a50628294.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2013


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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER : 333-137359

Hampden Bancorp, Inc.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)	20-5714154 (IRS Employer Identification No.)

19 Harrison Ave.

Springfield, Massachusetts 01102

(Address of principal executive offices) (Zip Code)

(413) 736-1812

(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 12 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 þ No o.

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 (Sec. 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 þ No o.

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 definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

	Large accelerated filer o	Accelerated Filer o
	Non-accelerated filer o	Smaller reporting company þ
	(Do not check if a smaller reporting company)

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

As of May 6, 2013, there were 5,786,085 shares of the registrant’s common stock outstanding.

HAMPDEN BANCORP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF

HAMPDEN BANCORP, INC. AND SUBSIDIARIES

			Page No.
PART I — FINANCIAL INFORMATION

	Item 1	Financial Statements of Hampden Bancorp, Inc. and Subsidiaries

		Consolidated Balance Sheets (unaudited) as of March 31, 2013 and June 30, 2012	3

		Consolidated Statements of Income (unaudited) for the three and nine months ended March 31, 2013 and 2012	4

		Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended March 31, 2013 and 2012	5

		Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the nine months ended March 31, 2013 and 2012	6

		Consolidated Statements of Cash Flows (unaudited) for the nine months ended March 31, 2013 and 2012	7-8

		Notes to Condensed Consolidated Financial Statements	9

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

	Item 3	Quantitative and Qualitative Disclosures About Market Risks	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

SIGNATURES			43

PART 1 – FINANCIAL INFORMATION

Item 1: Financial Statements of Hampden Bancorp, Inc. and Subsidiaries

HAMPDEN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

ASSETS
	March 31,			June 30,
	2013			2012
	(Unaudited)
Cash and due from banks	$	11,953		$	12,334
Federal funds sold and other short-term investments		34,297			15,589
Cash and cash equivalents		46,250			27,923

Securities available for sale, at fair value		144,029			143,851
Federal Home Loan Bank of Boston stock, at cost		5,048			4,959
Loans held for sale		1,049			927
Loans, net of allowance for loan losses of $5,270
at March 31, 2013 and $5,148 at June 30, 2012		438,654			406,344
Other real estate owned		1,461			1,826
Premises and equipment, net		5,198			5,159
Accrued interest receivable		1,677			1,675
Deferred tax asset, net		3,705			3,402
Bank-owned life insurance		16,826			16,205
Other assets		3,691			3,686
	$	667,588		$	615,957

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits	$	478,062		$	434,832
Securities sold under agreements to repurchase		5,531			7,315
Short-term borrowings		7,000			3,000
Long-term debt		82,910			76,661
Mortgagors' escrow accounts		1,076			1,010
Accrued expenses and other liabilities		6,264			5,979
Total liabilities		580,843			528,797


Commitments and contingencies (Note 5)

Preferred stock ($.01 par value, 5,000,000 shares authorized, none issued or outstanding)		-			-
Common stock ($.01 par value, 25,000,000 shares authorized; 7,982,376 issued
at March 31, 2013 and 7,951,598 issued at June 30, 2012; 5,786,085 outstanding at March 31, 2013 and 5,968,395 outstanding at June 30, 2012)		80			80
Additional paid-in-capital		79,779			78,995
Unearned compensation - ESOP (370,996 shares unallocated at March 31, 2013 and
402,796 shares unallocated at June 30, 2012)		(3,710	)		(4,028	)
Unearned compensation - equity incentive plan		(18	)		(225	)
Retained earnings		34,103			32,473
Accumulated other comprehensive income		1,641			2,117
Treasury stock, at cost (2,196,291 shares at March 31, 2013 and 1,983,153 shares at June 30, 2012)		(25,130	)		(22,252	)
Total stockholders' equity		86,745			87,160
	$	667,588		$	615,957

See accompanying notes to unaudited consolidated financial statements.

HAMPDEN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF NET INCOME

(Dollars in thousands, except share and per share data)

	Three Months Ended March 31,						Nine Months Ended March 31,
	2013			2012			2013			2012
	(Unaudited)						(Unaudited)
Interest and dividend income:
Loans, including fees	$	5,268		$	5,450		$	16,124		$	16,394
Debt securities		640			743			2,086			2,134
Dividends		5			7			19			15
Federal funds sold and other short-term investments		11			6			25			17
Total interest and dividend income		5,924			6,206			18,254			18,560

Interest expense:
Deposits		895			1,005			2,799			3,216
Borrowings		451			363			1,369			1,127
Total interest expense		1,346			1,368			4,168			4,343

Net interest income		4,578			4,838			14,086			14,217
Provision for loan losses		100			25			325			425
Net interest income, after provision for loan losses		4,478			4,813			13,761			13,792

Non-interest income:
Customer service fees		469			388			1,489			1,307
Gain on sales of securities, net		114			-			114			-
Gain on sales of loans, net		231			138			748			443
Increase in cash surrender value of bank-owned life insurance		128			131			400			334
Other		236			91			465			247
Total non-interest income		1,178			748			3,216			2,331

Non-interest expense:
Salaries and employee benefits		2,369			2,427			7,388			7,377
Occupancy and equipment		510			475			1,420			1,397
Data processing services		275			119			779			443
Advertising		122			139			395			557
Net gain on other real estate owned		(19	)		(52	)		(31	)		(2	)
FDIC insurance and assessments		88			99			256			226
Other general and administrative		1,001			960			2,984			2,862
Total non-interest expense		4,346			4,167			13,191			12,860

Income before income taxes		1,310			1,394			3,786			3,263

Income tax provision		485			517			1,430			1,156

Net income	$	825		$	877		$	2,356		$	2,107

Earnings per share
Basic	$	0.15		$	0.16		$	0.43		$	0.36
Diluted	$	0.15		$	0.16		$	0.42		$	0.35

Weighted average shares outstanding
Basic		5,389,400			5,599,560			5,429,139			5,887,148
Diluted		5,560,481			5,658,309			5,557,921			5,967,703

See accompanying notes to unaudited consolidated financial statements.

HAMPDEN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

The components of comprehensive income and related tax effects are as follows:

	Three Months Ended March 31,						Nine Months Ended March 31,
	2013			2012			2013			2012
	(Unaudited)						(Unaudited)
Net income	$	825		$	877		$	2,356		$	2,107

Other comprehensive income (loss):
Unrealized holding gains (losses) on available-for-sale securities		(522	)		420			(595	)		178
Reclassification adjustment for gains realized in income		(114	)		-			(114	)		-
Net unrealized gains (losses)		(636	)		420			(709	)		178
Tax effect		237			(156	)		233			(65	)

Net-of-tax amount		(399	)		264			(476	)		113

Comprehensive income	$	426		$	1,141		$	1,880		$	2,220

See accompanying notes to unaudited consolidated financial statements.

HAMPDEN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands, except share and per share data)

											Unearned						Accumulated
						Additional		Unearned			Compensation -						Other
	Common Stock					Paid-in		Compensation			Equity			Retained			Comprehensive			Treasury
	Shares			Amount		Capital		- ESOP			Incentive Plan			Earnings			Income			Stock			Total
	(Unaudited)
Balance at June 30, 2011		6,799,499		$	80	$	78,517	$	(4,452	)	$	(871	)	$	30,327		$	1,757		$	(11,842	)	$	93,516
Comprehensive income		-			-		-		-			-			2,107			113			-			2,220
Issuance of common stock for exercise of stock options		800			-		-		-			-			-			-			-			-
Cash dividends paid ($0.10 per share)		-			-		-		-			-			(595	)		-			-			(595	)
Common stock repurchased		(713,891	)		-		-		-			-			-			-			(8,851	)		(8,851	)
Stock-based compensation		-			-		238		-			476			-			-			-			714
Tax benefit from Equity Incentive Plan vesting		-			-		37		-			-			-			-			-			37
Forfeiture of restricted stock		-			-		-		-			50			(50	)		-			-			-
ESOP shares allocated or committed to be allocated (31,800 shares)		-			-		82		318			-			-			-			-			400

Balance at March 31, 2012		6,086,408		$	80	$	78,874	$	(4,134	)	$	(345	)	$	31,789		$	1,870		$	(20,693	)	$	87,441

Balance at June 30, 2012		5,968,395		$	80	$	78,995	$	(4,028	)	$	(225	)	$	32,473		$	2,117		$	(22,252	)	$	87,160
Comprehensive income		-			-		-		-			-			2,356			(476	)		-			1,880
Issuance of common stock for exercise of stock options		30,828			-		326		-			-			-			-			-			326
Cash dividends paid ($0.13 per share)		-			-		-		-			-			(726	)		-			-			(726	)
Common stock repurchased		(213,138	)		-		-		-			-			-			-			(2,878	)		(2,878	)
Stock-based compensation		-			-		266		-			207			-			-			-			473
Tax benefit from Equity Incentive Plan vesting		-			-		106		-			-			-			-			-			106
ESOP shares allocated or committed to be allocated (31,800 shares)		-			-		86		318			-			-			-			-			404

Balance at March 31, 2013		5,786,085		$	80	$	79,779	$	(3,710	)	$	(18	)	$	34,103		$	1,641		$	(25,130	)	$	86,745

See accompanying notes to unaudited consolidated financial statements.

HAMPDEN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Nine Months Ended March 31,
	2013			2012
	(Unaudited)
Cash flows from operating activities:
Net income	$	2,356		$	2,107
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses		325			425
Changes in fair value of mortgage servicing rights		(149	)		(169	)
Net amortization of securities		614			123
Depreciation and amortization		544			585
Gain on sales of securities, net		(114	)		-
Loans originated for sale		(24,271	)		(12,624	)
Proceeds from loan sales		24,897			12,893
Gain on sales of loans, net		(748	)		(443	)
Write-down of other real estate owned		-			50
Realized gain on sale of other real estate owned		(31	)		(52	)
Increase in cash surrender value of bank-owned
life insurance		(400	)		(334	)
Deferred tax benefit		(69	)		(38	)
Employee Stock Ownership Plan expense		404			400
Stock-based compensation		473			714
Tax benefit from Equity Incentive Plan vesting		(106	)		(37	)
Net change in:
Accrued interest receivable		(2	)		(51	)
Other assets		144			(432	)
Accrued expenses and other liabilities		391			(292	)
Net cash provided by operating activities		4,258			2,825

Cash flows from investing activities:
Activity in available-for-sale securities:
Sales		3,189			-
Maturities and calls		178			1,000
Principal payments		33,633			22,347
Purchases		(38,388	)		(42,874	)
Purchase of loans		(4,115	)		(5,556	)
Loan (originations), net of principal payments		(28,933	)		(986	)
Redemption (purchase) of Federal Home Loan Bank stock		(89	)		274
Proceeds from sale of other real estate owned		809			515
Purchase of bank-owned life insurance		(221	)		(5,001	)
Purchase of premises and equipment		(583	)		(169	)
Net cash used in investing activities		(34,520	)		(30,450	)

(continued)

See accompanying notes to unaudited consolidated financial statements.

HAMPDEN BANCORP, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)

(Dollars in thousands)

	Nine Months Ended March 31,
	2013			2012
	(Unaudited)
Cash flows from financing activities:
Net change in deposits		43,230			18,184
Net change in repurchase agreements		(1,784	)		1,527
Net change in short-term borrowings		4,000			2,000
Proceeds from issuance of long-term debt		15,500			28,653
Repayment of long-term debt		(9,251	)		(6,255	)
Net change in mortgagors' escrow accounts		66			93
Tax benefit from Equity Incentive Plan vesting		106			37
Repurchase of common stock		(2,878	)		(8,851	)
Issuance of common stock for exercise of stock options		326			-
Payment of dividends on common stock		(726	)		(595	)
Net cash provided by financing activities		48,589			34,793

Net change in cash and cash equivalents		18,327			7,168

Cash and cash equivalents at beginning of period		27,923			31,147

Cash and cash equivalents at end of period	$	46,250		$	38,315

Supplemental cash flow information:
Interest paid on deposits	$	2,799		$	3,216
Interest paid on borrowings		1,125			1,169
Income taxes paid		960			27
Transfers from loans to other real estate owned		413			613

See accompanying notes to unaudited consolidated financial statements.

