10-Q

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 September 30, 2012

OR

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

For the transition period from _____ to _____.

Commission file number 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 October 29, 2012, the registrant had 24,785,784 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) – September 30, 2012 and December 31, 2011	1
	Consolidated Statements of Income (Unaudited) – Three and Nine Months Ended
	September 30, 2012 and 2011	2
	Consolidated Statements of Comprehensive Income (Unaudited) –
	Three and Nine Months Ended September 30, 2012 and 2011	3
	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) –
	Nine Months Ended September 30, 2012 and 2011
		4
	Consolidated Statements of Cash Flows (Unaudited) – Nine Months Ended
	September 30, 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	39
Item 4.	Controls and Procedures	40
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	41

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.  We undertake 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.

i

PART I – FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS.

WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - UNAUDITED

(Dollars in thousands)

	September 30,			December 31,
	2012			2011
ASSETS
Cash and due from banks	$	11,057		$	10,953
Federal funds sold		156			131
Interest-bearing deposits and other short-term investments		440			10,021
Cash and cash equivalents		11,653			21,105
SECURITIES AVAILABLE FOR SALE – AT FAIR VALUE		650,400			617,537
FEDERAL HOME LOAN BANK OF BOSTON AND OTHER RESTRICTED STOCK - AT COST		14,045			12,438
LOANS - Net of allowance for loan losses of $8,176 at September 30, 2012 and $7,764 at December 31, 2011		574,556			546,392
PREMISES AND EQUIPMENT, Net		11,217			10,997
ACCRUED INTEREST RECEIVABLE		4,556			4,022
BANK-OWNED LIFE INSURANCE		45,835			44,040
DEFERRED TAX ASSET, Net		-			1,863
OTHER REAL ESTATE OWNED		1,130			1,130
OTHER ASSETS		3,635			3,740
TOTAL ASSETS	$	1,317,027		$	1,263,264
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
DEPOSITS :
Noninterest-bearing	$	108,404		$	100,157
Interest-bearing		646,004			632,801
Total deposits		754,408			732,958
SHORT-TERM BORROWINGS		41,352			52,985
LONG-TERM DEBT		297,166			247,320
SECURITIES PENDING SETTLEMENT		352			363
DEFERRED TAX LIABILITY, Net		600			-
OTHER LIABILITIES		11,492			10,650
TOTAL LIABILITIES		1,105,370			1,044,276
SHAREHOLDERS' EQUITY:
Preferred stock - $.01 par value, 5,000,000 shares authorized, none outstanding at September 30, 2012 and December 31, 2011		-			-
Common stock - $.01 par value, 75,000,000 shares authorized, 25,296,855 shares issued and outstanding at September 30, 2012; 26,918,250 shares issued and outstanding at December 31, 2011		253			269
Additional paid-in capital		162,516			173,615
Unearned compensation - ESOP		(8,695	)		(9,119	)
Unearned compensation - Equity Incentive Plan		(370	)		(1,228	)
Retained earnings		44,486			47,735
Accumulated other comprehensive income		13,467			7,716
Total shareholders' equity		211,657			218,988
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,317,027		$	1,263,264
See accompanying notes to unaudited consolidated financial statements.

1

WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME – UNAUDITED

(Dollars in thousands, except per share data)

	Three Months					Nine Months
	Ended September 30,					Ended September 30,
	2012		2011			2012		2011
INTEREST AND DIVIDEND INCOME:
Debt securities, taxable	$	3,934	$	4,235		$	11,827	$	13,699
Residential and commercial real estate loans		5,190		4,984			15,313		14,503
Commercial and industrial loans		1,247		1,428			3,802		4,290
Debt securities, tax-exempt		378		420			1,217		1,257
Consumer loans		39		47			119		143
Equity securities		41		46			127		140
Other investments - at cost		23		14			70		46
Federal funds sold, interest-bearing deposits and other short-term     investments		1		-			2		1
Total interest and dividend income		10,853		11,174			32,477		34,079
INTEREST EXPENSE:
Deposits		1,505		1,811			4,665		5,891
Long-term debt		1,618		1,716			4,872		5,071
Short-term borrowings		27		28			94		122
Total interest expense		3,150		3,555			9,631		11,084
Net interest and dividend income		7,703		7,619			22,846		22,995
PROVISION FOR LOAN LOSSES		218		15			698		529
Net interest and dividend income after provision for loan losses		7,485		7,604			22,148		22,466
NONINTEREST INCOME (LOSS):
Total other-than-temporary impairment losses on debt securities		-		(536	)		-		(576	)
Portion of other-than-temporary impairment losses recognized in accumulated other comprehensive loss on debt securities		-		474			-		474
Net other-than-temporary impairment losses recognized in income		-		(62	)		-		(102	)
Service charges and fees		617		501			1,649		1,465
Income from bank-owned life insurance		390		398			1,132		1,150
Gain on sales of securities, net		174		131			1,856		208
Loss on disposal of other real estate owned		-		(25	)		-		(25	)
Total noninterest income		1,181		943			4,637		2,696
NONINTEREST EXPENSE:
Salaries and employees benefits		4,188		3,997			12,593		11,710
Occupancy		663		691			2,072		2,027
Computer operations		544		473			1,595		1,437
Professional fees		432		524			1,401		1,525
OREO expense		11		31			48		52
FDIC insurance assessment		152		207			450		555
Other		808		716			2,317		2,307
Total noninterest expense		6,798		6,639			20,476		19,613
INCOME BEFORE INCOME TAXES		1,868		1,908			6,309		5,549
INCOME TAX PROVISION		481		414			1,609		1,204
NET INCOME	$	1,387	$	1,494		$	4,700	$	4,345
EARNINGS PER COMMON SHARE:
Basic earnings per share	$	0.06	$	0.06		$	0.19	$	0.16
Weighted average shares outstanding		24,391,585		26,443,449			24,992,245		26,608,490
Diluted earnings per share	$	0.06	$	0.06		$	0.19	$	0.16
Weighted average diluted shares outstanding		24,393,109		26,544,257			25,015,664		26,723,947
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 September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Net income	$	1,387		$	1,494		$	4,700		$	4,345
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gains on available for sale securities		7,354			15,121			10,494			23,238
Reclassification adjustment for gains realized in income		(174	)		(131	)		(1,856	)		(208	)
Other-than-temporary impairment losses on available-for-sale     securities		-			62			-			102
Net unrealized gains		7,180			15,052			8,638			23,132
Tax effect		(2,474	)		(5,174	)		(2,968	)		(7,941	)
Net-of-tax amount		4,706			9,878			5,670			15,191
Defined benefit pension plans:
Gains and losses arising during the period pertaining to defined benefit plans		-			(6	)		-			-
Reclassification adjustment:
Actuarial loss		44			29			131			87
Transition asset		(3	)		(3	)		(8	)		(8	)
Net adjustments pertaining to defined benefit plans		41			20			123			79
Tax effect		(14	)		(7	)		(42	)		(27	)
Net-of-tax amount		27			13			81			52
Other comprehensive income		4,733			9,891			5,751			15,243
Comprehensive income	$	6,120		$	11,385		$	10,451		$	19,588
See accompanying notes to unaudited consolidated financial statements.

3

WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY - UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, 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
BALANCE, DECEMBER 31, 2010		28,166,419		$	282		$	181,842		$	(9,701	)	$	(2,158	)	$	56,496		$	(5,516	)	$	221,245
Net income		-			-			-			-			-			4,345			-			4,345
Other comprehensive income		-			-			-			-			-			-			15,243			15,243
Common stock held by ESOP committed to be released (86,585     shares)		-			-			120			436			-			-			-			556
Share-based compensation - stock options		-			-			596			-			-			-			-			596
Share-based compensation - equity incentive plan		-			-			-			-			869			-			-			869
Excess tax benefits from equity incentive plan		-			-			24			-			-			-			-			24
Purchase of ESOP Shares		1,946			-			15			-			-			-			-			15
Common stock repurchased		(554,228	)		(6	)		(4,455	)		-			-			-			-			(4,461	)
Issuance of common stock in connection with stock option     exercises		34,646			-			293			-			-			(142	)		-			151
Issuance of common stock in connection with equity     incentive plan		-			-			227			-			(227	)		-			-			-
Excess tax benefits in connection with stock option exercises		-			-			18			-			-			-			-			18
Cash dividends declared ($0.33 per share)		-			-			-			-			-			(8,797	)		-			(8,797	)
BALANCE, SEPTEMBER 30, 2011		27,648,783		$	276		$	178,680		$	(9,265	)	$	(1,516	)	$	51,902		$	9,727		$	229,804
BALANCE, DECEMBER 31, 2011		26,918,250		$	269		$	173,615		$	(9,119	)	$	(1,228	)	$	47,735		$	7,716		$	218,988
Net income		-			-			-			-			-			4,700			-			4,700
Other comprehensive income		-			-			-			-			-			-			5,751			5,751
Common stock held by ESOP committed to be released (84,261     shares)		-			-			58			424			-			-			-			482
Share-based compensation - stock options		-			-			577			-			-			-			-			577
Share-based compensation - equity incentive plan		-			-			-			-			858			-			-			858
Excess tax benefits from equity incentive plan		-			-			11			-			-			-			-			11
Common stock repurchased		(1,858,708	)		(18	)		(13,928	)		-			-			-			-			(13,946	)
Issuance of common stock in connection with stock option     exercises		237,313			2			1,943			-			-			(904	)		-			1,041
Excess tax benefits in connection with stock option exercises		-			-			240			-			-			-			-			240
Cash dividends declared ($0.28 per share)		-			-			-			-			-			(7,045	)		-			(7,045	)
BALANCE, SEPTEMBER 30, 2012		25,296,855		$	253		$	162,516		$	(8,695	)	$	(370	)	$	44,486		$	13,467		$	211,657
See accompanying notes to unaudited consolidated financial statements

4

WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS- UNAUDITED
(Dollars in thousands)
	Nine Months Ended September 30,
	2012			2011
OPERATING ACTIVITIES:
Net income	$	4,700		$	4,345
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		698			529
Depreciation and amortization of premises and equipment		792			860
Net amortization of premiums and discounts on securities and mortgage loans		3,139			2,522
Net amortization of premiums on modified debt		376			140
Share-based compensation expense		1,435			1,465
Amortization of ESOP expense		482			556
Excess tax shortfalls (benefits) from equity incentive plan		(11	)		(24	)
Excess tax benefits in connection with stock option exercises		(240	)		(18	)
Net gains on sales of securities		(1,856	)		(208	)
Other than temporary impairment losses on securities		-			102
Loss on sale of other real estate owned		-			25
Deferred income tax benefit		(154	)		(156	)
Income from bank-owned life insurance		(1,132	)		(1,150	)
Changes in assets and liabilities:
Accrued interest receivable		(534	)		89
Other assets		64			1,034
Other liabilities		1,216			790
Net cash provided by operating activities		8,975			10,901
INVESTING ACTIVITIES:
Securities, available for sale:
Purchases		(308,680	)		(186,024	)
Proceeds from sales		218,397			157,999
Proceeds from calls, maturities, and principal collections		64,889			55,543
Purchase of residential mortgages		(56,559	)		(52,490	)
Loan originations and principal payments, net		27,572			15,686
Purchase of Federal Home Loan Bank of Boston stock		(1,802	)		(156	)
Proceeds from redemption of Federal Home Loan Bank of Boston stock		195			-
Proceeds from sale of other real estate owned		-			198
Purchases of premises and equipment		(1,012	)		(388	)
Purchase of bank-owned life insurance		(2,600	)		(2,000	)
Surrender of bank-owned life insurance		1,585			-
Net cash used in investing activities		(58,015	)		(11,632	)
FINANCING ACTIVITIES:
Net increase in deposits		21,450			20,179
Net change in short-term borrowings		(11,633	)		(7,393	)
Repayment of long-term debt		(53,231	)		(5,150	)
Proceeds from long-term debt		102,701			14,099
Cash dividends paid		(7,045	)		(8,797	)
Common stock repurchased		(13,946	)		(4,461	)
Issuance of common stock in connection with stock option exercises		1,041			151
Excess tax benefits in connection with equity incentive plan		11			24
Excess tax benefits in connection with stock option exercises		240			18
Purchase of common stock in connection with employee benefit program		-			15
Net cash provided by financing activities		39,588			8,685
NET CHANGE IN CASH AND CASH EQUIVALENTS:		(9,452	)		7,954
Beginning of period		21,105			11,611
End of period	$	11,653		$	19,565
Supplemental cashflow information:
Transfer of loans to other real estate owned	$	-		$	1,130
Interest paid		9,501			11,163
Taxes paid		2,014			701
Securities pending settlement		352			-
See the accompanying notes to consolidated financial statements

5

WESTFIELD FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2012

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 September 30, 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 and nine months ended September 30, 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.

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 nine months ended September 30, 2012 and 2011 have been computed based on the following:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
	(In thousands, except per share data)
Net income applicable to common stock	$	1,387		$	1,494		$	4,700		$	4,345
Average number of common shares outstanding		25,643			27,778			26,264			27,979
Less:  Average unallocated ESOP Shares		(1,244	)		(1,328	)		(1,265	)		(1,349	)
Average ungranted equity incentive plan shares		(7	)		(7	)		(7	)		(22	)
Average number of common shares outstanding used to calculate basic earnings per common share		24,392			26,443			24,992			26,608
Effect of dilutive stock options		1			101			24			115
Average number of common shares outstanding used to calculate diluted earnings per common share		24,393			26,544			25,016			26,723
Basic earnings per share	$	0.06		$	0.06		$	0.19		$	0.16
Diluted earnings per share	$	0.06		$	0.06		$	0.19		$	0.16
Antidilutive shares (1)		1,670			1,662			1,665			1,631

____________________

(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

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:

	September 30, 2012			December 31, 2011
	(In thousands)
Net unrealized gain on securities available for sale	$	24,362		$	16,225
Tax effect		(8,372	)		(5,573	)
Net-of-tax amount		15,990			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		24			32
Unrecognized deferred loss pertaining to defined benefit plans		(3,847	)		(3,978	)
Net adjustments pertaining to defined benefit plans		(3,823	)		(3,946	)
Tax effect		1,300			1,341
Net-of-tax amount		(2,523	)		(2,605	)
	$	13,467		$	7,716

The following table presents changes in accumulated other comprehensive income (loss) for the nine months ended September 30, 2012 and 2011 by component:

	Securities			Defined Benefit Plans			Accumulated Other Comprehensive  Income (Loss)
	(In thousands)
Balance at December 31, 2011	$	10,321		$	(2,605	)	$	7,716
Current-period other comprehensive income		5,669			82			5,751
Balance at September 30, 2012	$	15,990		$	(2,523	)	$	13,467
Balance at December 31, 2010	$	(3,774	)	$	(1,742	)	$	(5,516	)
Current-period other comprehensive income		15,191			52			15,243
Balance at September 30, 2011	$	11,417		$	(1,690	)	$	9,727

8

4.      SECURITIES

Securities available for sale are summarized as follows:

	September 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Government-sponsored mortgage-backed securities	$	363,814	$	12,874	$	(319	)	$	376,369
U.S. government guaranteed  mortgage-backed securities		132,263		6,494		-			138,757
Corporate bonds		52,194		1,547		-			53,741
State and municipal bonds		40,076		2,344		(1	)		42,419
Government-sponsored enterprise obligations		30,402		1,312		-			31,714
Mutual funds		5,940		161		(49	)		6,052
Common and preferred stock		1,349		18		(19	)		1,348
Total	$	626,038	$	24,750	$	(388	)	$	650,400
	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Government-sponsored mortgage-backed securities	$	377,447	$	8,802	$	(22	)	$	386,227
U.S. government guaranteed  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).

9

The amortized cost and fair value of securities available for sale at September 30, 2012, by maturity, are shown below.  Actual maturities may differ from contractual maturities because certain issuers have the right to call or repay obligations.

	September 30, 2012
	Amortized Cost		Fair Value
	(In thousands)
Mortgage-backed securities:
Due after five years through ten years	$	35,414	$	37,137
Due after ten years		460,663		477,989
Total	$	496,077	$	515,126

Debt securities:
Due in one year or less	$	2,141	$	2,161
Due after one year through five years		38,158		39,890
Due after five years through ten years		61,869		64,393
Due after ten years		20,504		21,430
Total	$	122,672	$	127,874

Gross realized gains and losses on sales of securities for the three and nine months ended September 30, 2012 and 2011 are as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
	(In thousands)
Gross gains realized	$	175		$	528		$	2,909		$	1,407
Gross losses realized		(1	)		(397	)		(1,053	)		(1,199	)
Net gain realized	$	174		$	131		$	1,856		$	208

Proceeds from the sale of securities available for sale amounted to $218.4 million and $158.0 million for the nine months ended September 30, 2012 and 2011, respectively.

The tax provision applicable to net realized gains was $59,000 and $641,000 for the three and nine months ended September 30, 2012, respectively.  The tax provision applicable to net realized gains was $44,000 and $73,000 for the three and nine months ended September 30, 2011, respectively.

