for less than 12 months.  At June 30, 2013, 14 government-sponsored enterprise obligations had gross unrealized loss with aggregate depreciation of 5.3% from our amortized cost basis existing for less than 12 months.  At June 30, 2013, 14 corporate bonds had gross unrealized loss of 3.4% from our amortized cost basis existing for less than 12 months.  At June 30, 2013, 10 municipal bonds had gross unrealized loss of 6.1% 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 June 30, 2013, two mutual funds had gross unrealized loss with aggregate depreciation of 0.7% from our amortized cost basis existing for less than 12 months.  At June 30, 2013, one mutual fund had a gross unrealized loss with depreciation of 7.4% 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 that invests primarily in short-term debt instruments and adjustable rate mortgage-backed securities.  Because we do not intend to sell the securities and it is more likely than not that we will not be required to sell these prior to the recovery of the amortized cost basis, the losses are 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:

	Six Months Ended June 30, 2012
	(In thousands)
Beginning balance	$	442
Reductions for securities sold during the period		(442	)
Ending balance	$	-

12

5.          LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans consisted of the following amounts:	June 30,			December 31,
	2013			2012
	(In thousands)
Commercial real estate	$	243,748		$	245,764
Residential real estate:
Residential		198,017			185,345
Home equity		33,910			34,352
Commercial and industrial		128,450			126,052
Consumer		1,729			2,431
Total Loans		605,854			593,944
Unearned premiums and deferred loan fees and costs, net		751			974
Allowance for loan losses		(7,473	)		(7,794	)
	$	599,132		$	587,124

During the six months ended June 30, 2013 and 2012, we purchased residential real estate loans aggregating $28.5 million and $45.7 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 unaudited 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 June 30, 2013 and December 31, 2012, we serviced loans for participants aggregating $9.3 million and $7.8 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 collectable.  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, allocated, and unallocated components, as further described below.

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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 and owner occupied commercial properties throughout New England.  The underlying cash flows generated by the properties or operations 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 financial information 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.

14

Unallocated component

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses.  The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.

An analysis of changes in the allowance for loan losses by segment for the periods ended June 30, 2013 and 2012 is as follows:

	Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer			Unallocated			Total
Three Months Ended	(In thousands)
June 30, 2013
Beginning Balance	$	3,289		$	1,722		$	2,077		$	11		$	466		$	7,565
(Credit) provision		(45	)		85			9			9			(128	)		(70	)
Charge-offs		-			-			(56	)		(10	)		-			(66	)
Recoveries		-			-			42			2			-			44
Ending Balance	$	3,244		$	1,807		$	2,072		$	12		$	338		$	7,473
June 30, 2012
Beginning Balance	$	3,343		$	1,636		$	2,808		$	16		$	-		$	7,803
Provision (credit)		137			201			(77	)		(1	)		-			260
Charge-offs		-			(40	)		-			(7	)		-			(47	)
Recoveries		37			3			3			6			-			49