Hampden Bancorp, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Hampden Bancorp, Inc.	Financial_Report.xls
EX-31.2 - EXHIBIT - Hampden Bancorp, Inc.	hbnk_ex312-2014930x10q.htm
EX-32.0 - EXHIBIT - Hampden Bancorp, Inc.	hbnk_ex320-2014930x10q.htm
EX-31.1 - EXHIBIT - Hampden Bancorp, Inc.	hbnk_ex311-2014930x10q.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 SEPTEMBER 30, 2014




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 þ

Non-accelerated filer o Smaller reporting company o

(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 November 1, 2014 there were 5,498,111 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 September 30, 2014 and June 30, 2014	3
	Consolidated Statements of Net Income (unaudited) for the three months ended September 30, 2014 and 2013	4
	Consolidated Statements of Comprehensive Income (unaudited) for the three months ended September 30, 2014 and 2013	5
	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three months ended September 30, 2014 and 2013	6
	Consolidated Statements of Cash Flows (unaudited) for the three months ended September 30, 2014 and 2013	7-8
	Notes to Unaudited Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	36
Item 4.	Controls and Procedures	36

PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39
SIGNATURES		40

PART 1 - FINANCIAL INFORMATION

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

HAMPDEN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

(Unaudited)



ASSETS
	September 30,			June 30,
	2014			2014
Cash and due from banks	$	11,621		$	9,437
Federal funds sold and other short-term investments	6,735			3,230
Cash and cash equivalents	18,356			12,667

Securities available for sale, at fair value	131,235			133,936
Securities held to maturity, at cost	10,615			9,302
Federal Home Loan Bank of Boston stock, at cost	6,810			6,648
Loans held for sale	1,384			330
Loans, net of allowance for loan losses of $5,769 at September 30, 2014 and $5,651 at June 30, 2014	506,145			507,635
Other real estate owned	159			309
Premises and equipment, net	4,653			4,668
Accrued interest receivable	1,646			1,688
Deferred tax asset, net	4,315			4,182
Bank-owned life insurance	17,584			17,459
Other assets	2,779			2,673
Total assets	$	705,681		$	701,497
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits	$	409,425		$	407,508
Non-interest bearing deposits	80,193			84,224
Total deposits	489,618			491,732

Short-term borrowings	12,000			4,000
Long-term debt	111,778			112,446
Mortgagors' escrow accounts	1,201			1,184
Accrued expenses and other liabilities	5,427			4,976
Total liabilities	620,024			614,338
Commitments and contingencies (Note 4)
Preferred stock ($.01 par value, 5,000,000 shares authorized, none issued or outstanding)	—			—
Common stock ($.01 par value, 25,000,000 shares authorized; 8,039,361 issued at September 30, 2014 and 8,034,027 issued at June 30, 2014; 5,528,511 outstanding at September 30, 2014 and 5,651,130 outstanding at June 30, 2014)	80			80
Additional paid-in capital	80,474			80,389
Unearned compensation - ESOP (307,398 shares unallocated at September 30, 2014 and 317,998 shares unallocated at June 30, 2014)	(3,074		)	(3,180		)
Unearned compensation - equity incentive plan	(7		)	(8		)
Retained earnings	38,443			37,697
Accumulated other comprehensive income (loss)	(101		)	158
Treasury stock, at cost (2,510,850 shares at September 30, 2014 and 2,382,897 shares at June 30, 2014)	(30,158		)	(27,977		)
Total stockholders' equity	85,657			87,159
Total liabilities and stockholders' equity	$	705,681		$	701,497

See accompanying notes to unaudited consolidated financial statements.

HAMPDEN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF NET INCOME

(Dollars in thousands, except per share data)

(Unaudited)



	Three Months Ended September 30,
	2014			2013
Interest and dividend income:
Loans, including fees	$	5,924		$	5,509
Debt securities:
Taxable	635			617
Tax-exempt	26			6
Dividends	26			5
Federal funds sold and other short-term investments	4			12
Total interest and dividend income	6,615			6,149

Interest expense:
Deposits	731			801
Borrowings:
Short-term	12			9
Long-term	540			451
Total interest expense	1,283			1,261

Net interest income	5,332			4,888
Provision for loan losses	150			100
Net interest income, after provision for loan losses	5,182			4,788

Non-interest income:
Customer service fees	550			570
Gain on sales of loans, net	115			86
Increase in cash surrender value of bank-owned life insurance	125			130
Other	179			317
Total non-interest income	969			1,103

Non-interest expense:
Salaries and employee benefits	2,483			2,221
Occupancy and equipment	440			463
Data processing services	275			202
Advertising	82			144
Net (gain) loss on other real estate owned	(44		)	4
FDIC insurance and assessment	90			97
Other general and administrative	995			874
Total non-interest expense	4,321			4,005

Income before income taxes	1,830			1,886
Income tax provision	659			679
Net income	$	1,171		$	1,207

Earnings per share:
Basic	$	0.22		$	0.23
Diluted	$	0.22		$	0.22

Weighted average shares outstanding:
Basic	5,314,595			5,274,900
Diluted	5,442,331			5,401,982

See accompanying notes to unaudited consolidated financial statements.