10

Information pertaining to securities with gross unrealized losses at September 30, 2012, and December 31, 2011, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	September 30, 2012
	Less Than Twelve Months					Over Twelve Months
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
	(In thousands)
Government-sponsored mortgage-backed securities	$	(319	)	$	30,869	$	-		$	-
State and municipal bonds		(1	)		1,191		-			-
Mutual funds		-			-		(49	)		1,687
Common and preferred stock		(19	)		20		-			-
Total	$	(339	)	$	32,080	$	(49	)	$	1,687

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

11

At September 30, 2012, eight government-sponsored mortgage-backed securities had gross unrealized losses with aggregate depreciation of 1.0% from our amortized cost basis existing for less than 12 months.  At September 30, 2012, one municipal bond had gross unrealized loss of 0.1% 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 September 30, 2012, one mutual fund had a gross unrealized loss with depreciation of 2.8% 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 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:

	Nine Months Ended September 30,
	2012			2011
	(In thousands)
Beginning balance	$	442		$	425
Reductions for securities sold during the period		(442	)		(85	)
Additional credit losses for which other-than-temporary       impairment charge was previously recognized		-			102
Ending balance	$	-		$	442

12

5.          LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans consisted of the following amounts:	September 30,			December 31,
	2012			2011
	(In thousands)
Commercial real estate	$	240,420		$	232,491
Residential real estate		189,012			155,994
Home equity		34,753			36,464
Commercial and industrial		115,437			125,739
Consumer		2,030			2,451
Total loans		581,652			553,139
Unearned premiums and deferred loan fees and costs, net		1,080			1,017
Allowance for loan losses		(8,176	)		(7,764	)
	$	574,556		$	546,392

During the nine months ended September 30, 2012 and 2011, we purchased residential real estate loans aggregating $56.6 million and $52.5 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 September 30, 2012 and December 31, 2011, we serviced loans for participants aggregating $7.7 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 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 and allocated components, as further described below.

13

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.

14

An analysis of changes in the allowance for loan losses by segment for the periods ended September 30, 2012 and 2011 is as follows:

	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Three Months Ended	(In thousands)
September 30, 2012
Beginning Balance	$	1,800		$	3,517		$	2,734		$	14		$	8,065
Provision		106			(43	)		150			5			218
Charge-offs		(115	)		-			-			(8	)		(123	)
Recoveries		-			14			-			2			16
Ending Balance	$	1,791		$	3,488		$	2,884		$	13		$	8,176
September 30, 2011
Beginning Balance	$	1,190		$	3,041		$	2,824		$	18		$	7,073
Provision		272			(2	)		(254	)		(1	)		15
Charge-offs		-			-			(10	)		(6	)		(16	)
Recoveries		4			3			1			7			15
Ending Balance	$	1,466		$	3,042		$	2,561		$	18		$	7,087
Nine Months Ended
September 30, 2012
Beginning Balance	$	1,531		$	3,504		$	2,712		$	17		$	7,764
Provision		410			115			167			6			698
Charge-offs		(155	)		(195	)		-			(19	)		(369	)
Recoveries		5			64			5			9			83
Ending Balance	$	1,791		$	3,488		$	2,884		$	13		$	8,176
September 30, 2011
Beginning Balance	$	877		$	3,182		$	2,849		$	26		$	6,934
Provision		583			(104	)		64			(14	)		529
Charge-offs		(2	)		(175	)		(442	)		(13	)		(632	)
Recoveries		8			139			90			19			256
Ending Balance	$	1,466		$	3,042		$	2,561		$	18		$	7,087

15

Further information pertaining to the allowance for loan losses by segment at September 30, 2012, and December 31, 2011 follows:

	Residential Real Estate		Commercial Real Estate		Commercial and Industrial		Consumer		Total
	(In thousands)
September 30, 2012
Allowance for loan losses:
Individually evaluated for loss potential	$	70	$	407	$	486	$	-	$	963
Collectively evaluated for loss potential		1,721		3,081		2,398		13		7,213
Total	$	1,791	$	3,488	$	2,884	$	13	$	8,176
Loans outstanding:
Individually evaluated for loss potential	$	302	$	15,518	$	1,596	$	-	$	17,416
Collectively evaluated for loss potential		223,463		224,902		113,841		2,030		564,236
Total	$	223,765	$	240,420	$	115,437	$	2,030	$	581,652
December 31, 2011
Allowance for loan losses:
Individually evaluated for loss potential	$	109	$	449	$	39	$	0	$	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 outstanding:
Individually evaluated for loss potential	$	422	$	15,739	$	1,145	$	0	$	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 September 30, 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)
September 30, 2012
Residential real estate:
Residential 1-4 family	$	289	$	517	$	307	$	1,113	$	-	$	945
Home equity		167		-		-		167		-		108
Commercial real estate		398		72		966		1,436		-		1,597
Commercial and industrial		125		-		144		269		-		225
Consumer		9		-		23		32		-		23
Total	$	988	$	589	$	1,440	$	3,017	$	-	$	2,898
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

16

The following is a summary of impaired loans by class at September 30, 2012, and December 31, 2011:

							Three Months Ended				Nine Months Ended
	At September 30, 2012						September 30, 2012				September 30, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Impaired loans without a valuation allowance:
Residential real estate	$	117	$	125	$	-	$	118	$	-	$	119	$	-
Commercial real estate		1,597		1,798		-		1,610		-		1,572		-
Commercial and industrial		45		45		-		23		-		8		-
Total		1,759		1,968		-		1,751		-		1,699		-
Impaired loans with a valuation allowance:
Residential real estate		185		185		70		186		-		186		-
Home equity		-		-		-		58		-		96		-
Commercial real estate		13,921		13,921		407		13,959		149		14,019		496
Commercial and industrial		1,551		1,561		486		1,365		11		1,237		32
Total		15,657		15,667		963		15,568		160		15,538		528
Total impaired loans	$	17,416	$	17,635	$	963	$	17,319	$	160	$	17,237	$	528

							Three Months Ended				Nine Months Ended
	At December 31, 2011						September 30, 2011				September 30, 2011
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Impaired loans without a valuation allowance:
Residential real estate	$	120	$	126	$	-	$	122	$	-	$	123	$	-
Commercial real estate		1,545		1,679		-		1,591		-		1,660		-
Commercial and industrial		-		-		-		-		-		465		-
Total		1,665		1,805		-		1,713		-		2,248		-
Impaired loans with a valuation allowance:
Residential real estate		187		187		70		115		-		58		-
Home equity		115		115		39		-		-		-		-
Commercial real estate		14,194		14,225		449		14,204		198		11,843		542
Commercial and industrial		1,145		1,150		39		1,147		11		982		44
Total		15,641		15,677		597		15,466		209		12,883		586
Total impaired loans	$	17,306	$	17,482	$	597	$	17,179	$	209	$	15,131	$	586

No interest income was recognized for impaired loans on a cash-basis method during the three and nine months ended September 30, 2012 or 2011.

17

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.

Nonperforming TDRs are shown as nonperforming assets. Performing loans modified as TDRs are shown in the table below. The modifications changed the scheduled payment to interest-only or extended the interest-only period. One loan relationship of $15.0 million included below was restructured in March 2012 to extend the interest-only period and was restructured again in June 2012 once it had reached stabilization to commence principal and interest payments. The collateral supporting the loan relationship appears sufficient and the extra income levels going forward should sustain combined principal and interest payments.

	Three Months Ended						Nine Months Ended
	September 30, 2012						September 30, 2012
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)						(Dollars in thousands)
Troubled Debt Restructurings
Commercial Real Estate		-	$	-	$	-		5	$	14,887	$	14,887
Commercial and Industrial		1		45		45		3		1,184		1,184
Total		1	$	45	$	45		8	$	16,071	$	16,071
	Three Months Ended						Nine Months Ended
	September 30, 2011						September 30, 2011
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)						(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

A default occurs when a loan is 30 days or more past due and is within 12 months of restructuring. The following is a summary of troubled debt restructurings that have subsequently defaulted within one year of modification:

	September 30, 2012				September 30, 2011
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
	(Dollars in thousands)				(Dollars in thousands)
Troubled Debt Restructurings
Commercial Real Estate		4	$	966		-	$	-
Commercial and Industrial		1		142		-		-
Residential		-		-		1		120
Total		5	$	1,108		1	$	120

As of September 30, 2012, we have committed to lend an additional $130,000 to one customer with outstanding loans that are classified as TDRs. This loan will be used for building improvements to generate rental income. There were no charge-offs on TDRs during the nine months ended September 30, 2012.

18

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 $8.5 million and $10.1 million at September 30, 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 September 30, 2012, and December 31, 2011:

	Residential 1-4 Family		Home Equity		Commercial Real Estate		Commercial and Industrial		Consumer		Total
	(In thousands)
September 30, 2012
Loans rated 1 – 3	$	188,067	$	34,645	$	195,959	$	84,741	$	2,030	$	505,442
Loans rated 4		-		-		18,591		7,301		-		25,892
Loans rated 5		-		-		3,326		4,836		-		8,162
Loans rated 6		945		108		22,544		18,559		-		42,156
	$	189,012	$	34,753	$	240,420	$	115,437	$	2,030	$	581,652
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

19

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 1,560,101 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 and nine months ended September 30, 2012. At September 30, 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 and nine months ended September 30, 2012.  All stock awards and stock options currently vest at 20% per year.  At September 30, 2012, 56,232 stock options were available for future grants.

Our stock award and stock option plans activity for the nine months ended September 30, 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		-			-		(237,313	)		4.39
Stock award vested		(4,006	)		10.11		-
Outstanding at September 30, 2012		151,200		$	9.52		1,670,431		$	10.02
Outstanding at December 31, 2010		248,612		$	9.92		1,911,485		$	9.08
Granted		28,000			8.13		78,000			10.04
Stock options exercised		-			-		(34,646	)		4.39
Stock awards vested		(9,606	)		10.07		-			-
Outstanding at September 30, 2011		267,006		$	9.72		1,954,839		$	9.20

We recorded compensation costs relating to stock options of $185,000 and $197,000 with related tax benefits of $51,000 and $51,000 for the three months ended September 30, 2012 and 2011, respectively. We recorded compensation costs relating to stock options of $577,000 and $596,000 with related tax benefits of $153,000 and $156,000 for the nine months ended September 30, 2012 and 2011, respectively.

We recorded compensation cost related to the stock awards of $282,000 and $288,000 for the three months ended September 30, 2012 and 2011, respectively. We recorded compensation cost related to the stock awards of $858,000 and $869,000 for the nine months ended September 30, 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.

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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 $5.0 million and $36.0 million at September 30, 2012, and December 31, 2011, respectively. Advances on the line of credit with the FHLB were $8.7 million at September 30, 2012.  There were no advances outstanding on the line of credit at December 31, 2011. Customer repurchase agreements were $27.7 million at September 30, 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 September 30, 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 September 30, 2012, we had $210.4 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 $160.6 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 September 30, 2012, and December 31, 2011, respectively.  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.

During the third quarter of 2012, advances totaling $20.0 million with an average rate of 3.67% were modified by extending their maturity dates and lowering the average rate to 2.82%. No prepayment penalty was paid on the transaction.

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 September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In thousands)
Service cost	$	279		$	247		$	815		$	742
Interest cost		200			223			600			668
Expected return on assets		(218	)		(219	)		(649	)		(656	)
Transition asset		(3	)		(3	)		(8	)		(8	)
Actuarial loss		44			29			131			87
Net periodic pension cost	$	302		$	277		$	889		$	833

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 of 1986, 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 and nine months ended September 30, 2012.  The Trustee for the pension plan was changed prior to September 30, 2012.  The pension plan assets are now invested in group annuity contracts with the Principal Financial Group, who also acts as our 401(k) plan provider.

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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 or liabilities 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.

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 restricted 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.

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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:

	September 30, 2012
	Level 1		Level 2		Level 3		Total
Securities available for sale:	(In thousands)
Government-sponsored mortgage-backed securities	$	-	$	376,369	$	-	$	376,369
U.S. government guaranteed mortgage-backed securities		-		138,757		-		138,757
Corporate Bonds		-		53,741		-		53,741
State and municipal bonds		-		42,419		-		42,419
Government-sponsored enterprise obligations		-		31,714		-		31,714
Mutual funds		6,052		-		-		6,052
Common and preferred stock		1,348		-		-		1,348
Total assets	$	7,400	$	643,000	$	-	$	650,400
	December 31, 2011
	Level 1		Level 2		Level 3		Total
Securities available for sale:	(In thousands)
Government-sponsored mortgage-backed securities	$	-	$	386,227	$	-	$	386,227
U.S. government guaranteed mortgage-backed securities		-		152,875		-		152,875
Private-label residential mortgage-backed securities		-		1,567		-		1,567
State and municipal bonds		-		45,874		-		45,874
Government-sponsored enterprise obligations		-		24,752		-		24,752
Mutual funds		5,854		-		-		5,854
Common and preferred stock		388		-		-		388
Total assets	$	6,242	$	611,295	$	-	$	617,537

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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 September 30, 2012 and 2011.  Total losses represent the change in carrying value as a result of fair value adjustments related to assets still held at September 30, 2012 and 2011.

	At						Three Months Ended			Nine Months Ended
	September 30, 2012						September 30, 2012			September 30, 2012
							Total			Total
	Level 1		Level 2		Level 3		Gains (Losses)			Gains (Losses)
	(In thousands)
Impaired Loans	$	-	$	-	$	1,100	$	(352	)	$	(196	)
Total Assets	$	-	$	-	$	1,100	$	(352	)	$	(196	)
	At						Three Months Ended			Nine Months Ended
	September 30, 2011						September 30, 2011			September 30, 2011
							Total			Total
	Level 1		Level 2		Level 3		Gains (Losses)			Gains (Losses)
	(In thousands)
Impaired Loans	$	-	$	-	$	1,079	$	8		$	(240	)
Total Assets	$	-	$	-	$	1,079	$	8		$	(240	)

	At
	December 31, 2011
	Level 1		Level 2		Level 3
	(In thousands)
Impaired loans	$	-	$	-	$	1,181
Other real estate owned		-		-		1,130
Total assets	$	-	$	-	$	2,311

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 and nine months ended September 30, 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 and nine months ended September 30, 2012 and 2011.  We did not measure any liabilities at fair value on a recurring or non-recurring basis on the consolidated balance sheets.

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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:

	September 30, 2012
	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash and cash equivalents	$	11,653	$	11,653	$	-	$	-	$	11,653
Securities available for sale		650,400		7,400		643,000		-		650,400
Federal Home Loan Bank of Boston and other restricted stock		14,045		-		-		14,045		14,045
Loans - net		574,556		-		-		597,119		597,119
Accrued interest receivable		4,556		-		-		4,556		4,556
Liabilities:
Deposits		754,408		-		-		757,416		757,416
Short-term borrowings		41,352		-		41,352		-		41,352
Long-term debt		297,166		-		312,234		-		312,234
Accrued interest payable		525		-		-		525		525

	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

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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” 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” 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.

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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

● 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 and nine months ended September 30, 2012 in the context of this strategy.

● Net income was $1.4 million, or $0.06 per diluted share, for the quarter ended September 30, 2012, compared to $1.5 million, or $0.06 per diluted share, for the same period in 2011.   For the nine months ended September 30, 2012, net income was $4.7 million, or $0.19 per diluted share, compared to $4.3 million, or $0.16 per diluted share, for the same period in 2011.

● The provision for loan losses was $218,000 and $15,000 for the three months ended September 30, 2012 and 2011and $698,000 and $529,000 for the nine months ended September 30, 2012 and 2011, respectively.  The increase in provision for loan losses was due to an increase in the balance of commercial real estate loans and residential real estate loans, partially offset by a decrease in commercial and industrial loans.  The provision for loan losses increased for commercial and industrial loans due to valuation allowances on a single loan relationship.

● Net interest income was $7.7 million and $7.6 million for the three months ended September 30, 2012 and 2011.  The net interest margin, on a tax-equivalent basis, was 2.52% for the three months ended September 30, 2012, compared to 2.64% for the same period in 2011.  For the nine months ended September 30, 2012 and 2011, net interest income was $22.8 million and $23.0 million.  The net interest margin, on a tax-equivalent basis, was 2.55% for the nine months ended September 30, 2012, compared to 2.69% for the same period in 2011.  The decrease in the net interest margin for both the three and nine months ended September 30, 2012 and 2011 was due to the yield on interest-earning assets decreasing 33 and 35 basis points, respectively, as a result of the low interest rate environment.   These decreases were partially offset by decreases of 27 and 28 basis points, respectively, in the cost of interest-bearing liabilities for the three and nine months ended September 30, 2012 and 2011.

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RECENT LEGISLATIVE UPDATES

In June 2012, the Federal Reserve Board, the Office of the Comptroller of the Currency, and the FDIC issued three proposals that would amend the existing regulatory risk-based capital adequacy requirements of banks and bank holding companies. The proposed rules implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. The Basel III proposal would increase the minimum levels of required capital, narrow the definition of capital, and places much greater emphasis on common equity.  The proposed rules will be subject to a comment period through September 7, 2012.

The proposed rules include new risk-based capital and leverage ratios, which would be phased in from 2013 to 2019, and would refine the definition of what constitutes “capital” for purposes of calculating those ratios. The proposed new minimum capital level requirements applicable to us and the Bank under the proposals would be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The proposed rules would also establish a "capital conservation buffer" of 2.5% above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital and would result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement would be phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase by that amount each year until fully implemented in January 2019. An institution would be subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations would establish a maximum percentage of eligible retained income that could be utilized for such actions.