HAMPDEN BANCORP, INC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of presentation and consolidation

The consolidated financial statements include the accounts of Hampden Bancorp, Inc. (the “Company”) and its wholly-owned subsidiaries, Hampden Bank (the “Bank”) and Hampden LS, Inc. Hampden Bank is a Massachusetts chartered stock savings bank. The Company contributed funds to Hampden LS, Inc. to enable it to make a 15-year loan to the employee stock ownership plan (the “ESOP”) to allow it to purchase shares of the Company’s common stock as part of the completion of the initial public offering. Hampden Bank has three wholly-owned subsidiaries, Hampden Investment Corporation and Hampden Investment Corporation II, which engage in buying, selling, holding and otherwise dealing in securities, and Hampden Insurance Agency, which ceased selling insurance products in November of 2000 and remains inactive. All significant intercompany accounts and transactions have been eliminated in consolidation.

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management the information reflects all adjustments (consisting solely of normal recurring adjustments) that are necessary for a fair presentation. The results shown for the interim period ended March 31, 2013 are not necessarily indicative of the results to be obtained for a full year. These consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended June 30, 2012 included in the Company’s most recent Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission (“SEC”) on September 18, 2012.

In preparing the consolidated interim financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the statement of financial condition and reported amounts of revenues and expenses for the periods presented. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and deferred income taxes.

2. Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income. This update amends the disclosure requirements for the presentation of comprehensive income. The amended guidance eliminates the option to present components of other comprehensive income (OCI) as part of the statement of changes in stockholder’s equity. Under the amended guidance, all changes in OCI are to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive financial statements. The changes, as modified by ASU 2011-12, are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. This guidance was adopted by the Company as of July 1, 2012, and did not have a material impact on the Company’s consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02 related to disclosure of amounts reclassified out of other accumulated comprehensive income. The standard requires that companies present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. The new requirements will take effect for public companies in fiscal years, and interim periods within those years, beginning after December 15, 2012. This guidance will not have a material impact on the Company’s consolidated financial statements.

3. Earnings Per Share

Basic earnings per share (“EPS”) excludes dilution and is calculated by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted EPS is computed in a manner similar to that of basic EPS except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares (computed using the treasury stock method) that would have been outstanding if all potentially dilutive common stock equivalents (such as stock options and unvested restricted stock) were issued during the period. Unallocated common shares held by the ESOP are shown as a reduction in stockholders' equity and are included in the weighted-average number of common shares outstanding for both basic and diluted EPS calculations as they are committed to be released.

Earnings per share for the three and nine month periods ended March 31, 2013 and 2012 have been computed as follows:

	Three Months Ended March 31,						Nine Months Ended March 31,
	2013			2012			2013			2012

Net income applicable to common stock (in thousands)	$	825		$	877		$	2,356		$	2,107

Average number of shares issued		7,982,275			7,950,792			7,965,988			7,950,516
Less: average unallocated ESOP shares		(377,953	)		(420,351	)		(388,644	)		(431,002	)
Less: average treasury stock		(2,197,270	)		(1,863,480	)		(2,109,171	)		(1,532,940	)
Less: average unvested restricted stock awards		(17,652	)		(67,401	)		(39,034	)		(99,426	)
Average number of basic shares outstanding		5,389,400			5,599,560			5,429,139			5,887,148

Plus: dilutive unvested restricted stock awards		14,269			28,273			27,363			43,391
Plus: dilutive stock option shares		156,812			30,476			101,419			37,164

Average number of diluted shares outstanding		5,560,481			5,658,309			5,557,921			5,967,703

Basic earnings per share	$	0.15		$	0.16		$	0.43		$	0.36
Diluted earnings per share	$	0.15		$	0.16		$	0.42		$	0.35

4. Dividends

On February 5, 2013, the Company declared a cash dividend of $0.05 per common share which was paid on February 28, 2013 to stockholders of record as of the close of business on February 15, 2013.

On May 7, 2013, the Company declared a cash dividend of $0.05 per common share which is payable on May 31, 2013 to stockholders of record as of the close of business on May 17, 2013.

5. Loan Commitments

Outstanding loan commitments totaled $121.3 million, including $68.6 million commercial loan commitments, at March 31, 2013 and $96.3 million, including $45.8 million commercial loan commitments, at June 30, 2012. Loan commitments primarily consist of commitments to originate new loans as well as the outstanding unused portions of home equity, business and other lines of credit, and unused portions of construction loans.

6. Fair Value of Assets and Liabilities

GAAP defines fair value as 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. GAAP establishes a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:

Level 1:		Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

Level 2:		Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; and quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs to the valuation methodology are derived principally from or can be corroborated by observable market data by correlation or other means.

Level 3:		Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Transfers between levels are recognized at the end of the reporting period, if applicable.

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying amounts of cash and federal funds sold and other short-term investments approximate fair values.

Securities available for sale: The fair values used by the Company are obtained from an independent pricing service, which represents either quoted market prices for identical securities, quoted market prices for comparable securities or fair values determined by pricing models that consider observable market data, such as interest rate volatilities, credit spreads and prices from market makers and live trading systems and other market indicators, industry and economic events. These values are not adjusted by the Company.

Federal Home Loan Bank of Boston stock: The carrying amount of Federal Home Loan Bank (“FHLB”) stock approximates fair value based upon the redemption provisions of the FHLB of Boston.

Loans held for sale: Fair value of loans held for sale is estimated based on commitments on hand from investors or prevailing market prices.

Loans: Fair values for 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. This analysis assumes no prepayment. Fair values for non-performing loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Mortgage servicing rights: Mortgage servicing rights (“MSR”) are the rights of a mortgage servicer to collect mortgage payments and forward them, after deducting a fee, to the mortgage holder. The fair value of servicing rights is estimated using a discounted cash flow model. The fair value of MSR is highly sensitive to changes in assumptions. Changes in prepayment speed assumptions generally have the most significant impact on the fair value of our MSR. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of MSR. As interest rates rise, mortgage loan prepayments slow down, which results in an increase in the fair value of MSR. Thus, any measurement of the fair value of our MSR is limited by the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different point in time.

Deposits and mortgagors’ escrow accounts: The fair values for non-certificate accounts and mortgagors’ escrow accounts are, by definition, equal to the amounts payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificate accounts 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 of time deposits.

Securities sold under agreements to repurchase: The carrying amount of repurchase agreements approximates fair value based on the short duration of the agreements.

Short-term borrowings: For short-term borrowings maturing within ninety days, carrying values approximate fair values. Fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the current incremental borrowing rates in the market for similar types of borrowing arrangements.

Long-term debt: The fair values of the Company's advances are estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.

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

Off-balance-sheet instruments: Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. The estimated fair value of off-balance sheet financial instruments at March 31, 2013 and June 30, 2012 was not material.

The Company does not measure any liabilities at fair value on either a recurring or non-recurring basis.

The following tables present the balance of assets measured at fair value on a recurring basis as of March 31, 2013 and June 30, 2012:

	Level 1		Level 2		Level 3		Total
March 31, 2013	(In Thousands)
Debt securities:
Municipal bonds	$	-	$	195	$	-	$	195
Corporate bonds		-		3,108		-		3,108
Residential mortgage-backed securities:
Agency		-		137,440		-		137,440
Non-agency		-		3,219		-		3,219
Total debt securities		-		143,962		-		143,962
Marketable equity securities		67		-		-		67
Mortgage servicing rights		-		-		563		563
Total assets measured at fair value on a recurring basis	$	67	$	143,962	$	563	$	144,592

June 30, 2012
Debt securities:
Corporate bonds	$	-	$	6,136	$	-	$	6,136
Residential mortgage-backed securities:
Agency		-		133,543		-		133,543
Non-agency		-		4,118		-		4,118
Total debt securities		-		143,797		-		143,797
Marketable equity securities		54		-		-		54
Mortgage servicing rights		-		-		445		445
Total assets measured at fair value on a recurring basis	$	54	$	143,797	$	445	$	144,296

The table below presents, for the three and nine months ended March 31, 2013 and 2012, the changes in Level 3 assets that are measured at fair value on a recurring basis:

Mortgage Servicing Rights

	Three Months Ended March 31,						Nine Months Ended March 31,
	2013			2012			2013			2012
	(In Thousands)						(In Thousands)
Beginning balance	$	444		$	403		$	445		$	445
Total realized and unrealized losses included in net income		(47	)		(49	)		(149	)		(169	)
Capitalized servicing rights		166			39			267			117
Ending balance	$	563		$	393		$	563		$	393

Also, the Company may be required, from time to time, to measure certain other assets at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower-of-cost-or-market accounting or write-downs, charge-offs, and specific loss allocations of individual assets. The following table summarizes the fair value hierarchy used to determine each adjustment and the carrying value of the related individual assets measured at fair value on a non-recurring basis as of March 31, 2013 and June 30, 2012.

	Level 1		Level 2		Level 3
March 31, 2013	(In Thousands)
Impaired loans	$	-	$	-	$	26
Other real estate owned		-		-		1,461
Total assets	$	-	$	-	$	1,487

June 30, 2012
Impaired loans	$	-	$	-	$	1,055
Other real estate owned		-		-		1,826
Total assets	$	-	$	-	$	2,881

During the nine months ended March 31, 2013 there were no transfers from levels 1, 2, or 3.

The amount of impaired loans represents the carrying value of loans that include adjustments which are based on the estimated fair value of the underlying collateral. The fair value of collateral used by the Company represents the amount expected to be received from the sale of the property, net of selling costs, as determined by an independent, licensed or certified appraiser using observable market data. This data includes information such as selling price of similar properties, expected future cash flows or earnings of the subject property based on current market expectations, as well as relevant legal, physical and economic factors. The Company had a $19,000 loss on those impaired loans for the three months ended March 31, 2013 and a $223,000 loss on those impaired loans for the nine months ended March 31, 2013. The Company had no gain or loss on those impaired loans for the three and nine months ended March 31, 2012. These losses were recognized through the provision for loan losses. The Company charges off any collateral shortfall on collaterally dependent impaired loans. Independent appraisals or tax assessments are obtained and updated as required for commercial real estate and residential real estate loans that are considered impaired and collateral dependent. Losses applicable to certain impaired loans are estimated using the appraised or assessed value adjusted for market related discounts associated with foreclosure auctions, short sales, inventory of like properties, general liquidity in the market place as well as selling and disposal costs. These considerations are applied on a case by case basis.

The Company classifies property acquired through foreclosure or acceptance of a deed in lieu of foreclosure as other real estate owned (“OREO”) in its consolidated financial statements. When property is placed into OREO, it is recorded at the fair value less estimated costs to sell at the date of foreclosure or acceptance of deed in lieu of foreclosure. At the time of transfer to OREO, any excess of carrying value over fair value is charged to the allowance for loan losses. Management, or its designee, inspects all OREO property periodically. Holding costs and declines in fair value result in charges to expense after the property is acquired. The Company had a $6,000 loss on OREO for the three months ended March 31, 2013 and a $9,000 loss for the nine months ended March 31, 2013. The Company had no gain or loss on OREO for the three months ended March 31, 2012 and a $50,000 write-down for the nine months ended March 31, 2012. At March 31, 2013 and 2012, the amount of other real estate owned represents the carrying value and related charge-offs for which adjustments are based on current appraised value of the collateral or, where current appraised value is not obtained, management’s discounted estimate of the collateral.

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's 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. Certain financial instruments and all non-financial instruments are exempt from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein may not necessarily represent the underlying fair value of the Company.

The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows:

	March 31,
	2013
	Carrying				Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	46,250	$	46,250	$	-	$	-	$	46,250
Securities available for sale		144,029		67		143,962		-		144,029
Federal Home Loan Bank stock		5,048		-		-		5,048		5,048
Loans held for sale		1,049		-		-		1,049		1,049
Loans, net		438,654		-		-		455,195		455,195
Accrued interest receivable		1,677		-		-		1,677		1,677
Mortgage servicing rights (1)		563		-		-		563		563

Financial liabilities:
Deposits		478,062		-		-		480,403		480,403
Securities sold under agreements to repurchase		5,531		-		-		5,531		5,531
Short-term borrowings		7,000		-		7,000		-		7,000
Long-term debt		82,910		-		90,819		-		90,819
Mortgagors' escrow accounts		1,076		-		-		1,076		1,076

(1) Included in other assets.
	June 30,
	2012
	Carrying				Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	27,923	$	27,923	$	-	$	-	$	27,923
Securities available for sale		143,851		54		143,797		-		143,851
Federal Home Loan Bank stock		4,959		-		-		4,959		4,959
Loans held for sale		927		-		-		927		927
Loans, net		406,344		-		-		425,782		425,782
Accrued interest receivable		1,675		-		-		1,675		1,675
Mortgage servicing rights (1)		445		-		-		445		445

Financial liabilities:
Deposits		434,832		-		-		437,725		437,725
Securities sold under agreements to repurchase		7,315		-		-		7,315		7,315
Short-term borrowings		3,000		-		3,000		-		3,000
Long-term debt		76,661		-		78,220		-		78,220
Mortgagors' escrow accounts		1,010		-		-		1,010		1,010

(1) Included in other assets.