HAMPDEN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)



	Three Months Ended September 30,
	2014			2013
Net income	$	1,171		$	1,207
Other comprehensive income (loss):
Unrealized holding losses on available-for-sale securities	(390		)	(992		)
Tax effect	131			357
Other comprehensive loss, net-of-tax	(259		)	(635		)
Comprehensive income	$	912		$	572

See accompanying notes to unaudited consolidated financial statements.

HAMPDEN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands, except per share data)

(Unaudited)



					Additional Paid-in Capital		Unearned Compensation- ESOP			Unearned Compensation- Equity Incentive Plan						Accumulated Other Comprehensive Income (Loss)
	Common Stock												Retained Earnings						Treasury Stock
	Shares		Amount										Retained Earnings						Treasury Stock			Total
Balance at June 30, 2013	5,629,099		$	80	$	79,926	$	(3,604	)	$	(16	)	$	34,450		$	346		$	(27,523	)	$	83,659
Comprehensive income	—		—		—		—			—			1,207			(635		)	—			572
Issuance of common stock for exercise of stock options	37,631		—		163		—			—			—			—			—			163
Cash dividends paid ($0.06 per share)	—		—		—		—			—			(317		)	—			—			(317		)
Common stock repurchased	(17,882	)	—		—		—			—			—			—			(274		)	(274		)
Stock-based compensation	—		—		9		—			2			—			—			—			11
Tax benefit from Equity Incentive Plan vesting	—		—		1		—			—			—			—			—			1
ESOP shares allocated or committed to be allocated (10,600 shares)	—		—		62		106			—			—			—			—			168
Balance at September 30, 2013	5,648,848		$	80	$	80,161	$	(3,498	)	$	(14	)	$	35,340		$	(289	)	$	(27,797	)	$	83,983

Balance at June 30, 2014	5,651,130		$	80	$	80,389	$	(3,180	)	$	(8	)	$	37,697		$	158		$	(27,977	)	$	87,159
Comprehensive income	—		—		—		—			—			1,171			(259		)	—			912
Issuance of common stock for exercise of stock options	5,334		—		1		—			—			—			—			—			1
Cash dividends paid ($0.08 per share)	—		—		—		—			—			(425		)	—			—			(425		)
Common stock repurchased	(127,953	)	—		—		—			—			—			—			(2,181		)	(2,181		)
Stock-based compensation	—		—		11		—			1			—			—			—			12
Tax benefit from Equity Incentive Plan vesting	—		—		1		—			—			—			—			—			1
ESOP shares allocated or committed to be allocated (10,600 shares)	—		—		72		106			—			—			—			—			178
Balance at September 30, 2014	5,528,511		$	80	$	80,474	$	(3,074	)	$	(7	)	$	38,443		$	(101	)	$	(30,158	)	$	85,657

See accompanying notes to unaudited consolidated financial statements.

HAMPDEN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)



	Three Months Ended September 30,
	2014			2013
Cash flows from operating activities:
Net income	$	1,171		$	1,207
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	150			100
Changes in fair value of mortgage servicing rights	41			137
Net amortization of securities premiums	80			143
Depreciation and amortization	151			186
Loans originated for sale	(7,988		)	(6,581		)
Proceeds from loan sales	7,049			7,088
Gain on sales of loans, net	(115		)	(86		)
Net (gain) loss on other real estate owned	(44		)	4
Increase in cash surrender value of bank-owned life insurance	(125		)	(130		)
Deferred tax benefit	(2		)	—
Employee Stock Ownership Plan expense	178			168
Stock-based compensation	12			11
Tax benefit from Equity Incentive Plan vesting	1			1
Net change in:
Accrued interest receivable	42			(9		)
Other assets	(147		)	(261		)
Accrued expenses and other liabilities	450			(1,524		)
Net cash provided by operating activities	904			454

Cash flows from investing activities: Activity in available-for-sale securities:
Maturities and calls	2,263			—
Principal payments	6,670			9,587
Purchases	(8,015		)	(11,104		)
Purchase of loans	(1,169		)	(3,464		)
Net loan (originations) principal payments	2,367			(27,540		)
Proceeds from sales of other real estate owned	336			27
Purchase of Federal Home Loan Bank stock	(162		)	(1,669		)
Purchase of premises and equipment	(136		)	(58		)
Net cash provided (used) by investing activities	2,154			(34,221		)

(continued)

See accompanying notes to unaudited consolidated financial statements.