The proposed rules also implement revisions and clarifications consistent with Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and losses, as well as certain instruments that will no longer qualify as Tier 1 capital, such as trust preferred securities, which would be phased out over time. Although the Dodd-Frank Act only required the phase out of such instruments for institutions with total consolidated assets of $15 billion or more, the proposed rules would require almost all institutions to phase out instruments that will no longer qualify as Tier 1 capital, albeit on a longer time frame than for institutions with total consolidated assets of $15 billion or more. 

The federal bank regulatory agencies also proposed revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including the Bank, if their capital levels begin to show signs of weakness. These revisions would take effect January 1, 2015.

We are still in the process of assessing the impacts of these complex proposals, however, we believe we will continue to exceed all estimated well-capitalized regulatory requirements over the course of the proposed phase-in period, and on a fully phased-in basis.

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.

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COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2012 AND DECEMBER 31, 2011

Total assets were $1.3 billion at September 30, 2012, showing an increase of $53.8 million compared to December 31, 2011.  Securities increased $34.4 million to $664.4 million at September 30, 2012, from $630.0 million at December 31, 2011.  Securities were funded by growth in deposits and long-term borrowings.

Total loans increased by $28.5 million to $582.7 million at September 30, 2012, from $554.2 million at December 31, 2011.  Residential loans increased $31.3 million to $223.8 million at September 30, 2012, from $192.5 million at December 31, 2011.  Through our long standing relationship with a third-party mortgage company, we originated and purchased a total of $63.0 million in residential loans within and contiguous to our market area.  Beginning in the third quarter of 2012, we began to refer low rate residential loans back to the third-party mortgage company, rather than retaining them on our balance sheet.

Commercial real estate loans increased $7.9 million to $240.4 million at September 30, 2012, from $232.5 at December 31, 2011.  Owner occupied commercial real estate loans decreased $666,000 to $109.0 million at September 30, 2012, from $109.7 million at December 31, 2011, while non-owner occupied commercial real estate loans increased $8.6 million to $131.4 million at September 30, 2012, from $122.8 million at December 31, 2011 primarily due to new loan originations. This was offset by a decrease in commercial and industrial loans of $10.3 million to $115.4 million at September 30, 2012.  In addition to normal loan payoffs and pay downs, commercial and industrial loans were impacted by lower utilization of lines of credit, which decreased $3.7 million from December 31, 2011.

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 remained consistent at $2.9 million at September 30, 2012 and December 31, 2011.  If all nonaccrual loans had been performing in accordance with their terms, we would have earned additional interest income of $379,000 and $240,000 for the nine months ended September 30, 2012 and 2011, respectively.  At both September 30, 2012 and December 31, 2011, we had $1.1 million in foreclosed real estate.  At September 30, 2012 and December 31, 2011, our nonperforming loans to total loans were 0.50% and 0.53%, respectively, while our nonperforming assets to total assets were 0.31% 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 $21.4 million to $754.4 million at September 30, 2012, from $733.0 million at December 31, 2011.  The increase in deposits was due to a $19.3 increase in savings and money market accounts, which were $264.9 million and $245.6 million at September 30, 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.  Time deposit accounts increased $3.4 million to $319.2 million at September 30, 2012, from $315.8 million at December 31, 2011.  Checking accounts decreased $1.3 million to $170.3 million at September 30, 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 shifting to the relationship-based money market account.

Short-term borrowings decreased $11.6 million to $41.4 million at September 30, 2012 from $53.0 million at December 31, 2011.  Long-term debt increased $49.9 million to $297.2 million from $247.3 million at December 31, 2011.  The change in our short-term and long-term borrowings was to take advantage of long-term low cost funding in this interest rate environment.  Our short-term borrowings and long-term debt are discussed in Note 7 of the accompanying consolidated financial statements.

Shareholders’ equity was $211.7 million and $219.0 million, which represented 16.1% and 17.3% of total assets at September 30, 2012 and December 31, 2011, respectively.  The decrease in shareholders’ equity reflects the repurchase of 1.9 million shares of our common stock at a cost of $13.9 million pursuant to our stock repurchase program, and the payment of regular and special dividends amounting to $7.0 million.  This was partially offset by net income of $4.7 million for the nine months ended September 30, 2012, an increase in other comprehensive income of $5.8 million primarily due to the change in market value of securities, and an increase of $3.2 million related to the recognition of share-based compensation and the exercise of 237,313 stock options.

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COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012 AND SEPTEMBER 30, 2011

General

Net income was $1.4 million, or $0.06 per diluted share, for the quarter ended September 30, 2012, compared to $1.5 million, or $0.06 per diluted share, for the same period in 2011.  Net interest income was $7.7 million and $7.6 million for the three months ended September 30, 2012 and 2011, respectively.

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 September 30, 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 facilitates comparison between taxable and tax-exempt assets.

30

	Three Months Ended September 30,
	2012								2011
	Average					Avg Yield/			Average					Avg Yield/
	Balance		Interest			Cost			Balance		Interest			Cost
	(Dollars in thousands)
ASSETS:
Interest-earning assets
Loans(1)(2)	$	585,612	$	6,517			4.45	%	$	547,539	$	6,498			4.75	%
Securities(2)		643,701		4,521			2.81			608,580		4,881			3.21
Other investments - at cost		15,920		23			0.58			14,048		14			0.40
Short-term investments(3)		5,220		1			0.08			8,080		-			0.00
Total interest-earning assets		1,250,453		11,062			3.54			1,178,247		11,393			3.87
Total noninterest-earning assets		66,183								69,586
Total assets	$	1,316,636							$	1,247,833
LIABILITIES AND EQUITY:
Interest-bearing liabilities
NOW accounts	$	58,845		54			0.37		$	86,425		172			0.80
Savings accounts		93,831		39			0.17			103,297		112			0.43
Money market accounts		176,729		197			0.45			104,479		165			0.63
Time certificates of deposit		316,612		1,215			1.54			326,909		1,362			1.67
Total interest-bearing deposits		646,017		1,505						621,110		1,811
Short-term borrowings and long-term debt		343,696		1,645			1.91			300,448		1,744			2.32
Interest-bearing liabilities		989,713		3,150			1.27			921,558		3,555			1.54
Noninterest-bearing deposits		104,402								93,139
Other noninterest-bearing liabilities		11,075								9,179
Total noninterest-bearing liabilities		115,477								102,318
Total liabilities		1,105,190								1,023,876
Total equity		211,446								223,957
Total liabilities and equity	$	1,316,636							$	1,247,833
Less: Tax-equivalent adjustment(2)				(209	)							(219	)
Net interest and dividend income			$	7,703							$	7,619
Net interest rate spread(4)							2.27	%							2.33	%
Net interest margin(5)							2.52	%							2.64	%
Ratio of average interest-earning
assets to average interest-bearing liabilities							126.35								127.85

________________________

(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.

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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 September 30, 2012 compared to Three Months Ended September 30, 2011
	Increase (Decrease) Due to
	Volume			Rate			Net
Interest-earning assets	(In thousands)
Loans (1)	$	452		$	(433	)	$	19
Securities (1)		282			(642	)		(360	)
Other investments - at cost		2			7			9
Short-term investments		-			1			1
Total interest-earning assets		736			(1,067	)		(331	)
Interest-bearing liabilities
NOW accounts		(55	)		(63	)		(118	)
Savings accounts		(10	)		(63	)		(73	)
Money market accounts		114			(82	)		32
Time deposits		(43	)		(104	)		(147	)
Short-term borrowing and long-time debt		251			(350	)		(99	)
Total interest-bearing liabilities		257			(662	)		(405	)
Change in net interest and dividend income	$	479		$	(405	)	$	74

__________________________

(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.

Net interest income was $7.7 million and $7.6 million for the three months ended September 30, 2012 and 2011, respectively.  The net interest margin, on a tax-equivalent basis, was 2.52% for the three months ended September 30, 2012, compared to 2.64% for the same period in 2011.

Interest on earning-assets, on a tax-equivalent basis, decreased $331,000 to $11.1 million for the three months ended September 30, 2012, from $11.4 million for the same period in 2011. The average yield on interest-earning assets decreased 33 basis points to 3.54% for the three months ended September 30, 2012, from 3.87% 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 were 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 and securities, as loans increased $38.1 million and securities increased $35.1 million for the three months ended September 30, 2012.   

The decrease in interest income was offset by a decrease in interest expense.  Interest expense decreased $405,000 to $3.2 million for the three months ended September 30, 2012, from $3.6 million for the same period in 2011.  The average cost of interest-bearing liabilities decreased 27 basis points to 1.27% for the three months ended September 30, 2012, from 1.54% for the same period in 2011.  The decrease in the cost of interest-bearing liabilities was primarily due to a decrease in rates on short-term borrowings and long-term debt.

32

Provision for Loan Losses

The amount that we provided for loan losses during the three months ended September 30, 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 an increase in commercial real estate and residential real estate loans, partially offset by a decrease in commercial and industrial loans.  After evaluating these factors, we provided $218,000 for loan losses for the three months ended September 30, 2012, compared to $15,000 for the same period in 2011.  Provision for loan losses decreased for commercial real estate loans due to improvements in credit quality and reductions in valuation allowances on impaired loans resulting from discounted cash flows.  The provision for loan losses increased for commercial and industrial loans due to valuation allowances on a single loan relationship. The allowance was $8.2 million at September 30, 2012 and $8.1 million at June 30, 2012.  The allowance for loan losses was 1.40% of total loans at September 30, 2012 and 1.38% at June 30, 2012.

Commercial real estate loans increased $6.1 million to $240.4 million at September 30, 2012, from $234.3 million at June 30, 2012.  Residential real estate loans increased $1.0 million to $223.8 million compared to June 30, 2012.  Commercial and industrial loans decreased $8.3 million to $115.4 million at September 30, 2012, from $123.7 million at June 30, 2012.   A summary of our provision for loan losses by loan segment is listed in Note 5 of the accompanying consolidated financial statements.

Net charge-offs were $107,000 for the three months ended September 30, 2012.  This was comprised of charge-offs of $123,000 for the three months ended September 30, 2012, offset by recoveries of $16,000 for the same period.

Net charge-offs were $1,000 for the three months ended September 30, 2011.  This was comprised of charge-offs of $16,000 for the three months ended September 30, 2011, offset by recoveries of $15,000.

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 $238,000 to $1.2 million for the three months ended September 30, 2012, compared to $943,000 for the same period in 2011.  Income from service charges and fees increased $116,000 to $617,000 for the three months ended September 30, 2012, compared to $501,000 for the same period in 2011.  This increase was primarily due to a $65,000 increase in the fees from the third-party mortgage company.  In the third quarter 2012, we began to refer low rate residential loans to the mortgage company, rather than retaining them on our balance sheet.

In addition, fees collected from card-based transactions increased $48,000 for the three months ended September 30, 2012 which reflects an increase in customer debit card and automated teller machine transactions.  Gains on the sales of securities increased $43,000 to $174,000 for the three months ended September 30, 2012, compared to $131,000 for the same period for 2011.

Noninterest Expense

Noninterest expense increased $159,000 to $6.8 million for the three months ended September 30, 2012, compared to $6.6 million for the same period in 2011. Salaries and benefits increased $191,000 to $4.2 million for the three months ended September 30, 2012.  This was mainly the result of new personnel, particularly in the commercial lending and compliance divisions, along with normal increases in this category.  Computer operations expense increased $71,000 to $544,000 for the three months ended September 30, 2012.  This was primarily due to an increase in data processing expense and the implementation of new customer relationship-management software and a risk management platform in the three months ended September 30, 2012.

Professional fees expense decreased $92,000 to $432,000 for the three months ended September 30, 2012, compared to the same period in 2011.  This was primarily the result of a $156,000 decrease in legal expenses due to general corporate matters and strategic initiatives during the 2011 period.  FDIC insurance expense decreased $55,000 for the three months ended September 30, 2012 primarily due to a decreased in our assessment rating.

33

Income Taxes

For the three months ended September 30, 2012, we had a tax provision of $481,000 as compared to $414,000 for the same period in 2011.  The effective tax rate was 25.7% for the three months ended September 30, 2012, and 21.7% for the same period in 2011.  The change in effective tax rate from September 30, 2011, is primarily due to the redemption of BOLI which resulted in an additional income tax provision of $160,000, or 8.6% of income before income taxes for the quarter ended September 30, 2012.

COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND SEPTEMBER 30, 2011

General

Net income was $4.7 million, or $0.19 per diluted share, for the nine months ended September 30, 2012, as compared to $4.3 million, or $0.16 per diluted share, for the same period in 2011.  Net interest and dividend income was $22.8 million for the nine months ended September 30, 2012, and $23.0 million for the same period in 2011.

Net Interest and Dividend Income

The following tables set forth the information relating to our average balance and net interest income for the nine months ended September 30, 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 facilitates comparison between taxable and tax-exempt assets.

34

	Nine Months Ended September 30,
	2012								2011
	Average					Avg Yield/			Average					Avg Yield/
	Balance		Interest			Cost			Balance		Interest			Cost
	(Dollars in thousands)
ASSETS:
Interest-earning assets
Loans(1)(2)	$	569,820	$	19,353			4.53	%	$	533,222	$	19,057			4.77	%
Securities(2)		637,095		13,712			2.87			620,136		15,632			3.36
Other investments - at cost		15,072		70			0.62			14,004		46			0.44
Short-term investments(3)		9,773		2			0.03			6,918		1			0.02
Total interest-earning assets		1,231,760		33,137			3.59			1,174,280		34,736			3.94
Total noninterest-earning assets		65,905								71,294
Total assets	$	1,297,665							$	1,245,574
LIABILITIES AND EQUITY:
Interest-bearing liabilities
NOW accounts	$	63,019		221			0.47		$	87,864		630			0.96
Savings accounts		96,034		147			0.20			105,563		427			0.54
Money market accounts		167,758		619			0.49			89,621		430			0.64
Time certificates of deposit		316,001		3,678			1.55			336,689		4,404			1.74
Total interest-bearing deposits		642,812		4,665						619,737		5,891
Short-term borrowings and long-term debt		327,797		4,966			2.02			306,619		5,193			2.26
Interest-bearing liabilities		970,609		9,631			1.32			926,356		11,084			1.60
Noninterest-bearing deposits		101,874								88,408
Other noninterest-bearing liabilities		10,758								9,494
Total noninterest-bearing liabilities		112,632								97,902
Total liabilities		1,083,241								1,024,258
Total equity		214,424								221,316
Total liabilities and equity	$	1,297,665							$	1,245,574
Less: Tax-equivalent adjustment(2)				(660	)							(657	)
Net interest and dividend income			$	22,846							$	22,995
Net interest rate spread(4)							2.26	%							2.35	%
Net interest margin(5)							2.55	%							2.69	%
Ratio of average interest-earning
assets to average interest-bearing liabilities							126.91								126.76

___________________________

(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.

35

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.

	Nine Months Ended September 30, 2012 compared to Nine Months Ended September 30, 2011
	Increase (Decrease) Due to
	Volume			Rate			Net
Interest-earning assets	(In thousands)
Loans(1)	$	1,308		$	(1,012	)	$	296
Securities(1)		427			(2,347	)		(1,920	)
Other investments - at cost		4			20			24
Short-term investments		-			1			1
Total interest-earning assets		1,739			(3,338	)		(1,599	)
Interest-bearing liabilities
NOW accounts		(178	)		(231	)		(409	)
Savings accounts		(39	)		(241	)		(280	)
Money market accounts		375			(186	)		189
Time deposits		(271	)		(455	)		(726	)
Short-term borrowing and long-time debt		359			(586	)		(227	)
Total interest-bearing liabilities		246			(1,699	)		(1,453	)
Change in net interest and dividend income	$	1,493		$	(1,639	)	$	(146	)

_________________________________

(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.

Net interest and dividend income decreased $149,000 to $22.8 million for the nine months ended September 30, 2012, from $23.0 million for the same period in 2011.  Interest and dividend income, on a tax-equivalent basis, decreased $1.6 million to $33.1 million for the nine months ended September 30, 2012, from $34.7 million for the same period in 2011.  The net interest margin, on a tax-equivalent basis, was 2.55% for the nine months ended September 30, 2012, as compared to 2.69% for the same period in 2011.

The average yield on interest-earning assets decreased 35 basis points to 3.59% for the nine months ended September 30, 2012, from 3.94% for the same period in 2011.  The average yield on interest-earning assets decreased due to 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 and securities.  The average balance of loans increased $36.6 million while the average balance of securities increased $17.0 million for the nine months ended September 30, 2012.   

The decrease in interest income was offset by a decrease in interest expense.  Interest expense decreased $1.5 million to $9.6 million for the nine months ended September 30, 2012, from $11.1 million for the same period in 2011.  The average cost of interest-bearing liabilities decreased 28 basis points to 1.32% for the nine months ended September 30, 2012, from 1.60% for the same period in 2011.  The decrease in the cost of interest-bearing liabilities was primarily due to a decrease in rates on time deposits and short and long-term borrowings.