7. Securities Available For Sale

The amortized cost and estimated fair value of securities available for sale, with gross unrealized gains and losses, are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2013	(In Thousands)
Debt securities:
Municipal bonds	$	195	$	-	$	-		$	195
Corporate bonds		3,039		69		-			3,108
Residential mortgage-backed securities:
Agency		134,963		2,759		(282	)		137,440
Non-agency		3,177		45		(3	)		3,219
Total debt securities		141,374		2,873		(285	)		143,962
Marketable equity securities		51		16		-			67
Total securities available for sale	$	141,425	$	2,889	$	(285	)	$	144,029

June 30, 2012
Debt securities:
Corporate bonds	$	6,134	$	10	$	(8	)	$	6,136
Residential mortgage-backed securities:
Agency		130,157		3,419		(33	)		133,543
Non-agency		4,196		53		(131	)		4,118
Total debt securities		140,487		3,482		(172	)		143,797
Marketable equity securities		51		3		-			54
Total securities available for sale	$	140,538	$	3,485	$	(172	)	$	143,851

The amortized cost and estimated fair value of debt securities by contractual maturity at March 31, 2013 is set forth below. Expected maturities will differ from contractual maturities because the issuer may have the right to call or prepay obligations with or without call or prepayment penalties.

	March 31, 2013
	Amortized Cost		Fair Value
	(In Thousands)
Within 1 year	$	39	$	39
Over 1 year through 5 years		3,195		3,264
Total bonds and obligations		3,234		3,303
Residential mortgage-backed securities:
Agency		134,963		137,440
Non-agency		3,177		3,219
Total debt securities	$	141,374	$	143,962

At March 31, 2013 and June 30, 2012, the carrying value of securities pledged to secure repurchase agreements was $9.9 million and $13.3 million, respectively.

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

	Less Than Twelve Months				Over Twelve Months				Total
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
	(In Thousands)
March 31, 2013:
Residential mortgage-backed securities:
Agency	$	275	$	45,439	$	7	$	288	$	282	$	45,727
Non-agency		-		-		3		271		3		271
	$	275	$	45,439	$	10	$	559	$	285	$	45,998
June 30, 2012:
Corporate bonds	$	8	$	2,024	$	-	$	-	$	8	$	2,024
Residential mortgage-backed securities:
Agency		25		8,435		8		409		33		8,844
Non-agency		-		-		131		2,066		131		2,066
	$	33	$	10,459	$	139	$	2,475	$	172	$	12,934

Management conducts, at least on a quarterly basis, a review of our investment securities to determine if the value of any security has declined below its cost or amortized cost and whether such decline represents other-than-temporary impairment (“OTTI”).

At March 31, 2013 and June 30, 2012, no marketable equity securities had unrealized losses.

At March 31, 2013, twenty-six debt securities had unrealized losses with aggregate depreciation of 0.6% from the Company's amortized cost basis. In analyzing an issuer's financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analyst's reports. Because the majority of these securities have been issued by the U.S. Government or its agencies and as management has not decided to sell these securities, nor is it likely that the Company will be required to sell these securities, no declines are deemed to be other than temporary. At March 31, 2013, we held four securities issued by private mortgage originators that had unrealized losses which had an amortized cost of $274,000 and a fair value of $271,000. All of these investments are “Senior” Class tranches and have underlying credit enhancement. Management estimates the loss projections for each security by evaluating the industry rating, amount of delinquencies, amount of foreclosure, amount of other real estate owned, average credit scores, average amortized loan to value and credit enhancement. Based on this review, management determines whether credit losses have occurred. Management has determined that no credit losses have occurred as of March 31, 2013.

8. Loans

The following table sets forth the composition of the Company’s loan portfolio in dollar amounts and as a percentage of the total loan portfolio at the dates indicated.

	At March 31, 2013						At June 30, 2012
	Amount			Percent			Amount			Percent			Change			% Change
	(Dollars In Thousands)
Mortgage loans on real estate:
1-4 family residential	$	109,702			24.87	%	$	112,294			27.48	%	$	(2,592	)		(2.31	) %
Commercial		161,403			36.59			152,965			37.43			8,438			5.52
Home equity:
First lien		35,470			8.04			31,609			7.73			3,861			12.21
Second lien		42,453			9.62			41,374			10.12			1,079			2.61
Construction:
Residential		3,115			0.71			4,149			1.02			(1,034	)		(24.92	)
Commercial		14,742			3.34			2,404			0.59			12,338			513.23
Total mortgage loans on real estate		366,885			83.17			344,795			84.37			22,090			6.41

Other loans:
Commercial		42,520			9.64			35,567			8.70			6,953			19.55
Consumer:
Manufactured homes		21,562			4.89			21,169			5.18			393			1.86
Automobile and other secured loans		8,558			1.94			6,385			1.56			2,173			34.03
Other		1,577			0.36			769			0.19			808			105.07
Total other loans		74,217			16.83			63,890			15.63			10,327			16.16
Total loans		441,102			100.00	%		408,685			100.00	%	$	32,417			7.93	%
Other items:
Net deferred loan costs		2,822						2,807
Allowance for loan losses		(5,270	)					(5,148	)

Total loans, net	$	438,654					$	406,344

Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. The analysis of the allowance for loan losses has two components: specific and general allocations, which are further described below.

Specific allocation

Specific allocations are made for loans determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or fair value of collateral for collateral dependent loans. The Company charges off any collateral shortfall on collaterally dependent impaired loans.

A loan is considered impaired when, based on current information and events, it is probable that the bank will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Impaired loans are generally placed on non-accrual status either when there is reasonable doubt as to the full collection of payments or when the loans become 90 days past due unless an evaluation clearly indicates that the loan is well secured and in the process of collection. Impairment is measured on a loan by loan basis for commercial 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, adjusted for market conditions and selling expenses, if the loan is collateral dependent.

The Company 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 restructure (“TDR”). All TDRs are initially classified as impaired and may be evaluated for removal from impaired status after one year of current payments for a modified loan with a market rate.

General allocation

The general allocation is determined by segregating the remaining loans by type of loan and payment history. Consideration is given to historical loss experience and qualitative factors such as delinquency trends, changes in underwriting standards or lending policies, procedures and practices, experience and depth of management and lending staff, and general economic conditions. This analysis establishes loss factors that are applied to the loan groups to determine the amount of the general allocations. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revisions based upon changes in economic and real estate market conditions. Actual loan losses may be significantly more than the allowance for loan losses that have been established which could have a material negative effect on financial results. There were no changes in the Company’s policies or methodology pertaining to the general component of the allowance for loan losses during the nine months ended March 31, 2013.

On a quarterly basis, management’s Loan Review Committee reviews the current status of various loan assets in order to evaluate the adequacy of the allowance for loan losses. In this evaluation process specific loans with risk ratings of six or higher are analyzed to determine their potential risk of loss. This process concentrates on watch list, non-accrual and classified loans. Any loan determined to be impaired is evaluated for potential loss exposure. Any shortfall results in a charge-off if the likelihood of loss is evaluated as probable. The Company’s policy for charging off uncollectible loans is based on an analysis of the financial condition of the borrower and/or the collateral value. To determine the adequacy of collateral on a particular loan, an estimate of the fair market value of the collateral is based on the most current appraised value, discounted cash flow valuation or other available information.

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

Residential real estate – The Company generally does not originate loans with a loan-to-value ratio greater than 80 percent unless there is private mortgage insurance. All loans in this segment are collateralized by 1-4 family 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.

Commercial real estate – Loans in this segment are primarily income-producing properties throughout Massachusetts and Connecticut. The underlying cash flows generated by the properties can be 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 requires annual borrower financial statements, obtains rent rolls annually and continually monitors the cash flows of these loans.

Home equity loans - Loans in this segment are secured by first or second mortgages on 1-4 family owner occupied properties, and are generally underwritten in amounts such that the combined first and second mortgage balances generally do not exceed 85% of the value of the property serving as collateral at time of origination. The lines-of-credit are available to be drawn upon for 10 to 20 years, at the end of which time they become term loans amortized over 5 to 10 years. Interest rates on home equity lines normally adjust based on the month-end prime rate published in the Wall Street Journal.

Residential construction loans – Loans in this segment primarily include construction to permanent non-speculative real estate loans. All loans in this segment are collateralized by 1-4 family 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.

Commercial construction loans – Loans in this segment primarily include construction to permanent non-speculative real estate loans. The underlying cash flows generated by the properties may be adversely impacted by a downturn in the economy, which in turn, will have an effect on the credit quality in this segment.

Commercial 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 may have an effect on the credit quality in this segment.

Automobile and other secured loans – Loans in this segment include consumer non-real estate secured loans that the Company originates as well as automobile loans that the Company purchases from a third party. The Company has the ability to select the automobile loans it purchases based on its own underwriting standards.

Manufactured home loans – Loans in this segment are secured by first liens on properties located primarily in the Northeast. Repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates, will have an effect on the credit quality in this segment. The Company has the ability to select the manufactured home loans it purchases based on its own underwriting standards.

Other consumer loans – Loans in this segment are generally unsecured and repayment is dependent on the credit quality of the individual borrower.

Credit Quality Information

The Company utilizes a nine grade internal loan rating system for all loans as follows:

Loans rated 1 – 5 are considered “pass” rated loans with low to average risk.

Loans rated 6 are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

Loans rated 7 are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

Loans rated 8 are considered “doubtful” and 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.

Loans rated 9 are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted. These loans are generally charged off at each quarter end.

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate, commercial construction and commercial loans. The Company engages an independent third-party to review a significant portion of loans within these segments. Management uses the results of these reviews as part of its annual review process. All credits rated 6 or worse are reviewed on a quarterly basis by management and semi-annually a statistically significant percentage is reviewed by a third party. At origination, management assigns risk ratings to 1-4 family residential loans, home equity loans, residential construction loans, manufactured home loans, and other consumer loans. The Company updates these risk ratings as needed based primarily on delinquency, bankruptcy, or tax delinquency.

The following table presents the Company’s loans by risk rating at March 31, 2013 and June 30, 2012:

March 31, 2013
	1-4 Family Residential		Commercial Real Estate		Home Equity First Lien		Home Equity Second Lien		Residential Construction		Commercial Construction
					(In Thousands)
Loans rated 1-5	$	107,735	$	141,434	$	35,470	$	42,064	$	3,115	$	14,742
Loans rated 6		473		11,290		-		33		-		-
Loans rated 7		747		8,679		-		86		-		-
Loans rated 8		747		-		-		270		-		-
Loans rated 9		-		-		-		-		-		-
	$	109,702	$	161,403	$	35,470	$	42,453	$	3,115	$	14,742

	Commercial		Manufactured Homes		Automobile and Other Secured Loans		Other Consumer		Total
					(In Thousands)
Loans rated 1-5	$	36,213	$	21,222	$	8,558	$	1,576	$	412,129
Loans rated 6		1,139		174		-		-		13,109
Loans rated 7		5,168		71		-		1		14,752
Loans rated 8		-		95		-		-		1,112
Loans rated 9		-		-		-		-		-
	$	42,520	$	21,562	$	8,558	$	1,577	$	441,102


June 30, 2012
	1-4 Family Residential		Commercial Real Estate		Home Equity First Lien		Home Equity Second Lien		Residential Construction		Commercial Construction
					(In Thousands)
Loans rated 1-5	$	110,071	$	130,316	$	31,456	$	41,030	$	4,149	$	2,404
Loans rated 6		957		6,602		89		275		-		-
Loans rated 7		810		16,047		64		69		-		-
Loans rated 8		456		-		-		-		-		-
Loans rated 9		-		-		-		-		-		-
	$	112,294	$	152,965	$	31,609	$	41,374	$	4,149	$	2,404

	Commercial		Manufactured Homes		Automobile and Other Secured Loans		Other Consumer		Total
					(In Thousands)
Loans rated 1-5	$	29,539	$	20,831	$	6,377	$	765	$	376,938
Loans rated 6		968		136		8		4		9,039
Loans rated 7		5,060		179		-		-		22,229
Loans rated 8		-		23		-		-		479
Loans rated 9		-		-		-		-		-
	$	35,567	$	21,169	$	6,385	$	769	$	408,685

The results of the quarterly evaluation of the adequacy of the allowance for loan losses are summarized by, and appropriate recommendations and loan loss allowances are approved, by the Loan Review Committee. All supporting documentation with regard to the evaluation process, loan loss experience, allowance levels and the schedules of classified loans is maintained by the Company. The Loan Review Committee is chaired by the Company’s Chief Financial Officer. The allowance for loan loss calculation is presented to the Board of Directors on a quarterly basis with recommendations on its adequacy.