Provision for Loan Losses

The amount that we provided for loan losses during the nine months ended September 30, 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 an increase in residential real estate loans and commercial real estate loans, partially offset by a decrease in commercial and industrial loans and net loan charge-offs.  After evaluating these factors, we provided $698,000 for loan losses for the nine months ended September 30, 2012, compared to $529,000 for the same period in 2011.  After evaluating these factors, we provided $218,000 for loan losses for the three months ended September 30, 2012, compared to $15,000 for the same period in 2011.  Provision for loan losses decreased for commercial real estate loans due to improvements in credit quality and reductions in valuation allowances on impaired loans resulting from discounted cash flows. Provision for loan loss increased for commercial and industrial loans due to valuation allowances on a single loan relationship. The allowance was $8.2 million at September 30, 2012, and $7.8 million at December 31, 2011.  The allowance for loan losses was 1.41% and 1.40% of total loans at September 30, 2012 and December 31, 2011, respectively.

36

Residential real estate loans increased $31.3 million to $223.8 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.  Commercial real estate loans increased $7.9 million to $240.4 million at September 30, 2012, from $232.5 million at December 31, 2011.  Commercial and industrial loans decreased $10.3 million to $115.4 million at September 30, 2012, from $125.7 million at December 31, 2011.   A summary of our provision for loan losses by loan segment is listed in Note 5 of the accompanying consolidated financial statements.

Net charge-offs were $286,000 for the nine months ended September 30, 2012.  This was comprised of charge-offs of $369,000, partially offset by recoveries of $83,000 for the same period.

Net charge-offs were $376,000 for the nine months ended September 30, 2011.  This was comprised of charge-offs of $632,000, partially offset by recoveries of $256,000.

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 $1.9 million to $4.6 million for the nine months ended September 30, 2012, from $2.7 million for the same period in 2011.  This was primarily due to $1.9 million in net gains on the sales of securities, compared to $208,000 the same period in 2011.   With mortgage rates declining to new lows, we experienced a high level of prepayment activity in our mortgage-backed securities, which negatively affected the yield of the portfolio.  In an effort to improve portfolio performance, we 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, we sold the securities at a net gain, which created greater economic value for us.

In addition, service charges and fees increased $184,000 to $1.6 million for the nine months ended September 30, 2012, compared to $1.5 million for the same period in 2011.  Fees collected from card-based transactions increased $93,000 which reflects an increase in customer debit card and automated teller machine transactions.  Fees from the third-party mortgage company increased $68,000 for the nine months ended September 30, 2012, compared to the same period in 2011.  In the third quarter 2012, we began to refer low rate residential loans to a mortgage company, rather than retaining them on our balance sheet.

Noninterest Expense

Noninterest expense increased $863,000 for the nine months ended September 30, 2012, to $20.5 million from $19.6 million in the comparable 2011 period.  Salaries and benefits expense increased $883,000 to $12.6 million for the nine months ended September 30, 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 nine months ended September 30, 2012, we had a tax provision of $1.6 million as compared to $1.2 million for the same period in 2011.  The effective tax rate was 25.5% for the nine months ended September 30, 2012 and 21.7% for the same period in 2011.  The change in effective tax rate from September 31, 2011, is primarily due to the redemption of BOLI which resulted in an additional income tax provision of $160,000, or 2.5% of income before income taxes for the nine months ended September 30, 2012.

37

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 September 30, 2012, was $67.7 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 September 30, 2012, we exceeded each of the applicable regulatory capital requirements.  As of September 30, 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 is also a requirement to maintain a ratio of 1.5% tangible capital to tangible assets. There are no conditions or events since that notification that management believes would change our category.  Our actual capital ratios of September 30, 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)
September 30, 2012
Total Capital (to Risk Weighted Assets):
Consolidated	$	206,061		28.60	%	$	57,640		8.00	%		N/A		-
Bank		197,130		27.44			57,464		8.00		$	71,830		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated		197,835		27.46			28,820		4.00			N/A		-
Bank		189,370		26.36			28,732		4.00			43,098		6.00
Tier 1 Capital (to Adjusted Total Assets):
Consolidated		197,835		15.31			51,690		4.00			N/A		-
Bank		189,370		14.69			51,578		4.00			64,473		5.00
Tangible Equity (to Tangible Assets):
Consolidated		N/A		-			N/A		-			N/A		-
Bank		189,370		14.69			19,342		1.50			N/A		-
December 31, 2011
Total Capital (to Risk Weighted Assets):
Consolidated	$	216,363		31.60	%	$	54,780		8.00	%		N/A		-
Bank		207,899		30.47			54,590		8.00		$	68,238		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated		208,599		30.46			27,390		4.00			N/A		-
Bank		200,673		29.41			27,295		4.00			40,943		6.00
Tier 1 Capital (to Adjusted Total Assets):
Consolidated		208,599		16.76			49,796		4.00			N/A		-
Bank		200,673		16.17			49,639		4.00			62,049		5.00
Tangible Equity (to Tangible Assets):
Consolidated		N/A		-			N/A		-			N/A		-
Bank		200,673		16.17			18,615		1.50			N/A		-

38

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.  The following table summarizes the contractual obligations and credit commitments at September 30, 2012:

	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	$	626	$	1,224	$	896	$	9,525	$	12,271
Borrowings and Debt
Federal Home Loan Bank		35,124		45,901		126,062		17,000		224,087
Securities sold under agreements to repurchase		38,131		37,800		-		38,500		114,431
Total borrowings and debt		73,255		83,701		126,062		55,500		338,518
Credit Commitments
Available lines of credit		63,708		-		-		22,731		86,439
Other loan commitments		27,594		3,052		-		809		31,455
Letters of credit		3,085		92		-		91		3,268
Total credit commitments		94,387		3,144		-		23,631		121,162
Total Obligations	$	168,268	$	88,069	$	126,958	$	88,656	$	471,951

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.

39

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.

40

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 September 30, 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)
July 1 - 31, 2012		296,278	(3)		7.45		295,009		136,181
August 1 - 31, 2012		137,450	(4)		7.53		136,181		1,278,560
September 1 - 30, 2012		274,348	(5)		7.41		274,344		1,004,216
Total		708,076			7.45		705,534		1,004,216

(1) 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 5 percent of our outstanding shares of common stock.  In January 2012, the new repurchase program commenced upon the completion of the previously announced program in August 2012.

(2) On August 28, 2012, the Board of Directors authorized a new stock repurchase program under which the Company may purchase up to 1,278,560 shares, or 5% of its outstanding common stock to be effected via a combination of Rule 10b5-1 plans and discretionary share repurchases.  In September 2012, the new repurchase program commenced upon the completion of the previously announced program.  As of September 30, 2012, there were 1,004,216 shares remaining to be purchased under the new repurchase program.

(3) In July 2012, we repurchased 1,269 shares from certain executives as payment of their tax obligations for shares of restricted stock that vested on July 22, 2012, under our 2002 Recognition and Retention Plan.  These repurchases were reported by each reporting person on July 26, 2012.

(4) In August 2012, 1,269 shares were repurchased in open-market transactions at a price of $7.62.  These shares were not repurchased as part of a publicly announced program.

(5) In September 2012, 274,344 shares with an average price of $7.41 were repurchased in open-market transactions.  We also repurchased 4 shares with a price of $7.33 from PeoplesUnited, who served as trustee for our 2002 Restricted Stock Plan.  Such shares were the result of rounding from our reorganization in 2007.

There were no sales by us of unregistered securities during the three months ended September 30, 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.

41

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 November 6, 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

Exhibit Number	Description
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.)
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 September 30, 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.

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, James C. Hagan, certify that:

1.             I have reviewed this quarterly report on Form 10-Q of Westfield Financial, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:           November 6, 2012	/s/ James C. Hagan
	James C. Hagan President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Leo R. Sagan, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Westfield Financial, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:           November 6, 2012	/s/ Leo R. Sagan, Jr.
	Leo R. Sagan, Jr. Chief Financial Officer (Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350

In connection with the Quarterly Report on Form 10-Q of Westfield Financial Corporation (the “Company”) for the quarter ended September 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James C. Hagan, President and Chief Executive Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

A) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), and

B) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.

November 6, 2012	/s/ James C. Hagan
Dated	James C. Hagan
	President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350

In connection with the Quarterly Report on Form 10-Q of Westfield Financial Corporation (the “Company”) for the quarter ended September 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Leo R. Sagan, Jr., Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

A) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), and

B) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.

November 6, 2012	/s/ Leo R. Sagan, Jr.
Dated	Leo R. Sagan, Jr.
	Chief Financial Officer

XML

Changes in Allowance for Loan Losses by Segment (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning Balance	$ 8,065	$ 7,073	$ 7,764	$ 6,934
Provision	218	15	698	529
Charge-offs	(123)	(16)	(369)	(632)
Recoveries	16	15	83	256
Ending Balance	8,176	7,087	8,176	7,087
Residential real estate
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning Balance	1,800	1,190	1,531	877
Provision	106	272	410	583
Charge-offs	(115)		(155)	(2)
Recoveries		4	5	8
Ending Balance	1,791	1,466	1,791	1,466
Commercial real estate
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning Balance	3,517	3,041	3,504	3,182
Provision	(43)	(2)	115	(104)
Charge-offs			(195)	(175)
Recoveries	14	3	64	139
Ending Balance	3,488	3,042	3,488	3,042
Commercial and industrial
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning Balance	2,734	2,824	2,712	2,849
Provision	150	(254)	167	64
Charge-offs		(10)		(442)
Recoveries		1	5	90
Ending Balance	2,884	2,561	2,884	2,561
Consumer
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning Balance	14	18	17	26
Provision	5	(1)	6	(14)
Charge-offs	(8)	(6)	(19)	(13)
Recoveries	2	7	9	19
Ending Balance	$ 13	$ 18	$ 13	$ 18

XML

Short-Term Borrowings and Long-Term Debt - Additional Information (Detail) (USD $)	3 Months Ended	9 Months Ended				9 Months Ended	12 Months Ended			9 Months Ended	12 Months Ended
	Mar. 31, 2012	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 Federal Home Loan Bank Certificates and Obligations (FHLB)	Dec. 31, 2011 Federal Home Loan Bank Certificates and Obligations (FHLB)	Sep. 30, 2012 Federal Home Loan Bank Certificates and Obligations (FHLB) Maximum	Dec. 31, 2011 Federal Home Loan Bank Certificates and Obligations (FHLB) Maximum	Sep. 30, 2012 Securities sold under repurchase agreements	Dec. 31, 2011 Securities sold under repurchase agreements	Sep. 30, 2012 Customer repurchase agreements	Dec. 31, 2011 Customer repurchase agreements	Sep. 30, 2012 Line of Credit
Debt Instrument [Line Items]
SHORT-TERM BORROWINGS		$ 41,352,000	$ 52,985,000	$ 5,000,000	$ 36,000,000					$ 27,700,000	$ 17,000,000
Original maturity period of debt						1 year	1 year			1 day	1 day
Advances on line of credit with FHLB												8,700,000
LONG-TERM DEBT		297,166,000	247,320,000	210,400,000	160,600,000			81,300,000	81,300,000	5,400,000	5,400,000
Total advances modified	40,200,000	20,000,000
Average rate of advance	2.16%	3.67%
Prepayment penalty on advances modified	$ 1,700,000
Decreased Average rate of advances		2.82%

XML

Share-Based Compensation - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Annual vesting percentage of stock awards and stock options			20.00%
Share-based compensation expense			$ 1,435,000	$ 1,465,000
Stock options, tax benefit	51,000	51,000	153,000	156,000
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Incentive and non-statutory stock options, grant term			10 years
Stock awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation, shares available for grant	6,941		6,941
Share-based compensation expense	282,000	288,000	858,000	869,000
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation, shares available for grant	56,232		56,232
Share-based compensation expense	$ 185,000	$ 197,000	$ 577,000	$ 596,000
Directors, Officers and Employees Plan | Stock awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation, original shares available for grant	624,041		624,041
Directors, Officers and Employees Plan | Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation, original shares available for grant	1,560,101		1,560,101

XML

Gross Realized Gains and Losses on Sales of Securities (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Gain (Loss) on Investments [Line Items]
Gross gains realized	$ 175	$ 528	$ 2,909	$ 1,407
Gross losses realized	(1)	(397)	(1,053)	(1,199)
Net gain realized	$ 174	$ 131	$ 1,856	$ 208

XML

PENSION BENEFITS (Tables)

9 Months Ended

Sep. 30, 2012

Net Pension Benefit Costs

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In thousands)
Service cost	$	279		$	247		$	815		$	742
Interest cost		200			223			600			668
Expected return on assets		(218	)		(219	)		(649	)		(656	)
Transition asset		(3	)		(3	)		(8	)		(8	)
Actuarial loss		44			29			131			87
Net periodic pension cost	$	302		$	277		$	889		$	833

XML

Assets Measured at Fair Value on Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Available-for-sale securities	$ 650,400	$ 617,537
Government-sponsored residential mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Available-for-sale securities	376,369	386,227
U.S. government guaranteed mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Available-for-sale securities	138,757	152,875
Corporate Bonds
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Available-for-sale securities	53,741
State and municipal bonds
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Available-for-sale securities	42,419	45,874
Government sponsored enterprise obligations
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Available-for-sale securities	31,714	24,752
Mutual funds
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Available-for-sale securities	6,052	5,854
Common and preferred stock
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Available-for-sale securities	1,348	388
Private label residential mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Available-for-sale securities		1,567
Level 1
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Available-for-sale securities	7,400	6,242
Level 1 | Mutual funds
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Available-for-sale securities	6,052	5,854
Level 1 | Common and preferred stock
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Available-for-sale securities	1,348	388
Level 2
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Available-for-sale securities	643,000	611,295
Level 2 | Government-sponsored residential mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Available-for-sale securities	376,369	386,227
Level 2 | U.S. government guaranteed mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Available-for-sale securities	138,757	152,875
Level 2 | Corporate Bonds
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Available-for-sale securities	53,741
Level 2 | State and municipal bonds
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Available-for-sale securities	42,419	45,874
Level 2 | Government sponsored enterprise obligations
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Available-for-sale securities	31,714	24,752
Level 2 | Private label residential mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Available-for-sale securities		$ 1,567

XML

Impaired Loans by Class (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Financing Receivable, Impaired [Line Items]
Recorded Investment	$ 17,416		$ 17,416		$ 17,306
Unpaid Principal Balance	17,635		17,635		17,482
Related Allowance	963		963		597
Average Recorded Investment	17,319	17,179	17,237	15,131
Interest Income Recognized	160	209	528	586
Impaired loans without a valuation allowance
Financing Receivable, Impaired [Line Items]
Recorded Investment	1,759		1,759		1,665
Unpaid Principal Balance	1,968		1,968		1,805
Average Recorded Investment	1,751	1,713	1,699	2,248
Impaired loans without a valuation allowance | Residential real estate
Financing Receivable, Impaired [Line Items]
Recorded Investment	117		117		120
Unpaid Principal Balance	125		125		126
Average Recorded Investment	118	122	119	123
Impaired loans without a valuation allowance | Commercial real estate
Financing Receivable, Impaired [Line Items]
Recorded Investment	1,597		1,597		1,545
Unpaid Principal Balance	1,798		1,798		1,679
Average Recorded Investment	1,610	1,591	1,572	1,660
Impaired loans without a valuation allowance | Commercial and industrial
Financing Receivable, Impaired [Line Items]
Recorded Investment	45		45
Unpaid Principal Balance	45		45
Average Recorded Investment	23		8	465
Impaired loans with a valuation allowance
Financing Receivable, Impaired [Line Items]
Recorded Investment	15,657		15,657		15,641
Unpaid Principal Balance	15,667		15,667		15,677
Related Allowance	963		963		597
Average Recorded Investment	15,568	15,466	15,538	12,883
Interest Income Recognized	160	209	528	586
Impaired loans with a valuation allowance | Residential real estate
Financing Receivable, Impaired [Line Items]
Recorded Investment	185		185		187
Unpaid Principal Balance	185		185		187
Related Allowance	70		70		70
Average Recorded Investment	186	115	186	58
Impaired loans with a valuation allowance | Commercial real estate
Financing Receivable, Impaired [Line Items]
Recorded Investment	13,921		13,921		14,194
Unpaid Principal Balance	13,921		13,921		14,225
Related Allowance	407		407		449
Average Recorded Investment	13,959	14,204	14,019	11,843
Interest Income Recognized	149	198	496	542
Impaired loans with a valuation allowance | Commercial and industrial
Financing Receivable, Impaired [Line Items]
Recorded Investment	1,551		1,551		1,145
Unpaid Principal Balance	1,561		1,561		1,150
Related Allowance	486		486		39
Average Recorded Investment	1,365	1,147	1,237	982
Interest Income Recognized	11	11	32	44
Impaired loans with a valuation allowance | Home equity
Financing Receivable, Impaired [Line Items]
Recorded Investment					115
Unpaid Principal Balance					115
Related Allowance					39
Average Recorded Investment	$ 58		$ 96

XML

Loans (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Dec. 31, 2010
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 581,652		$ 553,139
Unearned premiums and deferred loan fees and costs, net	1,080		1,017
Allowance for loan losses	(8,176)	(8,065)	(7,764)	(7,087)	(7,073)	(6,934)
Loans, net	574,556		546,392
Commercial real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	240,420		232,491
Allowance for loan losses	(3,488)	(3,517)	(3,504)	(3,042)	(3,041)	(3,182)
Residential real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	189,012		155,994
Home equity
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	34,753		36,464
Commercial and industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	115,437		125,739
Allowance for loan losses	(2,884)	(2,734)	(2,712)	(2,561)	(2,824)	(2,849)
Consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	2,030		2,451
Allowance for loan losses	$ (13)	$ (14)	$ (17)	$ (18)	$ (18)	$ (26)

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Estimated Fair Values of Financial Instruments (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Assets, carrying value:
Cash and cash equivalents	$ 11,653	$ 21,105
Securities available for sale, carrying value	650,400	617,537
Federal Home Loan Bank of Boston and other restricted stock, carrying value	14,045	12,438
Loans - net, carrying value	574,556	546,392
Accrued interest receivable, carrying value	4,556	4,022
Liabilities, carrying value:
Deposits, carrying value	754,408	732,958
Short-term borrowings, carrying value	41,352	52,985
Long-term debt, carrying value	297,166	247,320
Accrued interest payable, carrying value	525	656
Assets, estimated fair value:
Cash and cash equivalents	11,653	21,105
Securities available for sale, estimated fair value	650,400	617,537
Federal Home Loan Bank of Boston and other restricted stock, estimated fair value	14,045	12,438
Loans - net, estimated fair value	597,119	552,422
Accrued interest receivable, estimated fair value	4,556	4,022
Liabilities, estimated fair value:
Deposits, estimated fair value	757,416	731,294
Short-term borrowings, estimated fair value	41,352	52,982
Long-term debt, estimated fair value	312,234	258,470
Accrued interest payable, estimated fair value	525	656
Level 1
Assets, estimated fair value:
Cash and cash equivalents	11,653
Securities available for sale, estimated fair value	7,400	6,242
Level 2
Assets, estimated fair value:
Securities available for sale, estimated fair value	643,000	611,295
Liabilities, estimated fair value:
Short-term borrowings, estimated fair value	41,352
Long-term debt, estimated fair value	312,234
Level 3
Assets, estimated fair value:
Federal Home Loan Bank of Boston and other restricted stock, estimated fair value	14,045
Loans - net, estimated fair value	597,119
Accrued interest receivable, estimated fair value	4,556
Liabilities, estimated fair value:
Deposits, estimated fair value	757,416
Accrued interest payable, estimated fair value	$ 525

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Stock Award and Option Plans Activity (Detail) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Unvested Stock Awards Outstanding, Shares
Beginning Balance	155,206	248,612
Granted		28,000
Stock award vested	(4,006)	(9,606)
Ending Balance	151,200	267,006
Unvested Stock Awards Outstanding, Weighted Average Grant Date Fair Value
Beginning Balance	$ 9.54	$ 9.92
Granted		$ 8.13
Stock award vested	$ 10.11	$ 10.07
Ending Balance	$ 9.52	$ 9.72
Stock Options Outstanding, Shares
Beginning Balance	1,907,744	1,911,485
Granted		78,000
Stock options exercised	(237,313)	(34,646)
Ending Balance	1,670,431	1,954,839
Stock Options Outstanding, Weighted Average Exercise Price
Beginning Balance	$ 9.32	$ 9.08
Granted		$ 10.04
Stock options exercised	$ 4.39	$ 4.39
Ending Balance	$ 10.02	$ 9.20

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 September 30, 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 and nine months ended September 30, 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.

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Performing Loans Modified as Troubled Debt Restructurings (Detail) (Troubled Debt Restructuring, USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012 Contract	Sep. 30, 2012 Contract	Sep. 30, 2011 Contract
Financing Receivable, Modifications [Line Items]
Number of Contracts	1	8	2
Pre-Modification Outstanding Recorded Investment	$ 45	$ 16,071	$ 15,000
Post-Modification Outstanding Recorded Investment	45	16,071	15,000
Commercial real estate
Financing Receivable, Modifications [Line Items]
Number of Contracts		5	1
Pre-Modification Outstanding Recorded Investment		14,887	14,000
Post-Modification Outstanding Recorded Investment		14,887	14,000
Commercial and industrial
Financing Receivable, Modifications [Line Items]
Number of Contracts	1	3	1
Pre-Modification Outstanding Recorded Investment	45	1,184	1,000
Post-Modification Outstanding Recorded Investment	$ 45	$ 1,184	$ 1,000

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Components of Accumulated Other Comprehensive Income (Loss) (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Dec. 31, 2010
Accumulated Other Comprehensive Income (Loss) [Line Items]
Net unrealized gain on securities available for sale	$ 24,362	$ 16,225
Tax effect	(8,372)	(5,573)
Net-of-tax amount	15,990	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	24	32
Unrecognized deferred loss pertaining to defined benefit plans	(3,847)	(3,978)
Net adjustments pertaining to defined benefit plans	(3,823)	(3,946)
Tax effect	1,300	1,341
Net-of-tax amount	(2,523)	(2,605)
Accumulated other comprehensive income	$ 13,467	$ 7,716	$ 9,727	$ (5,516)

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Earning Per Common Share (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011		Sep. 30, 2012		Sep. 30, 2011
Earnings Per Share Disclosure [Line Items]
Net income applicable to common stock	$ 1,387		$ 1,494		$ 4,700		$ 4,345
Average number of common shares outstanding	25,643,000		27,778,000		26,264,000		27,979,000
Less: Average unallocated ESOP Shares	(1,244,000)		(1,328,000)		(1,265,000)		(1,349,000)
Average ungranted equity incentive plan shares	(7,000)		(7,000)		(7,000)		(22,000)
Average number of common shares outstanding used to calculate basic earnings per common share	24,391,585		26,443,449		24,992,245		26,608,490
Effect of dilutive stock options	1,000		101,000		24,000		115,000
Average number of common shares outstanding used to calculate diluted earnings per common share	24,393,109		26,544,257		25,015,664		26,723,947
Basic earnings per share	$ 0.06		$ 0.06		$ 0.19		$ 0.16
Diluted earnings per share	$ 0.06		$ 0.06		$ 0.19		$ 0.16
Antidilutive shares	1,670,000	[1]	1,662,000	[1]	1,665,000	[1]	1,631,000	[1]

[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.

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Summary of Troubled Debt Restructuring that Subsequently Defaulted within One Year of Modification (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012 Contract	Sep. 30, 2011 Contract
Financing Receivable, Modifications [Line Items]
Number of Contracts	5	1
Recorded Investment	$ 1,108	$ 120
Troubled Debt Restructuring | Commercial real estate
Financing Receivable, Modifications [Line Items]
Number of Contracts	4
Recorded Investment	966
Troubled Debt Restructuring | Commercial and industrial
Financing Receivable, Modifications [Line Items]
Number of Contracts	1
Recorded Investment	142
Troubled Debt Restructuring | Residential real estate
Financing Receivable, Modifications [Line Items]
Number of Contracts		1
Recorded Investment		$ 120

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Changes in Accumulated Other Comprehensive Income (Loss) By Component (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning Balance	$ 7,716	$ (5,516)
Current-period other comprehensive income	5,751	15,243
Ending Balance	13,467	9,727
Securities
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning Balance	10,321	(3,774)
Current-period other comprehensive income	5,669	15,191
Ending Balance	15,990	11,417
Defined Benefit Plans
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning Balance	(2,605)	(1,742)
Current-period other comprehensive income	82	52
Ending Balance	$ (2,523)	$ (1,690)

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Securities Available For Sale (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	$ 626,038	$ 601,813
Available for sale, Gross Unrealized Gain	24,750	16,316
Available for sale, Gross Unrealized Losses	(388)	(592)
Available for sale, Fair Value	650,400	617,537
Government-sponsored residential mortgage-backed securities
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	363,814	377,447
Available for sale, Gross Unrealized Gain	12,874	8,802
Available for sale, Gross Unrealized Losses	(319)	(22)
Available for sale, Fair Value	376,369	386,227
U.S. government guaranteed mortgage-backed securities
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	132,263	148,938
Available for sale, Gross Unrealized Gain	6,494	3,937
Available for sale, Fair Value	138,757	152,875
Private-label residential mortgage-backed securities
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost		2,068
Available for sale, Gross Unrealized Losses		(501)
Available for sale, Fair Value		1,567
State and municipal bonds
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	40,076	43,393
Available for sale, Gross Unrealized Gain	2,344	2,481
Available for sale, Gross Unrealized Losses	(1)
Available for sale, Fair Value	42,419	45,874
Government sponsored enterprise obligations
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	30,402	23,761
Available for sale, Gross Unrealized Gain	1,312	991
Available for sale, Fair Value	31,714	24,752
Mutual funds
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	5,940	5,813
Available for sale, Gross Unrealized Gain	161	99
Available for sale, Gross Unrealized Losses	(49)	(58)
Available for sale, Fair Value	6,052	5,854
Common and preferred stock
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	1,349	393
Available for sale, Gross Unrealized Gain	18	6
Available for sale, Gross Unrealized Losses	(19)	(11)
Available for sale, Fair Value	1,348	388
Corporate Bonds
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	52,194
Available for sale, Gross Unrealized Gain	1,547
Available for sale, Fair Value	$ 53,741

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CONSOLIDATED STATEMENTS OF CASHFLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
OPERATING ACTIVITIES:
Net income	$ 4,700	$ 4,345
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	698	529
Depreciation and amortization of premises and equipment	792	860
Net amortization of premiums and discounts on securities and mortgage loans	3,139	2,522
Net amortization of premiums on modified debt	376	140
Share-based compensation expense	1,435	1,465
Amortization of ESOP expense	482	556
Excess tax shortfalls (benefits) from equity incentive plan	(11)	(24)
Excess tax benefits in connection with stock option exercises	(240)	(18)
Net gains on sales of securities	(1,856)	(208)
Other than temporary impairment losses on securities		102
Loss on sale of other real estate owned		25
Deferred income tax benefit	(154)	(156)
Income from bank-owned life insurance	(1,132)	(1,150)
Changes in assets and liabilities:
Accrued interest receivable	(534)	89
Other assets	64	1,034
Other liabilities	1,216	790
Net cash provided by operating activities	8,975	10,901
Securities, available for sale:
Purchases	(308,680)	(186,024)
Proceeds from sales	218,397	157,999
Proceeds from calls, maturities, and principal collections	64,889	55,543
Purchase of residential mortgages	(56,559)	(52,490)
Loan originations and principal payments, net	27,572	15,686
Purchase of Federal Home Loan Bank of Boston stock	(1,802)	(156)
Proceeds from redemption of Federal Home Loan Bank of Boston stock	195
Proceeds from sale of other real estate owned		198
Purchases of premises and equipment	(1,012)	(388)
Purchase of bank-owned life insurance	(2,600)	(2,000)
Surrender of bank-owned life insurance	1,585
Net cash used in investing activities	(58,015)	(11,632)
FINANCING ACTIVITIES:
Net increase in deposits	21,450	20,179
Net change in short-term borrowings	(11,633)	(7,393)
Repayment of long-term debt	(53,231)	(5,150)
Proceeds from long-term debt	102,701	14,099
Cash dividends paid	(7,045)	(8,797)
Common stock repurchased	(13,946)	(4,461)
Issuance of common stock in connection with stock option exercises	1,041	151
Excess tax benefits in connection with equity incentive plan	11	24
Excess tax benefits in connection with stock option exercises	240	18
Purchase of common stock in connection with employee benefit program		15
Net cash provided by financing activities	39,588	8,685
NET CHANGE IN CASH AND CASH EQUIVALENTS:	(9,452)	7,954
Beginning of period	21,105	11,611
End of period	11,653	19,565
Supplemental cashflow information:
Transfer of loans to other real estate owned		1,130
Interest paid	9,501	11,163
Taxes paid	2,014	701
Securities pending settlement	$ 352

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Amortized Cost and Fair Value of Securities Available for Sale by Maturity (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	$ 626,038	$ 601,813
Available for sale, Fair Value	650,400	617,537
Mortgage Backed Securities
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	496,077
Available for sale, Fair Value	515,126
Mortgage Backed Securities | Due after five years through ten years
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	35,414
Available for sale, Fair Value	37,137
Mortgage Backed Securities | Due after ten years
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	460,663
Available for sale, Fair Value	477,989
Debt Securities, Excluding Mortgage-Backed Securities
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	122,672
Available for sale, Fair Value	127,874
Debt Securities, Excluding Mortgage-Backed Securities | Due after five years through ten years
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	61,869
Available for sale, Fair Value	64,393
Debt Securities, Excluding Mortgage-Backed Securities | Due after ten years
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	20,504
Available for sale, Fair Value	21,430
Debt Securities, Excluding Mortgage-Backed Securities | Due in one year or less
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	2,141
Available for sale, Fair Value	2,161
Debt Securities, Excluding Mortgage-Backed Securities | Due after one year through five years
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	38,158
Available for sale, Fair Value	$ 39,890

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Allowance for Loan Losses by Segment (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Dec. 31, 2010
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowances for loan losses, individually evaluated for loss potential	$ 963		$ 597
Allowances for loan losses, collectively evaluated for loss potential	7,213		7,167
Allowances for loan losses, total	8,176	8,065	7,764	7,087	7,073	6,934
Loan outstanding, individually evaluated for loss potential	17,416		17,306
Loan outstanding, collectively evaluated for loss potential	564,236		535,833
Loan outstanding, total	581,652		553,139
Residential real estate
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowances for loan losses, individually evaluated for loss potential	70		109
Allowances for loan losses, collectively evaluated for loss potential	1,721		1,422
Allowances for loan losses, total	1,791	1,800	1,531	1,466	1,190	877
Loan outstanding, individually evaluated for loss potential	302		422
Loan outstanding, collectively evaluated for loss potential	223,463		192,036
Loan outstanding, total	223,765		192,458
Commercial real estate
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowances for loan losses, individually evaluated for loss potential	407		449
Allowances for loan losses, collectively evaluated for loss potential	3,081		3,055
Allowances for loan losses, total	3,488	3,517	3,504	3,042	3,041	3,182
Loan outstanding, individually evaluated for loss potential	15,518		15,739
Loan outstanding, collectively evaluated for loss potential	224,902		216,752
Loan outstanding, total	240,420		232,491
Commercial and industrial
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowances for loan losses, individually evaluated for loss potential	486		39
Allowances for loan losses, collectively evaluated for loss potential	2,398		2,673
Allowances for loan losses, total	2,884	2,734	2,712	2,561	2,824	2,849
Loan outstanding, individually evaluated for loss potential	1,596		1,145
Loan outstanding, collectively evaluated for loss potential	113,841		124,594
Loan outstanding, total	115,437		125,739
Consumer
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowances for loan losses, individually evaluated for loss potential			0
Allowances for loan losses, collectively evaluated for loss potential	13		17
Allowances for loan losses, total	13	14	17	18	18	26
Loan outstanding, individually evaluated for loss potential			0
Loan outstanding, collectively evaluated for loss potential	2,030		2,451
Loan outstanding, total	$ 2,030		$ 2,451

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
ASSETS
Cash and due from banks	$ 11,057	$ 10,953
Federal funds sold	156	131
Interest-bearing deposits and other short-term investments	440	10,021
Cash and cash equivalents	11,653	21,105
SECURITIES AVAILABLE FOR SALE - AT FAIR VALUE	650,400	617,537
FEDERAL HOME LOAN BANK OF BOSTON AND OTHER RESTRICTED STOCK - AT COST	14,045	12,438
LOANS - Net of allowance for loan losses of $8,176 at September 30, 2012 and $7,764 at December 31, 2011	574,556	546,392
PREMISES AND EQUIPMENT, Net	11,217	10,997
ACCRUED INTEREST RECEIVABLE	4,556	4,022
BANK-OWNED LIFE INSURANCE	45,835	44,040
DEFERRED TAX ASSET, Net		1,863
OTHER REAL ESTATE OWNED	1,130	1,130
OTHER ASSETS	3,635	3,740
TOTAL ASSETS	1,317,027	1,263,264
DEPOSITS :
Noninterest-bearing	108,404	100,157
Interest-bearing	646,004	632,801
Total deposits	754,408	732,958
SHORT-TERM BORROWINGS	41,352	52,985
LONG-TERM DEBT	297,166	247,320
SECURITIES PENDING SETTLEMENT	352	363
DEFERRED TAX LIABILITY, Net	600
OTHER LIABILITIES	11,492	10,650
TOTAL LIABILITIES	1,105,370	1,044,276
SHAREHOLDERS' EQUITY:
Preferred stock - $.01 par value, 5,000,000 shares authorized, none outstanding at September 30, 2012 and December 31, 2011
Common stock - $.01 par value, 75,000,000 shares authorized, 25,296,855 shares issued and outstanding at September 30, 2012; 26,918,250 shares issued and outstanding at December 31, 2011	253	269
Additional paid-in capital	162,516	173,615
Unearned compensation - ESOP	(8,695)	(9,119)
Unearned compensation - Equity Incentive Plan	(370)	(1,228)
Retained earnings	44,486	47,735
Accumulated other comprehensive income	13,467	7,716
Total shareholders' equity	211,657	218,988
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 1,317,027	$ 1,263,264