The following are summaries of past due and non-accrual loans at March 31, 2013 and June 30, 2012:

	March 31, 2013
									Past Due 90
	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Days or More and Still Accruing		Loans on Non-accrual
	(In Thousands)
Mortgage loans on real estate:
1-4 family residential	$	345	$	185	$	1,035	$	1,565	$	-	$	1,467
Commercial		2,018		-		-		2,018		-		-
Home equity:
First lien		36		-		-		36		-		-
Second lien		90		61		271		422		-		357
Commercial		1		-		2,010		2,011		-		2,029
Consumer:
Manufactured homes		386		-		95		481		-		95
Other		44		1		-		45		-		-

Total	$	2,920	$	247	$	3,411	$	6,578	$	-	$	3,948

	June 30, 2012
									Past Due 90
	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Days or More and Still Accruing		Loans on Non-accrual
	(In Thousands)
Mortgage loans on real estate:
1-4 family residential	$	930	$	275	$	878	$	2,083	$	-	$	1,266
Commercial		-		-		-		-		-		218
Home equity:
First lien		39		114		-		153		-		-
Second lien		134		-		-		134		-		68
Commercial		25		-		556		581		-		597
Consumer:
Manufactured homes		183		122		133		438		-		133
Automobile and other secured loans		8		-		-		8		-		-
Other		4		-		-		4		-		-

Total	$	1,323	$	511	$	1,567	$	3,401	$	-	$	2,282

The following are summaries of impaired loans at March 31, 2013 and June 30, 2012:

	March 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In Thousands)
Impaired loans without a valuation allowance:
Mortgage loans on real estate:
1-4 family residential	$	1,467	$	1,758	$	-
Commercial		3,108		3,108		-
Home equity:
First lien		-		-		-
Second lien		356		356		-
Other loans:
Commercial		4,404		4,412		-
Manufactured homes		95		95		-
Total		9,430		9,729		-

Impaired loans with a valuation allowance:
Mortgage loans on real estate:
Commercial		8,503		8,503		174
Other loans:
Commercial		572		572		1
Total		9,075		9,075		175
Total impaired loans	$	18,505	$	18,804	$	175


	June 30, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In Thousands)
Impaired loans without a valuation allowance:
Mortgage loans on real estate:
1-4 family residential	$	1,269	$	1,493	$	-
Commercial		3,090		3,150		-
Home equity:
Second lien		69		69		-
Other loans:
Commercial		3,345		4,853
Manufactured homes		133		133		-
Total		7,906		9,698		-

Impaired loans with a valuation allowance:
Mortgage loans on real estate:
Commercial		8,484		8,484		221
Other loans:
Commercial		686		686		1
Total		9,170		9,170		222
Total impaired loans	$	17,076	$	18,868	$	222

Information pertaining to impaired loans for the three and nine months ended March 31, 2013 and 2012 follows:

	For The Three Months Ended March 31, 2013

	1-4 Family Residential		Commercial Real Estate		Home Equity First Lien		Home Equity Second Lien		Residential Construction		Commercial Construction		Commercial		Manufactured Homes		Automobile and Other Secured Loans		Other Consumer		Total
	(In Thousands)
Average investment in impaired loans	$	1,681	$	11,389	$	29	$	347	$	-	$	-	$	4,355	$	102	$	-	$	-	$	17,903

Interest income recognized on impaired loans	$	-	$	173	$	-	$	2	$	-	$	-	$	17	$	-	$	-	$	-	$	192

Interest income recognized on a cash basis on impaired loans	$	10	$	179	$	-	$	1	$	-	$	-	$	41	$	-	$	-	$	-	$	231


	For The Three Months Ended March 31, 2012

	1-4 Family Residential		Commercial Real Estate		Home Equity First Lien		Home Equity Second Lien		Residential Construction		Commercial Construction		Commercial		Manufactured Homes		Automobile and Other Secured Loans		Other Consumer		Total
	(In Thousands)
Average investment in impaired loans	$	1,701	$	9,864	$	-	$	300	$	-	$	310	$	4,668	$	71	$	-	$	-	$	16,914

Interest income recognized on impaired loans	$	20	$	179	$	-	$	2	$	-	$	5	$	52	$	2	$	-	$	-	$	260

Interest income recognized on a cash basis on impaired loans	$	20	$	167	$	-	$	1	$	-	$	5	$	52	$	-	$	-	$	-	$	245

	For The Nine Months Ended March 31, 2013

	1-4 Family Residential		Commercial Real Estate		Home Equity First Lien		Home Equity Second Lien		Residential Construction		Commercial Construction		Commercial		Manufactured Homes		Automobile and Other Secured Loans		Other Consumer		Total
	(In Thousands)
Average investment in impaired loans	$	1,534	$	11,451	$	42	$	214	$	-	$	-	$	4,133	$	137	$	-	$	-	$	17,511

Interest income recognized on impaired loans	$	19	$	483	$	2	$	11	$	-	$	-	$	93	$	10	$	-	$	-	$	618

Interest income recognized on a cash basis on impaired loans	$	51	$	564	$	2	$	5	$	-	$	-	$	112	$	-	$	-	$	-	$	734

	For The Nine Months Ended March 31, 2012

	1-4 Family Residential		Commercial Real Estate		Home Equity First Lien		Home Equity Second Lien		Residential Construction		Commercial Construction		Commercial		Manufactured Homes		Automobile and Other Secured Loans		Other Consumer		Total
	(In Thousands)
Average investment in impaired loans	$	2,130	$	10,650	$	10	$	338	$	-	$	310	$	4,827	$	87	$	-	$	-	$	18,352

Interest income recognized on impaired loans	$	69	$	525	$	-	$	4	$	-	$	15	$	180	$	-	$	-	$	-	$	793

Interest income recognized on a cash basis on impaired loans	$	74	$	500	$	-	$	3	$	-	$	15	$	179	$	1	$	-	$	-	$	772

At March 31, 2013, the Company had four impaired loans that had $481,000 committed to be advanced. The $18.5 million of impaired loans include $3.9 million of non-accrual loans, $526,000 of delinquent loans, and $9.4 million of accruing troubled debt restructured loans as of March 31, 2013. The remaining $4.7 million of impaired loans, all of which are current with payments, are loans that the Company believes, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Of the $18.5 million of impaired loans, $14.0 million, or 75.8%, are current with all payment terms. As of June 30, 2012, the $17.1 million of impaired loans included $2.3 million of non-accrual loans and $9.6 million of accruing troubled debt restructured loans. The remaining $5.2 million of impaired loans are loans that the Company believes, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Of the $17.1 million of impaired loans, $14.8 million, or 87.0%, were current with all payment terms as of June 30, 2012.

The Company had no new TDR loan relationships in the three and nine months ended March 31, 2013. As of March 31, 2013, there were no TDR loans that were restructured within the previous twelve months that had any payment defaults. The Company had two new TDR loan relationships in the nine months ended March 31, 2012. One loan relationship consists of a home equity loan and a 1-4 family residential loan totaling $233,000. The Company capitalized the interest and expenses and restructured the payments for these loans. The restructure did not result in any impairment from the present value of expected future cash flows discounted at the loan’s effective interest rate. The second new TDR loan relationship is a commercial loan totaling $724,000 where the maturity date was extended by two years and a small impairment amount was calculated from the present value of expected future cash flows discounted at the loan’s effective interest rate. One TDR loan relationship that was restructured as of June 30, 2011 had payment defaults during the nine months ended March 31, 2012. This loan relationship included four loans comprised of two 1-4 family residential loans totaling $203,000, one home equity loan totaling $26,000, and one commercial real estate loan totaling $175,000 as of March 31, 2012.

Information pertaining to the allowance for loan losses and recorded investment in loans for the three and nine months ended March 31, 2013 and 2012 follows:

	1-4 Family Residential			Commercial Real Estate			Home Equity First Lien			Home Equity Second Lien			Residential Construction			Commercial Construction		Commercial			Manufactured Homes			Automobile and Other Secured Loans			Other Consumer			Total
Three Months Ended March 31, 2013	(In Thousands)
Allowance:
Beginning balance	$	791		$	2,370		$	167		$	293		$	40		$	25	$	1,013		$	394		$	26		$	8		$	5,127
Charge-offs		(13	)		-			-			-			-			-		(11	)		(6	)		(28	)		(1	)		(59	)
Recoveries		2			-			1			-			-			-		99			-			-			-			102
Provision (credit)		(27	)		(113	)		46			(5	)		(13	)		189		(80	)		57			33			13			100
Ending balance	$	753		$	2,257		$	214		$	288		$	27		$	214	$	1,021		$	445		$	31		$	20		$	5,270

Nine Months Ended March 31, 2013
Allowance:
Beginning balance	$	865		$	2,360		$	206		$	280		$	38		$	20	$	969		$	375		$	25		$	10		$	5,148
Charge-offs		(126	)		(87	)		(50	)		-			-			-		(11	)		(6	)		(28	)		(9	)		(317	)
Recoveries		7			-			3			-			-			-		99			-			-			5			114
Provision (credit)		7			(16	)		55			8			(11	)		194		(36	)		76			34			14			325
Ending balance	$	753		$	2,257		$	214		$	288		$	27		$	214	$	1,021		$	445		$	31		$	20		$	5,270

At March 31, 2013

Ending balance: Specific allocation	$	-		$	174		$	-		$	-		$	-		$	-	$	1		$	-		$	-		$	-		$	175
Ending balance: General allocation	$	753		$	2,083		$	214		$	288		$	27		$	214	$	1,020		$	445		$	31		$	20		$	5,095
Loans:
Ending balance: Impaired loans	$	1,467		$	11,611		$	-		$	356		$	-		$	-	$	4,976		$	95		$	-		$	-		$	18,505
Ending balance: Non-impaired loans		108,235			149,792			35,470			42,097			3,115			14,742		37,544			21,467			8,558			1,577			422,597
Ending balance	$	109,702		$	161,403		$	35,470		$	42,453		$	3,115		$	14,742	$	42,520		$	21,562		$	8,558		$	1,577		$	441,102

At June 30, 2012

Ending balance: Specific allocation	$	-		$	221		$	-		$	-		$	-		$	-	$	1		$	-		$	-		$	-		$	222
Ending balance: General allocation	$	865		$	2,139		$	206		$	280		$	38		$	20	$	968		$	375		$	25		$	10		$	4,926
Loans:
Ending balance: Impaired loans	$	1,269		$	11,574		$	-		$	69		$	-		$	-	$	4,031		$	133		$	-		$	-		$	17,076
Ending balance: Non-impaired loans		111,025			141,391			31,609			41,305			4,149			2,404		31,536			21,036			6,385			769			391,609
Ending balance	$	112,294		$	152,965		$	31,609		$	41,374		$	4,149		$	2,404	$	35,567		$	21,169		$	6,385		$	769		$	408,685

	1-4 Family Residential			Commercial Real Estate			Home Equity First Lien			Home Equity Second Lien			Residential Construction		Commercial Construction			Commercial			Manufactured Homes		Automobile and Other Secured Loans		Other Consumer			Total
Three Months Ended March 31, 2012	(In Thousands)
Allowance:
Beginning balance	$	1,051		$	3,084		$	242		$	302		$	37	$	23		$	794		$	-	$	18	$	18		$	5,569
Charge-offs		(334	)		(57	)		(45	)		-			-		-			(5	)		-		-		(3	)		(444	)
Recoveries		33			-			-			-			-		-			5			-		-		6			44
Provision		-			25			-			-			-		-			-			-		-		-			25
Ending balance	$	750		$	3,052		$	197		$	302		$	37	$	23		$	794		$	-	$	18	$	21		$	5,194

Nine Months Ended March 31, 2012
Allowance:
Beginning balance	$	893		$	2,922		$	196		$	321		$	33	$	32		$	1,020		$	-	$	-	$	56		$	5,473
Charge-offs		(392	)		(117	)		(45	)		(24	)		-		-			(217	)		-		-		(7	)		(802	)
Recoveries		68			16			3			-			-		-			5			-		-		6			98
Provision (credit)		181			231			43			5			4		(9	)		(14	)		-		18		(34	)		425
Ending balance	$	750		$	3,052		$	197		$	302		$	37	$	23		$	794		$	-	$	18	$	21		$	5,194

At March 31, 2012

Ending balance: Specific allocation	$	1		$	236		$	-		$	-		$	-	$	-		$	16		$	-	$	-	$	-		$	253
Ending balance: General allocation	$	749		$	2,816		$	197		$	302		$	37	$	23		$	778		$	-	$	18	$	21		$	4,941
Loans:
Ending balance: Impaired loans	$	1,302		$	9,630		$	-		$	287		$	-	$	310		$	4,566		$	41	$	-	$	-		$	16,136
Ending balance: Non-impaired loans		113,834			141,463			28,890			40,980			3,639		2,273			29,861			20,673		6,628		1,272			389,513
Ending balance	$	115,136		$	151,093		$	28,890		$	41,267		$	3,639	$	2,583		$	34,427		$	20,714	$	6,628	$	1,272		$	405,649

The Company has transferred a portion of its originated commercial real estate and commercial loans to participating lenders. The amounts transferred have been accounted for as sales and are therefore not included in the Company’s accompanying consolidated balance sheets. The Company and participating lenders share ratably in any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. The Company continues to service the loans on behalf of the participating lenders and, as such, collects cash payments from the borrowers, remits payments (net of servicing fees) to participating lenders and disburses required escrow funds to relevant parties. At March 31, 2013 and June 30, 2012, the Company was servicing loans for participants aggregating $34.2 million and $28.4 million, respectively.