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Loans by Risk Rating (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 581,652	$ 553,139
Loans rated 1 - 3
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	505,442	463,749
Loans rated 4
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	25,892	38,984
Loans rated 5
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	8,162	14,782
Loans rated 6
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	42,156	35,430
Loans rated 7
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans		194
Residential 1-4 family
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	189,012	155,994
Residential 1-4 family | Loans rated 1 - 3
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	188,067	155,324
Residential 1-4 family | Loans rated 6
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	945	670
Home equity
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	34,753	36,464
Home equity | Loans rated 1 - 3
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	34,645	36,234
Home equity | Loans rated 6
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	108	230
Commercial real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	240,420	232,491
Commercial real estate | Loans rated 1 - 3
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	195,959	182,453
Commercial real estate | Loans rated 4
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	18,591	22,855
Commercial real estate | Loans rated 5
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	3,326	7,104
Commercial real estate | Loans rated 6
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	22,544	19,885
Commercial real estate | Loans rated 7
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans		194
Commercial and industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	115,437	125,739
Commercial and industrial | Loans rated 1 - 3
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	84,741	87,287
Commercial and industrial | Loans rated 4
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	7,301	16,129
Commercial and industrial | Loans rated 5
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	4,836	7,678
Commercial and industrial | Loans rated 6
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	18,559	14,645
Consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	2,030	2,451
Consumer | Loans rated 1 - 3
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 2,030	$ 2,451

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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (USD $) In Thousands, except Share data	Total	Common Stock	Additional Paid-in Capital	Unearned Compensation- ESOP	Unearned Compensation- Equity Incentive Plan	Retained Earnings	Accumulated Other Comprehensive Income (Loss)
BEGINNING BALANCE at Dec. 31, 2010	$ 221,245	$ 282	$ 181,842	$ (9,701)	$ (2,158)	$ 56,496	$ (5,516)
BEGINNING BALANCE (in shares) at Dec. 31, 2010		28,166,419
Net income	4,345					4,345
Other comprehensive income	15,243						15,243
Common stock held by ESOP committed to be released (84,261 shares in 2012 and 86,585 shares in 2011)	556		120	436
Share-based compensation - stock options	596		596
Share-based compensation - equity incentive plan	869				869
Excess tax benefits from equity incentive plan	24		24
Purchase of ESOP Shares (in shares)		1,946
Purchase of ESOP Shares	15		15
Common stock repurchased (in shares)		(554,228)
Common stock repurchased	(4,461)	(6)	(4,455)
Issuance of common stock in connection with stock option exercises (in shares)	34,646	34,646
Issuance of common stock in connection with stock option exercises	151		293			(142)
Issuance of common stock in connection with equity incentive plan			227		(227)
Excess tax benefits in connection with stock option exercises	18		18
Cash dividends declared ($0.28 per share in 2012 and $0.33 per share in 2011)	(8,797)					(8,797)
ENDING BALANCE at Sep. 30, 2011	229,804	276	178,680	(9,265)	(1,516)	51,902	9,727
ENDING BALANCE (in shares) at Sep. 30, 2011		27,648,783
BEGINNING BALANCE at Dec. 31, 2011	218,988	269	173,615	(9,119)	(1,228)	47,735	7,716
BEGINNING BALANCE (in shares) at Dec. 31, 2011		26,918,250
Net income	4,700					4,700
Other comprehensive income	5,751						5,751
Common stock held by ESOP committed to be released (84,261 shares in 2012 and 86,585 shares in 2011)	482		58	424
Share-based compensation - stock options	577		577
Share-based compensation - equity incentive plan	858				858
Excess tax benefits from equity incentive plan	11		11
Common stock repurchased (in shares)		(1,858,708)
Common stock repurchased	(13,946)	(18)	(13,928)
Issuance of common stock in connection with stock option exercises (in shares)	237,313	237,313
Issuance of common stock in connection with stock option exercises	1,041	2	1,943			(904)
Excess tax benefits in connection with stock option exercises	240		240
Cash dividends declared ($0.28 per share in 2012 and $0.33 per share in 2011)	(7,045)					(7,045)
ENDING BALANCE at Sep. 30, 2012	$ 211,657	$ 253	$ 162,516	$ (8,695)	$ (370)	$ 44,486	$ 13,467
ENDING BALANCE (in shares) at Sep. 30, 2012		25,296,855

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Securities with Gross Unrealized Losses in Continuous Loss Position (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Less Than Twelve Months Gross Unrealized Losses	$ (339)	$ (22)
Available for sale, Less Than Twelve Months Fair Value	32,080	14,652
Available for sale, Over Twelve Months Gross Unrealized Losses	(49)	(570)
Available for sale, Over twelve Months Fair Value	1,687	3,221
Government-sponsored residential mortgage-backed securities
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Less Than Twelve Months Gross Unrealized Losses	(319)	(22)
Available for sale, Less Than Twelve Months Fair Value	30,869	14,652
Private-label residential mortgage-backed securities
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Over Twelve Months Gross Unrealized Losses		(501)
Available for sale, Over twelve Months Fair Value		1,567
Mutual funds
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Over Twelve Months Gross Unrealized Losses	(49)	(58)
Available for sale, Over twelve Months Fair Value	1,687	1,626
Common and preferred stock
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Less Than Twelve Months Gross Unrealized Losses	(19)
Available for sale, Less Than Twelve Months Fair Value	20
Available for sale, Over Twelve Months Gross Unrealized Losses		(11)
Available for sale, Over twelve Months Fair Value		28
State and Municipal Debt Obligations
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Less Than Twelve Months Gross Unrealized Losses	(1)
Available for sale, Less Than Twelve Months Fair Value	$ 1,191

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SECURITIES (Tables)

9 Months Ended

Sep. 30, 2012

Securities Available For Sale

Securities available for sale are summarized as follows:

	September 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Government-sponsored mortgage-backed securities	$	363,814	$	12,874	$	(319	)	$	376,369
U.S. government guaranteed  mortgage-backed securities		132,263		6,494		-			138,757
Corporate bonds		52,194		1,547		-			53,741
State and municipal bonds		40,076		2,344		(1	)		42,419
Government-sponsored enterprise obligations		30,402		1,312		-			31,714
Mutual funds		5,940		161		(49	)		6,052
Common and preferred stock		1,349		18		(19	)		1,348
Total	$	626,038	$	24,750	$	(388	)	$	650,400
	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Government-sponsored mortgage-backed securities	$	377,447	$	8,802	$	(22	)	$	386,227
U.S. government guaranteed  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

Amortized Cost and Fair Value of Securities Available for Sale by Maturity

The amortized cost and fair value of securities available for sale at September 30, 2012, by maturity, are shown below.  Actual maturities may differ from contractual maturities because certain issuers have the right to call or repay obligations.

	September 30, 2012
	Amortized Cost		Fair Value
	(In thousands)
Mortgage-backed securities:
Due after five years through ten years	$	35,414	$	37,137
Due after ten years		460,663		477,989
Total	$	496,077	$	515,126

Debt securities:
Due in one year or less	$	2,141	$	2,161
Due after one year through five years		38,158		39,890
Due after five years through ten years		61,869		64,393
Due after ten years		20,504		21,430
Total	$	122,672	$	127,874

Gross Realized Gains and Losses on Sales of Securities

Gross realized gains and losses on sales of securities for the three and nine months ended September 30, 2012 and 2011 are as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
	(In thousands)
Gross gains realized	$	175		$	528		$	2,909		$	1,407
Gross losses realized		(1	)		(397	)		(1,053	)		(1,199	)
Net gain realized	$	174		$	131		$	1,856		$	208

Securities with Gross Unrealized Losses in Continuous Loss Position

Information pertaining to securities with gross unrealized losses at September 30, 2012, and December 31, 2011, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	September 30, 2012
	Less Than Twelve Months					Over Twelve Months
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
	(In thousands)
Government-sponsored mortgage-backed securities	$	(319	)	$	30,869	$	-		$	-
State and municipal bonds		(1	)		1,191		-			-
Mutual funds		-			-		(49	)		1,687
Common and preferred stock		(19	)		20		-			-
Total	$	(339	)	$	32,080	$	(49	)	$	1,687

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

Credit Losses on Mortgage-backed Securities for which Portion of Other-Than-Temporary Impairment was Recognized in Other Comprehensive Income

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:

	Nine Months Ended September 30,
	2012			2011
	(In thousands)
Beginning balance	$	442		$	425
Reductions for securities sold during the period		(442	)		(85	)
Additional credit losses for which other-than-temporary       impairment charge was previously recognized		-			102
Ending balance	$	-		$	442

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Credit Losses on Mortgage-Backed Securities for which Portion of Other-Than-Temporary Impairment was Recognized in Other Comprehensive Income (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Beginning balance	$ 442	$ 425
Reductions for securities sold during the period	(442)	(85)
Additional credit losses for which other-than-temporary impairment charge was previously recognized		102
Ending balance		$ 442

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SHARE-BASED COMPENSATION (Tables)

9 Months Ended

Sep. 30, 2012

Stock Award and Option Plans Activity

Our stock award and stock option plans activity for the nine months ended September 30, 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		-			-		(237,313	)		4.39
Stock award vested		(4,006	)		10.11		-
Outstanding at September 30, 2012		151,200		$	9.52		1,670,431		$	10.02
Outstanding at December 31, 2010		248,612		$	9.92		1,911,485		$	9.08
Granted		28,000			8.13		78,000			10.04
Stock options exercised		-			-		(34,646	)		4.39
Stock awards vested		(9,606	)		10.07		-			-
Outstanding at September 30, 2011		267,006		$	9.72		1,954,839		$	9.20

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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Parenthetical) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Common stock held by ESOP committed to be released, shares	84,261	86,585
Cash dividends declared, per share	$ 0.28	$ 0.33

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
LOANS, allowance for loan losses	$ 8,176	$ 7,764
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, outstanding
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issued	25,296,855	26,918,250
Common stock, shares outstanding	25,296,855	26,918,250

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FAIR VALUE OF ASSETS AND LIABILITIES

9 Months Ended

Sep. 30, 2012

FAIR VALUE OF ASSETS AND LIABILITIES

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 or liabilities 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.

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 restricted 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:

	September 30, 2012
	Level 1		Level 2		Level 3		Total
Securities available for sale:	(In thousands)
Government-sponsored mortgage-backed securities	$	-	$	376,369	$	-	$	376,369
U.S. government guaranteed mortgage-backed securities		-		138,757		-		138,757
Corporate Bonds		-		53,741		-		53,741
State and municipal bonds		-		42,419		-		42,419
Government-sponsored enterprise obligations		-		31,714		-		31,714
Mutual funds		6,052		-		-		6,052
Common and preferred stock		1,348		-		-		1,348
Total assets	$	7,400	$	643,000	$	-	$	650,400
	December 31, 2011
	Level 1		Level 2		Level 3		Total
Securities available for sale:	(In thousands)
Government-sponsored mortgage-backed securities	$	-	$	386,227	$	-	$	386,227
U.S. government guaranteed mortgage-backed securities		-		152,875		-		152,875
Private-label residential mortgage-backed securities		-		1,567		-		1,567
State and municipal bonds		-		45,874		-		45,874
Government-sponsored enterprise obligations		-		24,752		-		24,752
Mutual funds		5,854		-		-		5,854
Common and preferred stock		388		-		-		388
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 September 30, 2012 and 2011.  Total losses represent the change in carrying value as a result of fair value adjustments related to assets still held at September 30, 2012 and 2011.

	At						Three Months Ended			Nine Months Ended
	September 30, 2012						September 30, 2012			September 30, 2012
							Total			Total
	Level 1		Level 2		Level 3		Gains (Losses)			Gains (Losses)
	(In thousands)
Impaired Loans	$	-	$	-	$	1,100	$	(352	)	$	(196	)
Total Assets	$	-	$	-	$	1,100	$	(352	)	$	(196	)
	At						Three Months Ended			Nine Months Ended
	September 30, 2011						September 30, 2011			September 30, 2011
							Total			Total
	Level 1		Level 2		Level 3		Gains (Losses)			Gains (Losses)
	(In thousands)
Impaired Loans	$	-	$	-	$	1,079	$	8		$	(240	)
Total Assets	$	-	$	-	$	1,079	$	8		$	(240	)

	At
	December 31, 2011
	Level 1		Level 2		Level 3
	(In thousands)
Impaired loans	$	-	$	-	$	1,181
Other real estate owned		-		-		1,130
Total assets	$	-	$	-	$	2,311

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 and nine months ended September 30, 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 and nine months ended September 30, 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:

	September 30, 2012
	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash and cash equivalents	$	11,653	$	11,653	$	-	$	-	$	11,653
Securities available for sale		650,400		7,400		643,000		-		650,400
Federal Home Loan Bank of Boston and other restricted stock		14,045		-		-		14,045		14,045
Loans - net		574,556		-		-		597,119		597,119
Accrued interest receivable		4,556		-		-		4,556		4,556
Liabilities:
Deposits		754,408		-		-		757,416		757,416
Short-term borrowings		41,352		-		41,352		-		41,352
Long-term debt		297,166		-		312,234		-		312,234
Accrued interest payable		525		-		-		525		525

	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

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Oct. 29, 2012
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Trading Symbol	WFD
Entity Registrant Name	WESTFIELD FINANCIAL INC
Entity Central Index Key	0001157647
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		24,785,784

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RECENT ACCOUNTING PRONOUNCEMENTS

9 Months Ended

Sep. 30, 2012

RECENT ACCOUNTING PRONOUNCEMENTS

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” 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” 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.

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CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
INTEREST AND DIVIDEND INCOME:
Debt securities, taxable	$ 3,934	$ 4,235	$ 11,827	$ 13,699
Residential and commercial real estate loans	5,190	4,984	15,313	14,503
Commercial and industrial loans	1,247	1,428	3,802	4,290
Debt securities, tax-exempt	378	420	1,217	1,257
Consumer loans	39	47	119	143
Equity securities	41	46	127	140
Other investments - at cost	23	14	70	46
Federal funds sold, interest-bearing deposits and other short-term investments	1		2	1
Total interest and dividend income	10,853	11,174	32,477	34,079
INTEREST EXPENSE:
Deposits	1,505	1,811	4,665	5,891
Long-term debt	1,618	1,716	4,872	5,071
Short-term borrowings	27	28	94	122
Total interest expense	3,150	3,555	9,631	11,084
Net interest and dividend income	7,703	7,619	22,846	22,995
Provision for loan losses	218	15	698	529
Net interest and dividend income after provision for loan losses	7,485	7,604	22,148	22,466
NONINTEREST INCOME (LOSS):
Total other-than-temporary impairment losses on debt securities		(536)		(576)
Portion of other-than-temporary impairment losses recognized in accumulated other comprehensive loss on debt securities		474		474
Net other-than-temporary impairment losses recognized in income		(62)		(102)
Service charges and fees	617	501	1,649	1,465
Income from bank-owned life insurance	390	398	1,132	1,150
Gain on sales of securities, net	174	131	1,856	208
Loss on disposal of other real estate owned		(25)		(25)
Total noninterest income	1,181	943	4,637	2,696
NONINTEREST EXPENSE:
Salaries and employees benefits	4,188	3,997	12,593	11,710
Occupancy	663	691	2,072	2,027
Computer operations	544	473	1,595	1,437
Professional fees	432	524	1,401	1,525
OREO expense	11	31	48	52
FDIC insurance assessment	152	207	450	555
Other	808	716	2,317	2,307
Total noninterest expense	6,798	6,639	20,476	19,613
INCOME BEFORE INCOME TAXES	1,868	1,908	6,309	5,549
INCOME TAX PROVISION	481	414	1,609	1,204
NET INCOME	$ 1,387	$ 1,494	$ 4,700	$ 4,345
EARNINGS PER COMMON SHARE:
Basic earnings per share	$ 0.06	$ 0.06	$ 0.19	$ 0.16
Weighted average shares outstanding	24,391,585	26,443,449	24,992,245	26,608,490
Diluted earnings per share	$ 0.06	$ 0.06	$ 0.19	$ 0.16
Weighted average diluted shares outstanding	24,393,109	26,544,257	25,015,664	26,723,947

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SECURITIES

9 Months Ended

Sep. 30, 2012

SECURITIES

4.      SECURITIES

Securities available for sale are summarized as follows:

	September 30, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Government-sponsored mortgage-backed securities	$	363,814	$	12,874	$	(319	)	$	376,369
U.S. government guaranteed  mortgage-backed securities		132,263		6,494		-			138,757
Corporate bonds		52,194		1,547		-			53,741
State and municipal bonds		40,076		2,344		(1	)		42,419
Government-sponsored enterprise obligations		30,402		1,312		-			31,714
Mutual funds		5,940		161		(49	)		6,052
Common and preferred stock		1,349		18		(19	)		1,348
Total	$	626,038	$	24,750	$	(388	)	$	650,400
	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Government-sponsored mortgage-backed securities	$	377,447	$	8,802	$	(22	)	$	386,227
U.S. government guaranteed  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 September 30, 2012, by maturity, are shown below.  Actual maturities may differ from contractual maturities because certain issuers have the right to call or repay obligations.

	September 30, 2012
	Amortized Cost		Fair Value
	(In thousands)
Mortgage-backed securities:
Due after five years through ten years	$	35,414	$	37,137
Due after ten years		460,663		477,989
Total	$	496,077	$	515,126

Debt securities:
Due in one year or less	$	2,141	$	2,161
Due after one year through five years		38,158		39,890
Due after five years through ten years		61,869		64,393
Due after ten years		20,504		21,430
Total	$	122,672	$	127,874

Gross realized gains and losses on sales of securities for the three and nine months ended September 30, 2012 and 2011 are as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
	(In thousands)
Gross gains realized	$	175		$	528		$	2,909		$	1,407
Gross losses realized		(1	)		(397	)		(1,053	)		(1,199	)
Net gain realized	$	174		$	131		$	1,856		$	208

Proceeds from the sale of securities available for sale amounted to $218.4 million and $158.0 million for the nine months ended September 30, 2012 and 2011, respectively.

The tax provision applicable to net realized gains was $59,000 and $641,000 for the three and nine months ended September 30, 2012, respectively.  The tax provision applicable to net realized gains was $44,000 and $73,000 for the three and nine months ended September 30, 2011, respectively.

Information pertaining to securities with gross unrealized losses at September 30, 2012, and December 31, 2011, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	September 30, 2012
	Less Than Twelve Months					Over Twelve Months
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
	(In thousands)
Government-sponsored mortgage-backed securities	$	(319	)	$	30,869	$	-		$	-
State and municipal bonds		(1	)		1,191		-			-
Mutual funds		-			-		(49	)		1,687
Common and preferred stock		(19	)		20		-			-
Total	$	(339	)	$	32,080	$	(49	)	$	1,687

	December 31, 2011
	Less Than Twelve Months					Over Twelve Months
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
	(In thousands)
Government-sponsored  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 September 30, 2012, eight government-sponsored mortgage-backed securities had gross unrealized losses with aggregate depreciation of 1.0% from our amortized cost basis existing for less than 12 months.  At September 30, 2012, one municipal bond had gross unrealized loss of 0.1% 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 September 30, 2012, one mutual fund had a gross unrealized loss with depreciation of 2.8% 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 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:

	Nine Months Ended September 30,
	2012			2011
	(In thousands)
Beginning balance	$	442		$	425
Reductions for securities sold during the period		(442	)		(85	)
Additional credit losses for which other-than-temporary       impairment charge was previously recognized		-			102
Ending balance	$	-		$	442

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COMPREHENSIVE INCOME/LOSS

9 Months Ended

Sep. 30, 2012

COMPREHENSIVE INCOME/LOSS

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:

	September 30, 2012			December 31, 2011
	(In thousands)
Net unrealized gain on securities available for sale	$	24,362		$	16,225
Tax effect		(8,372	)		(5,573	)
Net-of-tax amount		15,990			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		24			32
Unrecognized deferred loss pertaining to defined benefit plans		(3,847	)		(3,978	)
Net adjustments pertaining to defined benefit plans		(3,823	)		(3,946	)
Tax effect		1,300			1,341
Net-of-tax amount		(2,523	)		(2,605	)
	$	13,467		$	7,716

The following table presents changes in accumulated other comprehensive income (loss) for the nine months ended September 30, 2012 and 2011 by component:

	Securities			Defined Benefit Plans			Accumulated Other Comprehensive  Income (Loss)
	(In thousands)
Balance at December 31, 2011	$	10,321		$	(2,605	)	$	7,716
Current-period other comprehensive income		5,669			82			5,751
Balance at September 30, 2012	$	15,990		$	(2,523	)	$	13,467
Balance at December 31, 2010	$	(3,774	)	$	(1,742	)	$	(5,516	)
Current-period other comprehensive income		15,191			52			15,243
Balance at September 30, 2011	$	11,417		$	(1,690	)	$	9,727

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LOANS AND ALLOWANCE FOR LOAN LOSSES (Tables)

9 Months Ended

Sep. 30, 2012

Loans

Loans consisted of the following amounts:	September 30,			December 31,
	2012			2011
	(In thousands)
Commercial real estate	$	240,420		$	232,491
Residential real estate		189,012			155,994
Home equity		34,753			36,464
Commercial and industrial		115,437			125,739
Consumer		2,030			2,451
Total loans		581,652			553,139
Unearned premiums and deferred loan fees and costs, net		1,080			1,017
Allowance for loan losses		(8,176	)		(7,764	)
	$	574,556		$	546,392

Allowance for Loan Losses by Segment

An analysis of changes in the allowance for loan losses by segment for the periods ended September 30, 2012 and 2011 is as follows:

	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Three Months Ended	(In thousands)
September 30, 2012
Beginning Balance	$	1,800		$	3,517		$	2,734		$	14		$	8,065
Provision		106			(43	)		150			5			218
Charge-offs		(115	)		-			-			(8	)		(123	)
Recoveries		-			14			-			2			16
Ending Balance	$	1,791		$	3,488		$	2,884		$	13		$	8,176
September 30, 2011
Beginning Balance	$	1,190		$	3,041		$	2,824		$	18		$	7,073
Provision		272			(2	)		(254	)		(1	)		15
Charge-offs		-			-			(10	)		(6	)		(16	)
Recoveries		4			3			1			7			15
Ending Balance	$	1,466		$	3,042		$	2,561		$	18		$	7,087
Nine Months Ended
September 30, 2012
Beginning Balance	$	1,531		$	3,504		$	2,712		$	17		$	7,764
Provision		410			115			167			6			698
Charge-offs		(155	)		(195	)		-			(19	)		(369	)
Recoveries		5			64			5			9			83
Ending Balance	$	1,791		$	3,488		$	2,884		$	13		$	8,176
September 30, 2011
Beginning Balance	$	877		$	3,182		$	2,849		$	26		$	6,934
Provision		583			(104	)		64			(14	)		529
Charge-offs		(2	)		(175	)		(442	)		(13	)		(632	)
Recoveries		8			139			90			19			256
Ending Balance	$	1,466		$	3,042		$	2,561		$	18		$	7,087

Past Due and Non-accrual Loans by Class

The following is a summary of past due and non-accrual loans by class at September 30, 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)
September 30, 2012
Residential real estate:
Residential 1-4 family	$	289	$	517	$	307	$	1,113	$	-	$	945
Home equity		167		-		-		167		-		108
Commercial real estate		398		72		966		1,436		-		1,597
Commercial and industrial		125		-		144		269		-		225
Consumer		9		-		23		32		-		23
Total	$	988	$	589	$	1,440	$	3,017	$	-	$	2,898
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

Impaired Loans by Class

The following is a summary of impaired loans by class at September 30, 2012, and December 31, 2011:

							Three Months Ended				Nine Months Ended
	At September 30, 2012						September 30, 2012				September 30, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Impaired loans without a valuation allowance:
Residential real estate	$	117	$	125	$	-	$	118	$	-	$	119	$	-
Commercial real estate		1,597		1,798		-		1,610		-		1,572		-
Commercial and industrial		45		45		-		23		-		8		-
Total		1,759		1,968		-		1,751		-		1,699		-
Impaired loans with a valuation allowance:
Residential real estate		185		185		70		186		-		186		-
Home equity		-		-		-		58		-		96		-
Commercial real estate		13,921		13,921		407		13,959		149		14,019		496
Commercial and industrial		1,551		1,561		486		1,365		11		1,237		32
Total		15,657		15,667		963		15,568		160		15,538		528
Total impaired loans	$	17,416	$	17,635	$	963	$	17,319	$	160	$	17,237	$	528

							Three Months Ended				Nine Months Ended
	At December 31, 2011						September 30, 2011				September 30, 2011
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Impaired loans without a valuation allowance:
Residential real estate	$	120	$	126	$	-	$	122	$	-	$	123	$	-
Commercial real estate		1,545		1,679		-		1,591		-		1,660		-
Commercial and industrial		-		-		-		-		-		465		-
Total		1,665		1,805		-		1,713		-		2,248		-
Impaired loans with a valuation allowance:
Residential real estate		187		187		70		115		-		58		-
Home equity		115		115		39		-		-		-		-
Commercial real estate		14,194		14,225		449		14,204		198		11,843		542
Commercial and industrial		1,145		1,150		39		1,147		11		982		44
Total		15,641		15,677		597		15,466		209		12,883		586
Total impaired loans	$	17,306	$	17,482	$	597	$	17,179	$	209	$	15,131	$	586

Performing Loans Modified as Troubled Debt Restructurings

Performing loans modified as TDRs are shown in the table below. The modifications changed the scheduled payment to interest-only or extended the interest-only period. One loan relationship of $15.0 million included below was restructured in March 2012 to extend the interest-only period and was restructured again in June 2012 once it had reached stabilization to commence principal and interest payments. The collateral supporting the loan relationship appears sufficient and the extra income levels going forward should sustain combined principal and interest payments.

	Three Months Ended						Nine Months Ended
	September 30, 2012						September 30, 2012
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)						(Dollars in thousands)
Troubled Debt Restructurings
Commercial Real Estate		-	$	-	$	-		5	$	14,887	$	14,887
Commercial and Industrial		1		45		45		3		1,184		1,184
Total		1	$	45	$	45		8	$	16,071	$	16,071
	Three Months Ended						Nine Months Ended
	September 30, 2011						September 30, 2011
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)						(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

Summary of Troubled Debt Restructuring that have Subsequently Defaulted

The following is a summary of troubled debt restructurings that have subsequently defaulted within one year of modification:

	September 30, 2012				September 30, 2011
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
	(Dollars in thousands)				(Dollars in thousands)
Troubled Debt Restructurings
Commercial Real Estate		4	$	966		-	$	-
Commercial and Industrial		1		142		-		-
Residential		-		-		1		120
Total		5	$	1,108		1	$	120

Loans by Risk Rating

The following table presents our loans by risk rating at September 30, 2012, and December 31, 2011:

	Residential 1-4 Family		Home Equity		Commercial Real Estate		Commercial and Industrial		Consumer		Total
	(In thousands)
September 30, 2012
Loans rated 1 – 3	$	188,067	$	34,645	$	195,959	$	84,741	$	2,030	$	505,442
Loans rated 4		-		-		18,591		7,301		-		25,892
Loans rated 5		-		-		3,326		4,836		-		8,162
Loans rated 6		945		108		22,544		18,559		-		42,156
	$	189,012	$	34,753	$	240,420	$	115,437	$	2,030	$	581,652
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

Further Information

Allowance for Loan Losses by Segment

Further information pertaining to the allowance for loan losses by segment at September 30, 2012, and December 31, 2011 follows:

	Residential Real Estate		Commercial Real Estate		Commercial and Industrial		Consumer		Total
	(In thousands)
September 30, 2012
Allowance for loan losses:
Individually evaluated for loss potential	$	70	$	407	$	486	$	-	$	963
Collectively evaluated for loss potential		1,721		3,081		2,398		13		7,213
Total	$	1,791	$	3,488	$	2,884	$	13	$	8,176
Loans outstanding:
Individually evaluated for loss potential	$	302	$	15,518	$	1,596	$	-	$	17,416
Collectively evaluated for loss potential		223,463		224,902		113,841		2,030		564,236
Total	$	223,765	$	240,420	$	115,437	$	2,030	$	581,652
December 31, 2011
Allowance for loan losses:
Individually evaluated for loss potential	$	109	$	449	$	39	$	0	$	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 outstanding:
Individually evaluated for loss potential	$	422	$	15,739	$	1,145	$	0	$	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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2012

Nature of Operations

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

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

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

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 September 30, 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 and nine months ended September 30, 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

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

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SHORT-TERM BORROWINGS AND LONG-TERM DEBT

9 Months Ended

Sep. 30, 2012

SHORT-TERM BORROWINGS AND LONG-TERM DEBT

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 $5.0 million and $36.0 million at September 30, 2012, and December 31, 2011, respectively. Advances on the line of credit with the FHLB were $8.7 million at September 30, 2012.  There were no advances outstanding on the line of credit at December 31, 2011. Customer repurchase agreements were $27.7 million at September 30, 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 September 30, 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 September 30, 2012, we had $210.4 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 $160.6 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 September 30, 2012, and December 31, 2011, respectively.  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.

During the third quarter of 2012, advances totaling $20.0 million with an average rate of 3.67% were modified by extending their maturity dates and lowering the average rate to 2.82%. No prepayment penalty was paid on the transaction.

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

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LOANS AND ALLOWANCE FOR LOAN LOSSES

9 Months Ended

Sep. 30, 2012

LOANS AND ALLOWANCE FOR LOAN LOSSES

5.          LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans consisted of the following amounts:	September 30,			December 31,
	2012			2011
	(In thousands)
Commercial real estate	$	240,420		$	232,491
Residential real estate		189,012			155,994
Home equity		34,753			36,464
Commercial and industrial		115,437			125,739
Consumer		2,030			2,451
Total loans		581,652			553,139
Unearned premiums and deferred loan fees and costs, net		1,080			1,017
Allowance for loan losses		(8,176	)		(7,764	)
	$	574,556		$	546,392

During the nine months ended September 30, 2012 and 2011, we purchased residential real estate loans aggregating $56.6 million and $52.5 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 September 30, 2012 and December 31, 2011, we serviced loans for participants aggregating $7.7 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 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 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 September 30, 2012 and 2011 is as follows:

	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Three Months Ended	(In thousands)
September 30, 2012
Beginning Balance	$	1,800		$	3,517		$	2,734		$	14		$	8,065
Provision		106			(43	)		150			5			218
Charge-offs		(115	)		-			-			(8	)		(123	)
Recoveries		-			14			-			2			16
Ending Balance	$	1,791		$	3,488		$	2,884		$	13		$	8,176
September 30, 2011
Beginning Balance	$	1,190		$	3,041		$	2,824		$	18		$	7,073
Provision		272			(2	)		(254	)		(1	)		15
Charge-offs		-			-			(10	)		(6	)		(16	)
Recoveries		4			3			1			7			15
Ending Balance	$	1,466		$	3,042		$	2,561		$	18		$	7,087
Nine Months Ended
September 30, 2012
Beginning Balance	$	1,531		$	3,504		$	2,712		$	17		$	7,764
Provision		410			115			167			6			698
Charge-offs		(155	)		(195	)		-			(19	)		(369	)
Recoveries		5			64			5			9			83
Ending Balance	$	1,791		$	3,488		$	2,884		$	13		$	8,176
September 30, 2011
Beginning Balance	$	877		$	3,182		$	2,849		$	26		$	6,934
Provision		583			(104	)		64			(14	)		529
Charge-offs		(2	)		(175	)		(442	)		(13	)		(632	)
Recoveries		8			139			90			19			256
Ending Balance	$	1,466		$	3,042		$	2,561		$	18		$	7,087

Further information pertaining to the allowance for loan losses by segment at September 30, 2012, and December 31, 2011 follows:

	Residential Real Estate		Commercial Real Estate		Commercial and Industrial		Consumer		Total
	(In thousands)
September 30, 2012
Allowance for loan losses:
Individually evaluated for loss potential	$	70	$	407	$	486	$	-	$	963
Collectively evaluated for loss potential		1,721		3,081		2,398		13		7,213
Total	$	1,791	$	3,488	$	2,884	$	13	$	8,176
Loans outstanding:
Individually evaluated for loss potential	$	302	$	15,518	$	1,596	$	-	$	17,416
Collectively evaluated for loss potential		223,463		224,902		113,841		2,030		564,236
Total	$	223,765	$	240,420	$	115,437	$	2,030	$	581,652
December 31, 2011
Allowance for loan losses:
Individually evaluated for loss potential	$	109	$	449	$	39	$	0	$	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 outstanding:
Individually evaluated for loss potential	$	422	$	15,739	$	1,145	$	0	$	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 September 30, 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)
September 30, 2012
Residential real estate:
Residential 1-4 family	$	289	$	517	$	307	$	1,113	$	-	$	945
Home equity		167		-		-		167		-		108
Commercial real estate		398		72		966		1,436		-		1,597
Commercial and industrial		125		-		144		269		-		225
Consumer		9		-		23		32		-		23
Total	$	988	$	589	$	1,440	$	3,017	$	-	$	2,898
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 September 30, 2012, and December 31, 2011:

							Three Months Ended				Nine Months Ended
	At September 30, 2012						September 30, 2012				September 30, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Impaired loans without a valuation allowance:
Residential real estate	$	117	$	125	$	-	$	118	$	-	$	119	$	-
Commercial real estate		1,597		1,798		-		1,610		-		1,572		-
Commercial and industrial		45		45		-		23		-		8		-
Total		1,759		1,968		-		1,751		-		1,699		-
Impaired loans with a valuation allowance:
Residential real estate		185		185		70		186		-		186		-
Home equity		-		-		-		58		-		96		-
Commercial real estate		13,921		13,921		407		13,959		149		14,019		496
Commercial and industrial		1,551		1,561		486		1,365		11		1,237		32
Total		15,657		15,667		963		15,568		160		15,538		528
Total impaired loans	$	17,416	$	17,635	$	963	$	17,319	$	160	$	17,237	$	528

							Three Months Ended				Nine Months Ended
	At December 31, 2011						September 30, 2011				September 30, 2011
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Impaired loans without a valuation allowance:
Residential real estate	$	120	$	126	$	-	$	122	$	-	$	123	$	-
Commercial real estate		1,545		1,679		-		1,591		-		1,660		-
Commercial and industrial		-		-		-		-		-		465		-
Total		1,665		1,805		-		1,713		-		2,248		-
Impaired loans with a valuation allowance:
Residential real estate		187		187		70		115		-		58		-
Home equity		115		115		39		-		-		-		-
Commercial real estate		14,194		14,225		449		14,204		198		11,843		542
Commercial and industrial		1,145		1,150		39		1,147		11		982		44
Total		15,641		15,677		597		15,466		209		12,883		586
Total impaired loans	$	17,306	$	17,482	$	597	$	17,179	$	209	$	15,131	$	586

No interest income was recognized for impaired loans on a cash-basis method during the three and nine months ended September 30, 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.