9. Equity Incentive Plan

Stock Options

Under the Company’s 2008 Equity Incentive Plan (the “Plan”), approved by the Company’s stockholders at a special stockholder meeting on January 29, 2008, the Company may grant stock options to its directors, employees, and consultants for up to 794,987 shares of common stock. Both incentive stock options and non-qualified stock options may be granted under the Plan. During the nine months ended March 31, 2013, 35,000 stock options with an exercise price of $12.51 per share were awarded to certain employees. The vesting period for these options is five years from date of grant with 20% of the options vesting annually. The fair value of the options granted is $3.34 and was estimated on the date of grant using the Black-Scholes option-pricing model. As of March 31, 2013, unrecognized stock-based compensation expense related to these nonvested options amounted to $101,000.

Stock Awards

Under the Company’s 2008 Equity Incentive Plan, the Company may grant stock awards to its directors, employees and consultants for up to 317,996 shares of common stock. During the nine months ended March 31, 2013, 3,000 shares of restricted stock were awarded with a grant date fair value of $12.51 per share to the Company’s Senior Vice President and Chief Lending Officer. The vesting period for the shares of restricted stock is five years from the date of grant, with 20% of the shares vesting annually. The fair market value of the stock awards, based on the market price at grant date, is recorded as unearned compensation. Unearned compensation is amortized over the applicable vesting period. As of March 31, 2013, there was $32,000 of total unrecognized compensation cost related to these nonvested stock awards.

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

This section is intended to help investors understand the financial performance of Hampden Bancorp, Inc. and its subsidiaries, through a discussion of the factors affecting our financial condition at March 31, 2013 and June 30, 2012 and our consolidated results of operations for the three and nine months ended March 31, 2013 and 2012, and should be read in conjunction with the Company’s unaudited consolidated interim financial statements and notes thereto, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Forward-Looking Statements

Certain statements herein constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and expectations of management, as well as the assumptions made using information currently available to management. Since these statements reflect the views of management concerning future events, these statements involve risks, uncertainties and assumptions. As a result, actual results may differ from those contemplated by these statements. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like "believe", "expect", "anticipate", "estimate", and "intend" or future or conditional verbs such as "will", "would", "should", "could", or "may." Certain factors that could have a material adverse affect on the operations Hampden Bank include, but are not limited to, increased competitive pressure among financial service companies, national and regional economic conditions, changes in interest rates, changes in consumer spending, borrowing and savings habits, legislative and regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and Federal Reserve Board, adverse changes in the securities markets, inability of key third-party providers to perform their obligations to Hampden Bank, and changes in relevant accounting principles and guidelines. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. The Company disclaims any intent or obligation to update any forward-looking statements, whether in response to new information, future events or otherwise. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain important factors, including those set forth below under Item 2 –“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this the Quarterly Report on Form 10-Q, as well as in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012, including the section titled Item 1A –“Risk Factors”. You should carefully review those factors and also carefully review the risks outlined in other documents that the Company files from time to time with the SEC. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws.

Critical Accounting Policies

We consider accounting policies that require management to exercise significant judgment or discretion, or make significant assumptions that have or could have a material impact on the carrying value of certain assets, liabilities, revenue, expenses, or related disclosures, to be critical accounting policies.

Management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board.

Allowance for Loan Losses

Critical Estimates. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a quarterly basis by management and is based upon management's periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The analysis of the allowance for loan losses has two components: specific and general allocations, which are described on pages 17-18.

Judgment and Uncertainties. The qualitative factors are assessed based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are described on page 18.

Effect if Actual Results Differ from Assumptions. Although we believe we have established and maintained the allowance for loan losses at adequate levels, additions may be necessary if the current operating environment deteriorates. Management uses the best information available; however, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change. In addition, the FDIC and the Massachusetts Division of Banks, as an integral part of their examination process, will periodically review our allowance for loan losses. Such agencies may require us to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination.

Income Taxes

Critical Estimates. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. Management reviews the deferred tax assets on a quarterly basis to identify any uncertainties to the collectability of the components of the deferred tax asset.

Judgment and Uncertainties. In determining the deferred tax asset valuation allowance, we use historical and forecasted operating results, based upon approved business plans, including a review of the eligible carryforward periods, tax planning opportunities and other relevant considerations. Management believes that the accounting estimate related to the valuation allowance is a critical accounting estimate because the underlying assumptions can change from period to period. For example, tax law changes or variances in future projected operating performance could result in a change in the valuation allowance.

Effect if Actual Results Differ from Assumptions. Should actual factors and conditions differ materially from those used by management, the actual realization of net deferred tax assets or deferred tax liabilities could differ materially from the amounts recorded in the financial statements. If we were not able to realize all or part of our net deferred tax assets in the future, an adjustment to our deferred tax assets valuation allowance would be charged to income tax expense in the period such determination was made and would have a negative impact on the company’s earnings. In addition, if actual factors and conditions differ materially from those used by management, the Company could incur penalties and interest imposed by the Internal Revenue Service.

Comparison of Financial Condition at March 31, 2013 and June 30, 2012

Overview

Total Assets. The Company’s total assets increased $51.6 million, or 8.4%, from $616.0 million at June 30, 2012 to $667.6 million at March 31, 2013. Net loans, including loans held for sale, increased $32.4 million, or 7.9%, to $439.7 million at March 31, 2013. Securities increased $178,000, or 0.1%, to $144.0 million and cash and cash equivalents increased $18.3 million, or 65.6%, to $46.3 million at March 31, 2013. The increase in cash and cash equivalents was due to an increase in municipal and non-profit deposits in the second half of the quarter that the Company will deploy into funding loans and purchasing securities in the fourth fiscal quarter.

Investment Activities. The composition and fair value of the Company’s investment portfolio is included in Note 7 to the Company’s accompanying unaudited condensed consolidated financial statements. Securities available for sale increased $178,000 to $144.0 million at March 31, 2013. There increases in the fair value of residential mortgage backed securities and municipal bonds, were partially offset by a decrease in the fair value of corporate bonds during the nine months ended March 31, 2013. The Company sold $3.2 million of corporate bonds during the nine months ended March 31, 2013 to fund loan growth.

Net Loans. The composition of the Company’s loan portfolio is included in Note 8 to the Company’s accompanying unaudited condensed consolidated financial statements. The increases in commercial real estate, commercial, and commercial construction loans were due to the Company’s increased emphasis on obtaining commercial lending relationships. There was a $3.9 million increase in first lien home equity loans due to a special promotion that the Company is currently running.

During the origination of fixed rate mortgages, each loan is analyzed to determine if the loan will be sold into the secondary market or held in portfolio. The Company retains servicing for loans sold to Fannie Mae and earns a fee equal to 0.25% of the loan amount outstanding for providing these services. Loans which the Company originates to the standards of the buyer, which may differ from the Company’s underwriting standards, are generally sold to a third party along with the servicing rights without recourse. For the nine months ended March 31, 2013, loans sold totaled $24.9 million. Of the $24.9 million of loans sold, $7.3 million were sold on a servicing-released basis, and $17.6 million were sold on a servicing-retained basis.

Non-Performing Assets. The following table sets forth the amounts of our non-performing assets at the dates indicated. The categories of our non-performing loans are included in Note 8 to the Company’s accompanying unaudited condensed consolidated financial statements.

	At March 31,			At June 30,
	2013			2012
	(Dollars in Thousands)

Total non-performing loans	$	3,948		$	2,282
Other real estate owned		1,461			1,826

Total non-performing assets	$	5,409		$	4,108

Troubled debt restructurings, not reported above	$	9,373		$	9,648

Ratios:
Non-performing loans to total loans		0.90	%		0.56	%
Non-performing assets to total assets		0.81	%		0.67	%

Generally, loans are placed on non-accrual status either when reasonable doubt exists as to the full collection of interest and principal or when a loan becomes 90 days past due, unless an evaluation clearly indicates that the loan is well-secured and in the process of collection. Past due status is based on the contractual terms of the loans. From June 30, 2012 to March 31, 2013, commercial non-performing loans have increased $1.4 million; residential mortgage non-performing loans have increased $201,000; consumer, including home equity and manufactured homes, non-performing loans have increased $251,000; and commercial real estate non-performing loans have decreased $218,000. The increase in commercial non-accrual loans is due to one commercial loan with a $1.5 million balance. The Company believes that this loan is well secured and this situation is temporary. At March 31, 2013, the Company had thirteen troubled debt restructurings (TDRs) totaling approximately $9.8 million, of which $455,000 is on non-accrual status. All loans that are modified and a concession granted by the Company in light of the borrower’s financial difficulty are considered a TDR and are classified as impaired loans by the Company. The interest income recorded from these loans amounted to $482,000 for the nine month period ended March 31, 2013. At June 30, 2012, the Company had fourteen TDRs consisting of commercial and mortgage loans totaling approximately $10.3 million, of which $698,000 was on non-accrual status. The interest income recorded from the restructured loans amounted to $689,000 for the year ended June 30, 2012.

As of March 31, 2013, loans on non-accrual status totaled $3.9 million which consisted of $3.4 million in loans that were 90 days or greater past due, $206,000 in loans that are current or less than 30 days past due and $332,000 in loans that are 30-89 days past due. It is the Company’s policy to keep loans on non-accrual status subsequent to becoming current until the borrower can demonstrate their ability to make payments according to their loan terms for six months. As of March 31, 2013, commercial non-accrual loans less than 90 days past due were $20,000, 1-4 family residential non-accrual loans less than 90 days past due were $432,000, and home equity second lien non-accrual loans less than 90 days past due were $86,000. All non-accrual loans, TDRs, and loans with risk ratings of six or higher are assessed by the Company for impairment.

In the normal course of business, the Company may modify a loan for a credit-worthy borrower where the modified loan is not considered a TDR. In these cases, the modified terms are consistent with loan terms available to credit worthy borrowers and within normal loan pricing. The modifications to such loans are done according to our existing underwriting standards. These modified loans are not considered impaired loans by the Company.

Non-accrual loans, including modified loans, return to accrual status once the borrower has shown the ability and an acceptable history of repayment. The borrower must be current with their payments in accordance with the loan terms for six months. The Company may also return a loan to accrual status if the borrower evidences sufficient cash flow to service the debt and provides additional collateral to support the collectability of the loan. For non-accrual loans that make payments, the Company recognizes cash interest payments as interest income when the Company does not have a collateral shortfall for the loan and the loan has not been charged off. If there is a collateral shortfall for the loan or it has been charged off, then the Company applies the entire payment to the principal balance on the loan.