Nonperforming TDRs are shown as nonperforming assets. Performing loans modified as TDRs are shown in the table below. The modifications changed the scheduled payment to interest-only or extended the interest-only period. One loan relationship of $15.0 million included below was restructured in March 2012 to extend the interest-only period and was restructured again in June 2012 once it had reached stabilization to commence principal and interest payments. The collateral supporting the loan relationship appears sufficient and the extra income levels going forward should sustain combined principal and interest payments.

	Three Months Ended						Nine Months Ended
	September 30, 2012						September 30, 2012
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)						(Dollars in thousands)
Troubled Debt Restructurings
Commercial Real Estate		-	$	-	$	-		5	$	14,887	$	14,887
Commercial and Industrial		1		45		45		3		1,184		1,184
Total		1	$	45	$	45		8	$	16,071	$	16,071
	Three Months Ended						Nine Months Ended
	September 30, 2011						September 30, 2011
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)						(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

A default occurs when a loan is 30 days or more past due and is within 12 months of restructuring. The following is a summary of troubled debt restructurings that have subsequently defaulted within one year of modification:

	September 30, 2012				September 30, 2011
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
	(Dollars in thousands)				(Dollars in thousands)
Troubled Debt Restructurings
Commercial Real Estate		4	$	966		-	$	-
Commercial and Industrial		1		142		-		-
Residential		-		-		1		120
Total		5	$	1,108		1	$	120

As of September 30, 2012, we have committed to lend an additional $130,000 to one customer with outstanding loans that are classified as TDRs. This loan will be used for building improvements to generate rental income. There were no charge-offs on TDRs during the nine months ended September 30, 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 $8.5 million and $10.1 million at September 30, 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 September 30, 2012, and December 31, 2011:

	Residential 1-4 Family		Home Equity		Commercial Real Estate		Commercial and Industrial		Consumer		Total
	(In thousands)
September 30, 2012
Loans rated 1 – 3	$	188,067	$	34,645	$	195,959	$	84,741	$	2,030	$	505,442
Loans rated 4		-		-		18,591		7,301		-		25,892
Loans rated 5		-		-		3,326		4,836		-		8,162
Loans rated 6		945		108		22,544		18,559		-		42,156
	$	189,012	$	34,753	$	240,420	$	115,437	$	2,030	$	581,652
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

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SHARE-BASED COMPENSATION

9 Months Ended

Sep. 30, 2012

SHARE-BASED COMPENSATION

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 1,560,101 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 and nine months ended September 30, 2012. At September 30, 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 and nine months ended September 30, 2012.  All stock awards and stock options currently vest at 20% per year.  At September 30, 2012, 56,232 stock options were available for future grants.

Our stock award and stock option plans activity for the nine months ended September 30, 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		-			-		(237,313	)		4.39
Stock award vested		(4,006	)		10.11		-
Outstanding at September 30, 2012		151,200		$	9.52		1,670,431		$	10.02
Outstanding at December 31, 2010		248,612		$	9.92		1,911,485		$	9.08
Granted		28,000			8.13		78,000			10.04
Stock options exercised		-			-		(34,646	)		4.39
Stock awards vested		(9,606	)		10.07		-			-
Outstanding at September 30, 2011		267,006		$	9.72		1,954,839		$	9.20

We recorded compensation costs relating to stock options of $185,000 and $197,000 with related tax benefits of $51,000 and $51,000 for the three months ended September 30, 2012 and 2011, respectively. We recorded compensation costs relating to stock options of $577,000 and $596,000 with related tax benefits of $153,000 and $156,000 for the nine months ended September 30, 2012 and 2011, respectively.

We recorded compensation cost related to the stock awards of $282,000 and $288,000 for the three months ended September 30, 2012 and 2011, respectively. We recorded compensation cost related to the stock awards of $858,000 and $869,000 for the nine months ended September 30, 2012 and 2011, respectively.

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PENSION BENEFITS

9 Months Ended

Sep. 30, 2012

PENSION BENEFITS

8.  PENSION BENEFITS

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In thousands)
Service cost	$	279		$	247		$	815		$	742
Interest cost		200			223			600			668
Expected return on assets		(218	)		(219	)		(649	)		(656	)
Transition asset		(3	)		(3	)		(8	)		(8	)
Actuarial loss		44			29			131			87
Net periodic pension cost	$	302		$	277		$	889		$	833

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 of 1986, 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 and nine months ended September 30, 2012.  The Trustee for the pension plan was changed prior to September 30, 2012.  The pension plan assets are now invested in group annuity contracts with the Principal Financial Group, who also acts as our 401(k) plan provider.

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Securities - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Schedule of Investments [Line Items]
Proceeds from sale of available-for-sale securities			$ 218,397,000	$ 157,999,000
Provision of tax applicable to net realized gains and losses on sale of securities	$ 59,000	$ 44,000	$ 641,000	$ 73,000
Government-sponsored residential mortgage-backed securities
Schedule of Investments [Line Items]
Securities in gross unrealized loss	8		8
Securities in gross unrealized loss, aggregate depreciation from amortized cost basis existing for less than twelve months	1.00%		1.00%
State and Municipal Debt Obligations
Schedule of Investments [Line Items]
Securities in gross unrealized loss	1		1
Securities in gross unrealized loss, aggregate depreciation from amortized cost basis existing for less than twelve months	0.10%		0.10%
Mutual funds
Schedule of Investments [Line Items]
Securities in gross unrealized loss	1		1
Securities in gross unrealized loss, aggregate depreciation from amortized cost basis existing for greater than twelve months	2.80%		2.80%

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Fair Value Hierarchy used to Determine Each Adjustment and Carrying Value of Assets Measured on Non-Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 Impaired Loans	Sep. 30, 2011 Impaired Loans	Sep. 30, 2012 Impaired Loans	Sep. 30, 2011 Impaired Loans	Sep. 30, 2012 Level 3	Dec. 31, 2011 Level 3	Sep. 30, 2011 Level 3	Sep. 30, 2012 Level 3 Impaired Loans	Dec. 31, 2011 Level 3 Impaired Loans	Sep. 30, 2011 Level 3 Impaired Loans	Dec. 31, 2011 Level 3 Other Real Estate Owned
Fair Value, Assets and Liabilities Measured on Non Recurring Basis [Line Items]
Assets Measured at Fair Value on Non-Recurring Basis									$ 1,100	$ 2,311	$ 1,079	$ 1,100	$ 1,181	$ 1,079	$ 1,130
Gains (losses) arising from fair value adjustment of assets	$ (352)	$ 8	$ (196)	$ (240)	$ (352)	$ 8	$ (196)	$ (240)

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COMPREHENSIVE INCOME/LOSS (Tables)

9 Months Ended

Sep. 30, 2012

Components of Accumulated Other Comprehensive Income (loss)

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

	September 30, 2012			December 31, 2011
	(In thousands)
Net unrealized gain on securities available for sale	$	24,362		$	16,225
Tax effect		(8,372	)		(5,573	)
Net-of-tax amount		15,990			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		24			32
Unrecognized deferred loss pertaining to defined benefit plans		(3,847	)		(3,978	)
Net adjustments pertaining to defined benefit plans		(3,823	)		(3,946	)
Tax effect		1,300			1,341
Net-of-tax amount		(2,523	)		(2,605	)
	$	13,467		$	7,716

Changes in Accumulated Other Comprehensive Income (Loss) By Component

The following table presents changes in accumulated other comprehensive income (loss) for the nine months ended September 30, 2012 and 2011 by component:

	Securities			Defined Benefit Plans			Accumulated Other Comprehensive  Income (Loss)
	(In thousands)
Balance at December 31, 2011	$	10,321		$	(2,605	)	$	7,716
Current-period other comprehensive income		5,669			82			5,751
Balance at September 30, 2012	$	15,990		$	(2,523	)	$	13,467
Balance at December 31, 2010	$	(3,774	)	$	(1,742	)	$	(5,516	)
Current-period other comprehensive income		15,191			52			15,243
Balance at September 30, 2011	$	11,417		$	(1,690	)	$	9,727

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FAIR VALUE OF ASSETS AND LIABILITIES (Tables)

9 Months Ended

Sep. 30, 2012

Assets Measured at Fair Value on Recurring Basis

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

	September 30, 2012
	Level 1		Level 2		Level 3		Total
Securities available for sale:	(In thousands)
Government-sponsored mortgage-backed securities	$	-	$	376,369	$	-	$	376,369
U.S. government guaranteed mortgage-backed securities		-		138,757		-		138,757
Corporate Bonds		-		53,741		-		53,741
State and municipal bonds		-		42,419		-		42,419
Government-sponsored enterprise obligations		-		31,714		-		31,714
Mutual funds		6,052		-		-		6,052
Common and preferred stock		1,348		-		-		1,348
Total assets	$	7,400	$	643,000	$	-	$	650,400
	December 31, 2011
	Level 1		Level 2		Level 3		Total
Securities available for sale:	(In thousands)
Government-sponsored mortgage-backed securities	$	-	$	386,227	$	-	$	386,227
U.S. government guaranteed mortgage-backed securities		-		152,875		-		152,875
Private-label residential mortgage-backed securities		-		1,567		-		1,567
State and municipal bonds		-		45,874		-		45,874
Government-sponsored enterprise obligations		-		24,752		-		24,752
Mutual funds		5,854		-		-		5,854
Common and preferred stock		388		-		-		388
Total assets	$	6,242	$	611,295	$	-	$	617,537

Fair Value Hierarchy used to Determine Each Adjustment and Carrying Value of Assets Measured on Non-Recurring Basis

The following table summarizes the fair value hierarchy used to determine each adjustment and the carrying value of the related assets at September 30, 2012 and 2011.  Total losses represent the change in carrying value as a result of fair value adjustments related to assets still held at September 30, 2012 and 2011.

	At						Three Months Ended			Nine Months Ended
	September 30, 2012						September 30, 2012			September 30, 2012
							Total			Total
	Level 1		Level 2		Level 3		Gains (Losses)			Gains (Losses)
	(In thousands)
Impaired Loans	$	-	$	-	$	1,100	$	(352	)	$	(196	)
Total Assets	$	-	$	-	$	1,100	$	(352	)	$	(196	)
	At						Three Months Ended			Nine Months Ended
	September 30, 2011						September 30, 2011			September 30, 2011
							Total			Total
	Level 1		Level 2		Level 3		Gains (Losses)			Gains (Losses)
	(In thousands)
Impaired Loans	$	-	$	-	$	1,079	$	8		$	(240	)
Total Assets	$	-	$	-	$	1,079	$	8		$	(240	)

	At
	December 31, 2011
	Level 1		Level 2		Level 3
	(In thousands)
Impaired loans	$	-	$	-	$	1,181
Other real estate owned		-		-		1,130
Total assets	$	-	$	-	$	2,311

Estimated Fair Values of Financial Instruments

The estimated fair values of our financial instruments are as follows:

	September 30, 2012
	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash and cash equivalents	$	11,653	$	11,653	$	-	$	-	$	11,653
Securities available for sale		650,400		7,400		643,000		-		650,400
Federal Home Loan Bank of Boston and other restricted stock		14,045		-		-		14,045		14,045
Loans - net		574,556		-		-		597,119		597,119
Accrued interest receivable		4,556		-		-		4,556		4,556
Liabilities:
Deposits		754,408		-		-		757,416		757,416
Short-term borrowings		41,352		-		41,352		-		41,352
Long-term debt		297,166		-		312,234		-		312,234
Accrued interest payable		525		-		-		525		525

	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

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Net Pension Benefit Costs (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 279	$ 247	$ 815	$ 742
Interest cost	200	223	600	668
Expected return on assets	(218)	(219)	(649)	(656)
Transition asset	(3)	(3)	(8)	(8)
Actuarial loss	44	29	131	87
Net periodic pension cost	$ 302	$ 277	$ 889	$ 833

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Past Due and Non-Accrual Loans by Class (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	$ 988	$ 1,663
60-89 Days Past Due	589	185
Greater than 90 Days Past Due	1,440	1,128
Total Past Due	3,017	2,976
Past Due 90 Days or More and Still Accruing
Loans in Non-Accrual	2,898	2,933
Residential real estate | Residential 1-4 family
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	289	562
60-89 Days Past Due	517
Greater than 90 Days Past Due	307	184
Total Past Due	1,113	746
Past Due 90 Days or More and Still Accruing
Loans in Non-Accrual	945	670
Residential real estate | Home equity
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	167	128
Greater than 90 Days Past Due		204
Total Past Due	167	332
Past Due 90 Days or More and Still Accruing
Loans in Non-Accrual	108	230
Commercial real estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	398	840
60-89 Days Past Due	72
Greater than 90 Days Past Due	966	740
Total Past Due	1,436	1,580
Past Due 90 Days or More and Still Accruing
Loans in Non-Accrual	1,597	1,879
Commercial and industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	125	111
60-89 Days Past Due		183
Greater than 90 Days Past Due	144
Total Past Due	269	294
Past Due 90 Days or More and Still Accruing
Loans in Non-Accrual	225	154
Consumer
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	9	22
60-89 Days Past Due		2
Greater than 90 Days Past Due	23
Total Past Due	32	24
Past Due 90 Days or More and Still Accruing
Loans in Non-Accrual	$ 23

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net income	$ 1,387	$ 1,494	$ 4,700	$ 4,345
Unrealized gains on securities:
Unrealized holding gains on available for sale securities	7,354	15,121	10,494	23,238
Reclassification adjustment for gains realized in income	(174)	(131)	(1,856)	(208)
Other-than-temporary impairment losses on available-for-sale securities		62		102
Net unrealized gains	7,180	15,052	8,638	23,132
Tax effect	(2,474)	(5,174)	(2,968)	(7,941)
Net-of-tax amount	4,706	9,878	5,670	15,191
Defined benefit pension plans:
Gains and losses arising during the period pertaining to defined benefit plans		(6)
Reclassification adjustment:
Actuarial loss	44	29	131	87
Transition asset	(3)	(3)	(8)	(8)
Net adjustments pertaining to defined benefit plans	41	20	123	79
Tax effect	(14)	(7)	(42)	(27)
Net-of-tax amount	27	13	81	52
Other comprehensive income	4,733	9,891	5,751	15,243
Comprehensive income	$ 6,120	$ 11,385	$ 10,451	$ 19,588

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2012

EARNINGS PER SHARE

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 nine months ended September 30, 2012 and 2011 have been computed based on the following:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
	(In thousands, except per share data)
Net income applicable to common stock	$	1,387		$	1,494		$	4,700		$	4,345
Average number of common shares outstanding		25,643			27,778			26,264			27,979
Less:  Average unallocated ESOP Shares		(1,244	)		(1,328	)		(1,265	)		(1,349	)
Average ungranted equity incentive plan shares		(7	)		(7	)		(7	)		(22	)
Average number of common shares outstanding used to calculate basic earnings per common share		24,392			26,443			24,992			26,608
Effect of dilutive stock options		1			101			24			115
Average number of common shares outstanding used to calculate diluted earnings per common share		24,393			26,544			25,016			26,723
Basic earnings per share	$	0.06		$	0.06		$	0.19		$	0.16
Diluted earnings per share	$	0.06		$	0.06		$	0.19		$	0.16
Antidilutive shares (1)		1,670			1,662			1,665			1,631

____________________

(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.

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Summary of Significant Accounting Policies - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2012 Location
Significant Accounting Policies [Line Items]
Number of branches in which bank operates	11

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Loans and Allowance for Loan Losses - Additional Information (Detail) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Jun. 30, 2012	Sep. 30, 2012 Serviced Commercial Real Estate Loans	Dec. 31, 2011 Serviced Commercial Real Estate Loans	Sep. 30, 2012 Residential real estate Minimum	Sep. 30, 2012 Commercial real estate	Dec. 31, 2011 Commercial real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Payment for residential real estate loans	$ 56,559,000	$ 52,490,000
Principal balance of loans serviced				7,700,000	5,700,000
Requirement for private mortgage insurance, loan-to-value ratio						80.00%
Loan restructured			15,000,000
Committed outstanding loan amount	130,000
Construction loan							$ 8,500,000	$ 10,100,000

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EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2012

Earnings Per Common Share

Earnings per common share for the three and nine months ended September 30, 2012 and 2011 have been computed based on the following:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
	(In thousands, except per share data)
Net income applicable to common stock	$	1,387		$	1,494		$	4,700		$	4,345
Average number of common shares outstanding		25,643			27,778			26,264			27,979
Less:  Average unallocated ESOP Shares		(1,244	)		(1,328	)		(1,265	)		(1,349	)
Average ungranted equity incentive plan shares		(7	)		(7	)		(7	)		(22	)
Average number of common shares outstanding used to calculate basic earnings per common share		24,392			26,443			24,992			26,608
Effect of dilutive stock options		1			101			24			115
Average number of common shares outstanding used to calculate diluted earnings per common share		24,393			26,544			25,016			26,723
Basic earnings per share	$	0.06		$	0.06		$	0.19		$	0.16
Diluted earnings per share	$	0.06		$	0.06		$	0.19		$	0.16
Antidilutive shares (1)		1,670			1,662			1,665			1,631

____________________

(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.