A loan is considered impaired when, based on current information and events, it is probable that the Company 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, the collateral, and the probability of collecting scheduled principal and interest payments when due. Impairment is measured on a loan-by-loan basis by the present value of expected future cash flows discounted at the loan’s effective interest rate and any change in present value is recorded within the provision for loan loss. Impaired loans increased to $18.5 million at March 31, 2013 from $ 17.1 million at June 30, 2012. The Company established specific reserves aggregating $175,000 and $222,000 for impaired loans at March 31, 2013 and June 30, 2012, respectively. Such reserves relate to five impaired loan relationships with a carrying value of $9.1 million, and are based on management’s analysis of the expected cash flows for troubled debt restructurings as of March 31, 2013.

We believe that the determination of our allowance for loan losses, including amounts required for impaired loans, is consistent with generally accepted accounting principles and current regulatory guidance. While the Company believes that it has established adequate specifically allocated and general allowances for losses on loans, adjustments to the allowance may be necessary if future conditions differ substantially from the information used in making the evaluations. In addition, as an integral part of their examination process, the Company’s regulators periodically review the allowance for loan losses. These regulatory agencies may require the Company to recognize additions to the allowance based on their judgments of information available to them at the time of their examination, thereby negatively affecting the Company’s financial condition and earnings. It is also possible that, in this current economic environment, additional loans will become impaired in future periods.

The Company classifies property acquired through foreclosure or acceptance of a deed in lieu of foreclosure as OREO in its consolidated financial statements. When property is placed into OREO, it is recorded at the fair value less estimated costs to sell at the date of foreclosure or acceptance of deed in lieu of foreclosure. At the time of transfer to OREO, any excess of carrying value over fair value is charged to the allowance for loan losses. Management, or its designee, inspects all OREO property periodically. Holding costs and declines in fair value result in charges to expense after the property is acquired. At March 31, 2013, the Company had fourteen properties with a carrying value of $1.5 million classified as OREO. Two of these properties were commercial properties valued at $488,000, four properties were residential properties valued at $760,000, and eight properties were manufactured homes valued at $213,000 in aggregate.

Allowance for Loan Losses. The following table sets forth the Company’s allowance for loan losses for the periods indicated. The activity in the Company’s allowance for loan losses is included in Note 8 to the Company’s accompanying unaudited condensed consolidated financial statements.

	Three Months Ended March 31,						Nine Months Ended March 31,
	2013			2012			2013			2012
	(Dollars in Thousands)						(Dollars in Thousands)

Balance at end of period	$	5,270		$	5,194		$	5,270		$	5,194

Ratios:
Net charge-offs to average loans outstanding		0.01	%		0.10	%		0.05	%		0.23	%
Allowance for loan losses to non-performing loans at end of period		133.49	%		153.67	%		133.49	%		153.67	%
Allowance for loan losses to total loans at end of period		1.19	%		1.28	%		1.19	%		1.28	%

It is the Company’s policy to classify all non-accrual loans as impaired loans. All impaired loans are measured on a loan-by -loan basis to determine if any specific allowance is required for the allowance for loan loss 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. If the impaired loan has a shortfall in the expected future cash flows then a specific allowance will be placed on the loan in that amount. However, the Company may consider collateral values where it feels there is greater risk and the expected future cash flow allowance is not sufficient. Residential, commercial real estate and construction loans are secured by real estate. Except for one, all commercial loans are secured by all business assets and many also include primary or secondary mortgage positions on business and/or personal real estate. The other commercial loan is secured by shares of stock of a subsidiary to a borrower.

When calculating the general allowance component of the allowance for loan losses, the Company analyzes the trend in delinquencies, among other things. If there is an increase in the amount of delinquent loans in a particular loan category this may cause the Company to increase the general allowance requirement for that loan category. A partial charge-off on a non-performing loan will decrease the amount of non-performing and impaired loans, as well as any specific allowance requirement that loan may have had. This will also decrease our allowance for loan losses, as well as our allowance for loan losses to non-performing loans ratio and our allowance for loan losses to total loans ratio. The Company incorporates historical charge-offs, including the greater of charge-offs recognized in the current quarter, which are annualized, or projected annual charge-offs when calculating the general allowance component of the allowance for loan losses.

Loan Servicing. In the ordinary course of business, the Company sells real estate loans to the secondary market. The Company retains servicing on certain loans sold and earns servicing fees of 0.25% per annum based on the monthly outstanding balance of the loans serviced. The Company recognizes servicing assets each time it undertakes an obligation to service loans sold. The Company’s mortgage servicing asset valuation is performed by an independent third party using a statistic valuation model representing the projection into the future of a single interest rate/market environment. The projected cash flows are then discounted back to present value. Discount rates, estimate of servicing costs and ancillary income, estimates of float earnings rates and delinquency information as well as an estimate of prepayments are used to calculate the value of the mortgage servicing asset.

The changes in servicing assets measured using fair value are on page 12. There are no recourse provisions for the loans that are serviced for others. The risks inherent in mortgage servicing assets relate primarily to changes in prepayments that result from shifts in mortgage interest rates. For the nine month periods ended March 31, 2013 and 2012, amounts recognized for loan servicing fees amounted to $271,000 and $168,000, respectively, which are included in other non-interest income in the consolidated statements of net income. The unpaid principal balance of mortgages serviced for others was $65.0 million and $61.0 million at March 31, 2013 and June 30, 2012, respectively.

Deposits and Borrowed Funds. The following table sets forth the Company’s deposit accounts (excluding escrow deposits) for the periods indicated.

	At March 31,					At June 30,
	2013					2012
	Balance		Percent			Balance		Percent			Change			% Change
	(Dollars in Thousands)
Deposit type:
Demand deposits	$	69,047		14.44	%	$	60,108		13.82	%	$	8,939			14.87	%
Savings deposits		106,966		22.37			97,095		22.33			9,871			10.17
Money market		85,923		17.97			56,194		12.92			29,729			52.90
NOW accounts		47,307		9.90			43,579		10.02			3,728			8.55
Total transaction accounts		309,243		64.69			256,976		59.09			52,267			20.34
Certificates of deposit		168,819		35.31			177,856		40.91			(9,037	)		(5.08	)

Total deposits	$	478,062		100.00	%	$	434,832		100.00	%	$	43,230			9.94	%

Deposits increased $43.2 million, or 9.9%, to $478.1 million at March 31, 2013 from $434.8 million at June 30, 2012. The increase in deposits is due to the Company’s increased focus on obtaining core deposits. The $29.7 million increase in money market accounts was due to an increase in non-profit and state and local municipality deposits.

Borrowings include advances from the FHLB, as well as securities sold under agreements to repurchase, and have increased $8.4 million, or 9.7%, to $95.4 million at March 31, 2013 from $87.0 million at June 30, 2012. Advances from the FHLB increased $10.2 million and repurchase agreements decreased $1.8 million. The Company used these FHLB borrowings to fund some of its loan demand. In September 2012, the Company restructured $8.6 million of FHLB borrowings. After the restructuring, the weighted average cost of these borrowings was reduced by 1.00% to 2.74%.

Stockholders’ Equity. Stockholders’ equity decreased $415,000, or 0.5%, to $86.7 million at March 31, 2013 from $87.2 million at June 30, 2012. During the nine months ended March 31, 2013, the Company repurchased 199,419 shares of Company stock for $2.7 million at an average price of $13.29 per share pursuant to the Company’s previously announced stock repurchase programs. In addition, the Company repurchased 13,719 shares of Company stock, at an average price of $16.60 per share, in the nine months ended March 31, 2013 in connection with the vesting of certain restricted stock grants issued pursuant to our 2008 Equity Incentive Plan. The Company repurchased these shares from the employee plan participants for settlement of tax withholding obligations. A partial offset to the increase in treasury stock was a $1.6 million increase in retained earnings, a $784,000 increase in additional paid in capital, a $318,000 decrease in ESOP unearned compensation and a $207,000 decrease in equity incentive plan unearned compensation. Our ratio of capital to total assets decreased to 13.0% at March 31, 2013 compared to 14.2% at June 30, 2012. The Company’s book value per share as of March 31, 2013 was $14.99 compared to $14.60 at June 30, 2012.

Comparison of Operating Results for the Three Months Ended March 31, 2013 and March 31, 2012

Net Income. The Company had a $52,000 decrease in net income for the three months ended March 31, 2013 to $825,000, or $0.15 per fully diluted share, as compared to $877,000, or $0.16 per fully diluted share, for the same period in 2012. The Company had a decrease in net interest income of $260,000, or 5.4%, for the three months ended March 31, 2013 compared to the same period in 2012 due to a decrease in the net interest margin from 3.57% to 3.01%. The provision for loan losses increased $75,000 for the three month period ended March 31, 2013 compared to the same period in 2012 due to the increase in loan balances, as well as increases in non-accrual, including delinquent, and impaired loans. For the three months ended March 31, 2013 there was an increase in total non-interest income of $430,000 compared to the three months ended March 31, 2012. Non-interest expense increased $179,000, or 4.3%, for the three months ended March 31, 2013 compared to the three months ended March 31, 2012. Our combined federal and state effective tax rate was 37.0% for the three months ended March 31, 2013 compared to 37.1% for the same period in 2012.

Analysis of Net Interest Income

Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them.

The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. The yields set forth below include the effect of deferred costs, and discounts and premiums that are amortized or accreted to interest income or expense. The Company does not accrue interest on loans on non-accrual status; however, the balance of these loans is included in the total average balance, which has the effect of lowering average loan yields.

	Three Months Ended March 31,
	2013								2012
	Average Outstanding Balance			Interest		Yield /Rate (1)			Average Outstanding Balance			Interest		Yield /Rate (1)
	(Dollars in Thousands)
Interest-earning assets:
Loans (2)	$	438,407		$	5,268		4.81	%	$	407,089		$	5,450		5.36	%
Investment securities		152,208			645		1.70			122,539			750		2.45
Federal funds sold and other short-term investments		17,640			11		0.25			12,550			6		0.19
Total interest-earning assets		608,255			5,924		3.90			542,178			6,206		4.58
Allowance for loan losses		(5,152	)							(5,524	)
Total interest-earning assets less allowance for loan losses		603,103								536,654
Non-interest earning assets		43,889								43,872

Total assets	$	646,992							$	580,526

Interest-bearing liabilities:
Savings deposits	$	100,104			50		0.20		$	93,433			62		0.27
Money market		81,327			79		0.39			56,983			55		0.39
NOW accounts		40,109			31		0.31			37,495			34		0.36
Certificates of deposit		170,384			735		1.73			179,364			854		1.90
Total deposits		391,924			895		0.91			367,275			1,005		1.09
Borrowed funds		96,042			451		1.88			61,999			363		2.34
Total interest-bearing liabilities		487,966			1,346		1.09			429,274			1,368		1.27
Demand deposits		66,168								58,894
Other non-interest bearing liabilities		5,985								5,254
Total liabilities		560,119								493,422
Equity		86,873								87,104

Total liabilities and equity	$	646,992							$	580,526


Net interest income				$	4,578							$	4,838
Net interest rate spread (3)							2.79	%							3.30	%
Net interest-earning assets (4)	$	120,289							$	112,904

Net interest margin (5)							3.01	%							3.57	%
Average interest-earning assets to interest-bearing liabilities							124.65	%							126.30	%

(1)	Yields and rates for the three months ended March 31, 2013 and 2012 are annualized.
(2)	Includes loans held for sale.
(3)	Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of
	interest-bearing liabilities for the period indicated.
(4)	Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(5)	Net interest margin represents net interest income divided by average total interest-earning assets.

The following table presents the dollar amount of changes in interest income and interest expense for the major categories of the Company’s interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to changes in volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

	Three Months Ended March 31, 2013 vs. 2012
	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
	(In Thousands)
Interest income:
Loans (1)	$	401		$	(583	)	$	(182	)
Investment securities		157			(262	)		(105	)
Federal funds sold and other short- term investments		3			2			5
Total interest income		561			(843	)		(282	)

Interest expense:
Savings deposits		4			(16	)		(12	)
Money market		24			0			24
NOW accounts		2			(5	)		(3	)
Certificates of deposits		(41	)		(78	)		(119	)
Total deposits		(11	)		(99	)		(110	)
Borrowed funds		170			(82	)		88
Total interest expense		159			(181	)		(22	)
Change in net interest income	$	402		$	(662	)	$	(260	)

(1) Includes loans held for sale.

Interest Income. Interest income for the three months ended March 31, 2013 decreased $282,000, or 4.5%, to $5.9 million over the same period of 2012. For the three months ended March 31, 2013, average outstanding loans increased $31.3 million, or 7.7%, from the average for the three month period ended March 31, 2012. The average yield on interest-earning assets decreased 68 basis points to 3.90% for the three months ended March 31, 2013, compared to 4.58% for the same period in 2012 reflective of the current interest environment.

Interest Expense. Interest expense decreased $22,000, or 1.6%, to $1.3 million for the three months ended March 31, 2013. This decrease was primarily caused by a decrease in deposit interest expense of $110,000 due to a decrease in rates, which was partially offset by an increase in borrowing interest expense of $88,000 due to an increase in balances. The average cost of funds decreased to 1.09% for the three months ended March 31, 2013, a decrease of 18 basis points from a cost of funds of 1.27% for the same period in 2012. The decrease in the cost of funds is partially due to the current low interest rate environment as well as an increase in transaction and money market deposit accounts. In September 2012, the Company restructured $8.6 million of Federal Home Loan Bank of Boston borrowings. After the restructuring, the weighted average cost of these borrowings was reduced by 1.00% to 2.74%. The decrease in the cost of funds is also due to the restructuring of these borrowings with the lower rates in effect.

Net Interest Income. Net interest income for the three months ended March 31, 2013 was $4.6 million, a decrease of $260,000 or 5.4%, over the same period of 2012. This was primarily due to a decrease in interest income of $282,000 for the three months March 31, 2013 over the same period in 2012. There was a $22,000 decrease in interest expense for the three months ended March 31, 2013 compared to the same period in 2012.

Provision for Loan Losses. The Company’s provision for loan loss expense was $100,000 for the three months ended March 31, 2013 compared to $25,000 for the three months ended March 31, 2012. The increase in the provision was due to an increase in the general reserve resulting from an increase in loan balances, as well as increases in non-accrual, including delinquent, and impaired loans. As of March 31, 2013, the Company’s total allowance for loan losses of $5.3 million increased compared to June 30, 2012. The allowance for loan losses decreased to 1.19% of total loans as of March 31, 2013 compared to 1.28% of total loans as of March 31, 2012 due to increased loan balances. The allowance for loan losses covers 133.5% of our non-performing loans at March 31, 2013 compared to 153.67% at March 31, 2012 due to an increase of $1.7 million in non-performing loans.

Non-interest Income. Total non-interest income totaled $1.2 million for the three months ended March 31, 2013, an increase of $430,000 from the same period a year ago. There was an increase on the gain on sales of loans, net of $93,000 for the three months ended March 31, 2013 compared to no gain on sale of securities for the same period a year ago and an increase in the gain on sales of securities of $114,000 for the three months ended March 31, 2013 compared to the same period a year ago. There were also increases in customer service fees of $81,000, other non-interest income of $145,000 and a decrease in the cash surrender value of bank-owned life insurance of $3,000 for the three months ended March 31, 2013 compared to the same period in 2012. The $145,000, or 159.3%, increase in other non-interest income was mainly due to an increase in mortgage excess servicing fees; and a $81,000, or 20.9%, increase in customer service fees compared to the same period in 2012.

Non-interest Expense. Non-interest expense increased $179,000, or 4.3%, to $4.3 million for the three months ended March 31, 2013 compared to the same period for 2012. There was an increase in data processing services of $156,000 mainly due to an increase in services and an increase in contractual expenses, a $41,000 increase in other general and administrative expenses, and a $35,000 increase in occupancy and equipment for the three months ended March 31, 2013 compared to the same period in 2012. The increase in these expenses was partially offset by a decrease in salary and employee benefits of $58,000, a decrease in advertising expenses of $17,000 and a decrease in FDIC insurance and assessment expenses of $11,000 in the three months ended March 31, 2013 compared to the same period for 2012. There was a net gain on other real estate owned of $19,000 for the three months ended March 31, 2013 compared to a net gain of $52,000 for the same period in 2012.

Income Taxes. Income tax expense decreased $32,000 for the three months ended March 31, 2013 compared to the same period for 2012. Our combined federal and state effective tax rate was 37.0% for the three months ended March 31, 2013 compared to 37.1% for the three months ended March 31, 2012.

Comparison of Operating Results for the Nine Months Ended March 31, 2013 and March 31, 2012

Net Income. The Company had a $249,000 increase in net income for the nine months ended March 31, 2013 to $2.4 million, or $0.42 per fully diluted share, as compared to $2.1 million, or $0.35 per fully diluted share, for the same period in 2012. The Company had a decrease in net interest income of $131,000 for the nine months ended March 31, 2013 compared to the same period in 2012. The provision for loan losses decreased $100,000 for the nine month period ended March 31, 2013 compared to the same period in 2012 mainly due to a decrease in specific reserves on impaired loans. For the nine months ended March 31, 2013 there was an increase in total non-interest income of $885,000 compared to the nine months ended March 31, 2012. For the nine months ended March 31, 2013 there was a $218,000, or 88.3%, increase in other non-interest income which was mainly due to an increase in excess mortgage servicing fees; and a $182,000, or 13.9%, increase in customer service fees compared to the same period in 2012. Non-interest expense increased $331,000, or 2.6%, for the nine months ended March 31, 2013 compared to the nine months ended March 31, 2012. Our combined federal and state effective tax rate was 37.8% for the nine months ended March 31, 2013 compared to 35.4% for the same period in 2012.

Analysis of Net Interest Income

	Nine Months Ended March 31,
	2013								2012
	Average Outstanding Balance			Interest		Yield /Rate (1)			Average Outstanding Balance			Interest		Yield /Rate (1)
	(Dollars in Thousands)
Interest-earning assets:
Loans (2)	$	429,236		$	16,124		5.01	%	$	402,888		$	16,394		5.43	%
Investment securities		149,717			2,105		1.87			116,652			2,149		2.46
Federal funds sold and other short-term investments		17,191			25		0.19			16,138			17		0.14
Total interest-earning assets		596,144			18,254		4.08			535,678			18,560		4.62
Allowance for loan losses		(5,132	)							(5,627	)
Total interest-earning assets less allowance for loan losses		591,012								530,051
Non-interest earning assets		44,737								40,680

Total assets	$	635,749							$	570,731

Interest-bearing liabilities:
Savings deposits	$	98,343			156		0.21		$	90,240			193		0.29
Money market		70,633			215		0.41			53,621			163		0.41
NOW accounts		40,039			98		0.33			37,432			103		0.37
Certificates of deposit		173,613			2,330		1.79			183,158			2,757		2.01
Total deposits		382,628			2,799		0.98			364,451			3,216		1.18
Borrowed funds		94,761			1,369		1.93			54,611			1,127		2.75
Total interest-bearing liabilities		477,389			4,168		1.16			419,062			4,343		1.38
Demand deposits		65,052								55,886
Other non-interest bearing liabilities		5,848								5,534
Total liabilities		548,289								480,482
Equity		87,460								90,249

Total liabilities and equity	$	635,749							$	570,731


Net interest income				$	14,086							$	14,217
Net interest rate spread (3)							2.92	%							3.24	%
Net interest-earning assets (4)	$	118,755							$	116,616

Net interest margin (5)							3.15	%							3.54	%
Average interest-earning assets to interest-bearing liabilities							124.88	%							127.83	%

(1)	Yields and rates for the nine months ended March 31, 2013 and 2012 are annualized.
(2)	Includes loans held for sale.
(3)	Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of
	interest-bearing liabilities for the period indicated.
(4)	Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(5)	Net interest margin represents net interest income divided by average total interest-earning assets.

	Nine Months Ended March 31, 2013 vs. 2012
	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
	(In Thousands)
Interest income:
Loans (1)	$	1,034		$	(1,304	)	$	(270	)
Investment securities		531			(575	)		(44	)
Federal funds sold and other short-term investments		1			7			8
Total interest income		1,566			(1,872	)		(306	)

Interest expense:
Savings deposits		16			(53	)		(37	)
Money market		52			0			52
NOW accounts		7			(12	)		(5	)
Certificates of deposits		(139	)		(288	)		(427	)
Total deposits		(64	)		(353	)		(417	)
Borrowed funds		652			(410	)		242
Total interest expense		588			(763	)		(175	)
Change in net interest income	$	978		$	(1,109	)	$	(131	)

(1) Includes loans held for sale.

Interest Income. Interest income for the nine months ended March 31, 2013 decreased $306,000, or 1.7%, to $18.3 million over the same period of 2012. For the nine months ended March 31, 2013, average outstanding loans increased $26.3 million, or 6.5%, from the average for the nine month period ended March 31, 2012. The average yield on interest-earning assets decreased 54 basis points to 4.08% for the nine months ended March 31, 2013, compared to 4.62% for the same period in 2012 reflective of the current interest environment.

Interest Expense. Interest expense decreased $175,000, or 4.0%, to $4.2 million for the nine months ended March 31, 2013. This increase was primarily due to a decrease in deposit interest expense of $417,000 due to a decrease in rates partially offset by an increase in borrowings interest expense of $242,000 due to an increase in balances. The average cost of funds decreased to 1.16% for the nine months ended March 31, 2013, a decrease of 22 basis points from a cost of funds of 1.38% for the same period in 2012. The decrease in the cost of funds is partially due to the current low interest rate environment as well as an increase in transaction and money market deposit accounts. In September 2012, the Company restructured $8.6 million of Federal Home Loan Bank of Boston borrowings. After the restructuring, the weighted average cost of these borrowings was reduced by 1.00% to 2.74%. The decrease in the cost of funds is also due to the restructuring of these borrowings with the lower rates in effect.

Net Interest Income. Net interest income for the nine months ended March 31, 2013 was $14.1 million, a decrease of $131,000 or 0.9%, over the same period of 2012. For the nine months March 31, 2013 there was a decrease in interest and dividend income of $306,000 over the same period in 2012. There was a $175,000 decrease in interest expense for the nine months ended March 31, 2013 compared to the same period in 2012.

Provision for Loan Losses. The Company’s provision for loan loss expense was $325,000 for the nine months ended March 31, 2013 compared to $425,000 for the nine months ended March 31, 2012. The decrease in the provision was due to a decrease in specific reserves on impaired loans. As of March 31, 2013, the Company’s total allowance for loan losses of $5.2 million increased compared to June 30, 2012. The allowance for loan losses decreased to 1.19% of total loans as of March 31, 2013 compared to 1.28% of total loans as of March 31, 2012 due to increased loan balances. The allowance for loan losses covers 133.5% of our non-performing loans at March 31, 2013 compared to 153.67% at March 31, 2012 due to the increase in non-performing loans of $1.7 million.

Non-interest Income. Total non-interest income was $3.2 million for the nine months ended March 31, 2013, an increase of $885,000 from the same period a year ago. There was an increase on the gain on sales of loans, net of $305,000 and an increase in the gain on sale of securities of $114,000 for the nine months ended March 31, 2013 compared to no gain on sale of securities for the same period a year ago. There were also increases in other non-interest income of $218,000, customer service fees of $182,000, and an increase in the cash surrender value of bank-owned life insurance of $66,000 for the nine months ended March 31, 2013 compared to the same period in 2012.

Non-interest Expense. Non-interest expense increased $331,000, or 2.6%, to $13.2 million for the nine months ended March 31, 2013 compared to the same period for 2012. There was an increase in data processing services of $336,000 mainly due to an increase in services and an increase in contractual expenses, a $122,000 increase in other general and administrative, a $30,000 increase in FDIC insurance and assessment expenses, a $23,000 increase in occupancy and equipment expenses, and a $11,000 increase in salaries and employee benefits for the nine months ended March 31, 2013 compared to the same period in 2012. There was a net gain on other real estate owned of $31,000 for the nine months ended March 31, 2013 compared to a net gain of $2,000 for the same period in 2012.The increase in these expenses was partially offset by a decrease in advertising expenses of $162,000 in the nine months ended March 31, 2013 compared to the same period for 2012.

Income Taxes. Income tax expense increased $274,000 for the nine months ended March 31, 2013 compared to the same period for 2012. Our combined federal and state effective tax rate was 37.8% for the nine months ended March 31, 2013 compared to 35.4% for the nine months ended March 31, 2012.

Minimum Regulatory Capital Requirements. As of March 31, 2013, the most recent notification from the Federal Deposit Insurance Corporation categorized Hampden Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes has changed Hampden Bank’s category. The Company’s and Bank’s capital amounts and ratios (unaudited) as of March 31, 2013 and June 30, 2012 are presented in the following table.

											Minimum
											To Be Well
						Minimum					Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)
As of March 31, 2013:

Total capital (to risk weighted assets):
Consolidated	$	90,315		20.0	%	$	36,214		8.0	%		N/A		N/A
Bank		79,253		17.7			35,907		8.0		$	44,883		10.0	%

Tier 1 capital (to risk weighted assets):
Consolidated		85,045		18.8		$	18,107		4.0			N/A		N/A
Bank		73,975		16.5			17,953		4.0			26,930		6.0

Tier 1 capital (to average assets):
Consolidated		85,045		13.2		$	25,864		4.0			N/A		N/A
Bank		73,975		11.5			25,635		4.0			32,043		5.0

As of June 30, 2012:

Total capital (to risk weighted assets):
Consolidated	$	90,146		21.2	%	$	33,961		8.0	%		N/A		N/A
Bank		80,032		19.0			33,649		8.0		$	42,061		10.0	%

Tier 1 capital (to risk weighted assets):
Consolidated		84,998		20.0			16,981		4.0			N/A		N/A
Bank		74,884		17.8			16,825		4.0			25,237		6.0

Tier 1 capital (to average assets):
Consolidated		84,998		13.9			24,433		4.0			N/A		N/A
Bank		74,884		12.3			24,329		4.0			30,411		5.0

Liquidity Risk Management. Liquidity risk, or the risk to earnings and capital arising from an organization’s inability to meet its obligations without incurring unacceptable losses, is managed by the Company’s Chief Financial Officer, who monitors on a daily basis the adequacy of the Company’s liquidity position. Oversight is provided by the Asset/Liability Committee, which reviews the Company’s liquidity on a monthly basis, and by the Board of Directors of the Company, which reviews the adequacy of our liquidity resources on a quarterly basis.

The Company’s primary sources of funds are from deposits, amortization of loans, prepayments and the maturity of mortgage-backed securities and other investments, and other funds provided by operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing loans and investment securities are relatively predictable sources of funds, deposit flows and loan prepayments can be greatly influenced by general interest rates, economic conditions and competition. We maintain excess funds in cash and short-term interest-bearing assets that provide additional liquidity. At March 31, 2013, cash and cash equivalents totaled $46.3 million, or 6.9% of total assets.

The Company also relies on outside borrowings from the FHLB as an additional funding source. The Company uses FHLB borrowings to fund growth in the balance sheet and to assist in the management of its interest rate risk by match funding longer term fixed rate loans.

The Company uses it’s liquidity to fund existing and future loan commitments, to fund maturing certificates of deposit and borrowings, to fund other deposit withdrawals, to invest in other interest-earning assets and to meet operating expenses. The Company anticipates that it will continue to have sufficient funds and alternative funding sources to meet its commitments.

Off-Balance Sheet Arrangements. In the normal course of business, there are outstanding commitments which are not reflected in the accompanying consolidated balance sheets. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract and generally have fixed expiration dates or other termination clauses. The following table presents certain information about the Company’s loan commitments and other contingencies outstanding as of March 31, 2013 and June 30, 2012.

		March 31, 2013		June 30, 2012
		(In Thousands)
Commitments to grant loans (1)		$	38,302	$	22,543
Commercial loan lines-of-credit (2)			30,881		31,764
Unused portions of home equity lines-of-credit (3)			34,350		32,679
Unused portion of construction loans (4)			15,284		6,686
Unused portion of mortgage loans			31		65
Unused portion of personal lines-of-credit (5)			1,862		1,894
Standby letters of credit (6)			548		640
Total loan commitments		$	121,258	$	96,271

(1)	Commitments for loans are generally extended to customers for up to 60 days after which they expire.
(2)	The majority of C&I loans are written on a demand basis.
(3)	Unused portions of home equity lines of credit are available to the borrower for up to 20 years.
(4)	Unused portions of construction loans are generally available to the borrower for up to eighteen months
	for development loans and up to one year for other construction loans.
(5)	Unused portions of personal lines-of-credit are available to customers in "good standing" indefinitely.
(6)	Standby letters of credit are generally available for one year or less.

Item 3: Quantitative and Qualitative Disclosures About Market Risks

See the discussion and analysis of quantitative and qualitative disclosures about market risk provided in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2012 for a general discussion of the qualitative aspects of market risk and discussion of the simulation model used by the Company to measure its interest rate risk.

The following table sets forth, as of March 31, 2013, the estimated changes in the Company's net interest income that would result from the designated instantaneous and sustained changes in the U.S. Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.

	Percentage Change in Estimated Net Interest Income over 12 months
400 basis point increase in rates	-15.60%
300 basis point increase in rates	-10.38%
200 basis point increase in rates	-5.49%
100 basis point increase in rates	-1.29%
100 basis point decrease in rates	-5.91%

As indicated in the table above the result of a 200 basis point increase in interest rates is estimated to decrease net interest income by 5.49% and 10.38% for a 300 basis point increase over a 12-month horizon, when compared to the flat rate scenario. The estimated change in net interest income from the flat rate scenario for a 100 basis point decline in the level of interest rates is a decrease of 5.91%. Inherent in these estimates is the assumption that interest rates on interest bearing liabilities would change in direct proportion to changes in the U.S. Treasury yield curve. In all simulations, the lowest possible interest rate would be zero.

There are inherent shortcomings in income simulation, given the number and variety of assumptions that must be made in performing the analysis. The assumptions relied upon in making these calculations of interest rate sensitivity include the level of market interest rates, the shape of the yield curve, the degree to which certain assets and liabilities with similar maturities or periods to repricing react to changes in market interest rates, the degree to which non-maturity deposits react to changes in market rates, the expected prepayment rates on loans and mortgage-backed securities, and the degree to which early withdrawals occur on certificates of deposit and the volume of other deposit flows. As such, although the analysis shown above provides an indication of the Company's sensitivity to interest rate changes at a point in time, these estimates are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on the Company's net interest income and will differ from actual results.

Item 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that, based on such evaluation, our disclosure controls and procedures were effective and designed to provide reasonable assurance that the information required to be disclosed by us is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply this judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Internal Control Over Financial Reporting. There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. Such routine legal proceedings, in the aggregate, are believed by management to be immaterial to the financial condition and results of operations of the Company.

Item 1A. Risk Factors

There have been no material changes in the Company’s risk factors during the nine months ended March 31, 2013 that were discussed in the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2012 (the “2012 10-K”). In addition to the other information set forth in this Quarterly Report on Form 10-Q, the risks and uncertainties that the Company believes are most important for you to consider are contained in the section entitled “Risk Factors” in the Company’s 2012 10-K.

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

(a)	Unregistered Sales of Equity Securities – Not applicable

(b)	Use of Proceeds – Not applicable

(c)

Repurchase of Our Equity Securities – The Company repurchased 13,719 shares of Company stock, at an average price of $16.60 per share, in the three months ended March 31, 2013 in connection with the vesting of certain restricted stock grants issued pursuant to our 2008 Equity Incentive Plan. The Company repurchased these shares from the employee plan participants to satisfy settlement of tax withholding obligations. The following table sets forth the repurchases that were made during the quarter ended March 31, 2013.

In August 2012, the Company announced that its Board of Directors authorized a stock repurchase program (the “Seventh Stock Repurchase Program”) for the purchase of up to 289,106 shares, or approximately 5% of the Company’s then outstanding common stock. Repurchases, which will be conducted through open market purchases, will be made from time to time depending on market conditions and other factors. There is no guarantee as to the exact number of shares to be repurchased by the Company. As of March 31, 2013, there were 275,585 shares that may be repurchased under the Seventh Stock Repurchase Program, and the Company intends to complete all repurchases under the program by December 2013. The Company made no repurchases under this program during the quarter ended March 31, 2013.

Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly announced Plans or Programs		(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2013 - January 31, 2013		13,719	$	16.60		-		275,585
February 1, 2013 - February 28, 2013		-	$	-		-		275,585
March 1, 2013 - March 31, 2013		-	$	-		-		275,585
		13,719	$	16.60		-

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

3.1		Certificate of Incorporation of Hampden Bancorp, Inc.(1)

3.2		Amended and Restated Bylaws of Hampden Bancorp, Inc.(2)

3.3		Text of Amendment #1 to Amended and Restated Bylaws of Hampden Bancorp, Inc.(3)

3.4		Text of Amendment #2 to Amended and Restated Bylaws of Hampden Bancorp, Inc.(12)

4.1		Stock Certificate of Hampden Bancorp, Inc.(1)

10.1		Hampden Bank Employee Stock Ownership Plan and Trust Agreement(4)

10.2.1		Hampden Bank Employee Stock Ownership Plan Loan Agreement(5)

10.2.2		Pledge Agreement(5)

10.2.3		Promissory Note(5)

10.3		Hampden Bank 401(k) Profit Sharing Plan and Trust(1)

10.4		Hampden Bank SBERA Pension Plan(1)

10.5.1		Employment Agreement between Hampden Bank and Thomas R. Burton(5)

10.5.2		Employment Agreement between Hampden Bank and Glenn S. Welch(14)

10.6		Form of 2012 Hampden Bank Change in Control Agreement(13)

10.7		Executive Salary Continuation Agreement between Hampden Bank and Thomas R. Burton(1)

10.8		Form of Executive Salary Continuation Agreement between Hampden Bank and certain specific officers(1)

10.9		Form of Director Supplemental Retirement Agreements between Hampden Bank and certain directors(1)

10.10.1		Executive Split Dollar Life Insurance Agreement between Hampden Bank and Glenn S. Welch(1)

10.10.2		Executive Split Dollar Life Insurance Agreement between Hampden Bank and Robert S. Michel(1)

10.11		Amended and Restated Executive Salary Continuation Agreement between Hampden Bank and Thomas R. Burton(7)

10.12		2008 Equity Incentive Plan(8)

10.13		Form of Restricted Stock Agreement(9)

10.14		Form of Stock Option Grant Notice and Stock Option Agreement(9)

21.0		List of Subsidiaries(10)

31.1		Certification pursuant to Rule 13a-14(a)/15d-14(a) of Glenn S. Welch

31.2		Certification pursuant to Rule 13a-14(a)/15d-14(a) of Robert A. Massey

32.0		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

101	*	The following materials from Hampden Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) the Unaudited Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Income, (iii) the Unaudited Consolidated Statements of Comprehensive Income, (iv) the Unaudited Consolidated Statements of Changes in Stockholders’ Equity, (v) the Unaudited Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text.

(1)	Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 333-137359), as amended, initially filed with the SEC on September 15, 2006.
(2)	Incorporated by reference to the Company's Current Report on Form 8-K (File No. 001-33144), as filed with the SEC on August 3, 2007.
(3)	Incorporated by reference to the Company’s Current Report on form 8-K (File No. 001-33144), as filed with the SEC on September 14, 2009.
(4)	Incorporated by reference to the Company's Quarterly Report on Form 10-Q (File No. 001-33144) for the quarter ended September 30, 2006, as filed with the SEC on December 22, 2006.
(5)	Incorporated by reference to the Company's Current Report on Form 8-K (File No. 001-33144), as filed with the SEC on January 19, 2007.
(6)	Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 001-33144), as filed with the SEC on November 9, 2009.
(7)	Incorporated by reference to the Company’s Annual Report on Form 10-K (File No. 001-33144) for the year ended June 30, 2007, as filed with the SEC on September 14, 2007.
(8)	Incorporated by reference to the Company’s Proxy Statement on Form DEF 14A (File No. 001-33144), as filed with the SEC on December 27, 2007.
(9)	Incorporated by reference to the Company's Quarterly Report on Form 10-Q (File No. 001-33144) for the quarter ended September 30, 2008 as filed with the SEC on November 13, 2008.
(10)	Incorporated by reference to the Company’s Annual Report on Form 10-K (File No. 001-33144) for the year ended June 30, 2012 as filed with the SEC on September 18, 2012.
(11)	Incorporated by reference to the Company's Current Report on Form 8-K (File No. 001-33144) as filed with the SEC on November 4, 2010.
(12)	Incorporated by reference to the Company's Current Report on Form 8-K (File No. 001-33144) as filed with the SEC on June 9, 2011.
(13)	Incorporated by reference to the Company's Current Report on Form 8-K (File No. 001-33144) as filed with the SEC on November 7, 2012.
(14)	Incorporated by reference to the Company's Quarterly Report on Form 10-Q (File No. 001-33144) for the quarter ended December 31, 2012 as filed with the SEC on February 12, 2013.

*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.

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.


	HAMPDEN BANCORP, INC.

Date: May 13, 2013	/s/ Glenn S. Welch
	Glenn S. Welch
	Chief Executive Officer and President

Date: May 13, 2013	/s/ Robert A. Massey
	Robert A. Massey
	Chief Financial Officer, Senior Vice President and Treasurer