HAMPDEN BANCORP, INC. AND SUBSIDARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Concluded)

(In Thousands)

(Unaudited)



	Three Months Ended September 30,
	2014			2013

Cash flows from financing activities:
Net change in deposits	(2,114		)	10,871
Net change in short-term borrowings	8,000			10,500
Proceeds from issuance of long-term debt	12,000			28,554
Repayment of long-term debt	(12,668		)	(5,714		)
Net change in mortgagors' escrow accounts	17			39
Tax benefit from Equity Incentive Plan vesting	1			1
Issuance of common stock for exercise of stock options	1			163
Repurchase of common stock	(2,181		)	(274		)
Payment of dividends on common stock	(425		)	(317		)
Net cash provided by financing activities	2,631			43,823

Net change in cash and cash equivalents	5,689			10,056

Cash and cash equivalents at beginning of period	12,667			25,618

Cash and cash equivalents at end of period	$	18,356		$	35,674

Supplemental cash flow information:
Interest paid on deposits	$	731		$	801
Interest paid on borrowings	550			456
Income taxes paid	590			1,210
Transfers from loans to other real estate owned	142			15

See accompanying notes to unaudited consolidated financial statements.

HAMPDEN BANCORP, INC. AND SUBSIDIARIES

NOTES TO 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 Company’s 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 periods ended September 30, 2014 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, 2014 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 12, 2014.

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 January 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The ASU was issued to clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the ASU amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014, and the ASU is to be adopted using either a modified retrospective transition method or a prospective transition method. The Company does not believe this ASU will have a material effect on the Company's consolidated financial statements for the interim and annual periods other than the additional disclosures required.

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 common share have been computed based upon the following:



	Three Months Ended September 30,
	2014			2013
Net income available to common stock (in thousands)	$	1,171		$	1,207

Average number of shares issued	8,035,478			8,004,098
Less: average unallocated ESOP shares	(314,400		)	(356,796		)
Less: average treasury stock	(2,404,442		)	(2,369,761		)
Less: average unvested restricted stock awards	(2,041		)	(2,641		)
Average number of basic shares outstanding	5,314,595			5,274,900

Plus: dilutive unvested restricted stock awards	1,388			1,474
Plus: dilutive stock option shares	126,348			125,608
Average number of diluted shares outstanding	5,442,331			5,401,982

Basic earnings per share	$	0.22		$	0.23
Diluted earnings per share	$	0.22		$	0.22

4. Dividends

On August 5, 2014, the Company declared a cash dividend of $0.08 per common share which was paid on August 29, 2014 to stockholders of record as of the close of business on August 15, 2014.

5. Loan Commitments

Outstanding loan commitments totaled $118.2 million at September 30, 2014 and $129.7 million at June 30, 2014. 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.

Where assets or liabilities are measured at fair value, transfers between levels are recognized at the end of the reporting period, if applicable.

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

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

Securities: The securities measured at fair value utilizing Level 1 and Level 2 inputs are government-sponsored enterprises, corporate bonds and other obligations, mortgage-backed securities and common stocks. The fair values used by the Company are obtained from an independent pricing service which are not adjusted by management and, 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. Municipal securities are valued utilizing Level 3 inputs. Since there is no readily available market pricing and no active market to sell these securities, management believes that the amortized cost of these securities approximates fair value based on their relatively short terms to maturity.

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

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

Loans: Fair values for loans are estimated using discounted cash flow analysis, 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 analysis 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 lender. The fair value of servicing rights is estimated using a present value 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 mortgage escrow accounts: The fair values for non-certificate accounts and mortgage escrow accounts are, by definition, equal to the amount 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 on time deposits.

Short-term borrowings: The carrying amount of short-term borrowings approximates fair value.

Long-term debt: The fair values of the Company's advances are estimated using discounted cash flow analysis based on current market 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 September 30, 2014 and June 30, 2014 were not material.

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

The following table presents the balances of assets measured at fair value on a recurring basis as of September 30, 2014 and June 30, 2014:



	Level 1		Level 2		Level 3		Total
September 30, 2014	(In Thousands)
Securities available for sale:
Debt securities	$	—	$	131,157	$	—	$	131,157
Marketable equity securities	78		—		—		78
Mortgage servicing rights	—		—		870		870
Total	$	78	$	131,157	$	870	$	132,105

June 30, 2014
Securities available for sale:
Debt securities	$	—	$	133,857	$	—	$	133,857
Marketable equity securities	79		—		—		79
Mortgage servicing rights	—		—		792		792
Total	$	79	$	133,857	$	792	$	134,728

The table below presents, for the three months ended September 30, 2014 and 2013, the changes in Level 3 assets that are measured at fair value on a recurring basis:



	Mortgage Servicing Rights
	Three Months Ended September 30,
	2014		2013
	(In Thousands)
Beginning balance	792		$	654
Changes in fair value	41		137
Capitalized servicing assets	37		39
Transfers in and/or out of Level 3	—		—
Ending balance	$	870	$	830

Also, the Company may be required, from time to time, to measure certain other financial 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 of individual assets. The following table summarizes the carrying value of the related individual assets as of September 30, 2014 and June 30, 2014 all classified in Level 3 fair value hierarchy:



	September 30,		June 30,
	2014		2014
	(In Thousands)
Impaired loans	$	142	$	461
Other real estate owned	159		309
Total	$	301	$	770

During the three months ended September 30, 2014 and 2013 there were no transfers between 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 current tax assessed value, discounted by 20%. 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. If the impaired loan is being actively marketed, the Company uses the realtor’s market analysis or listing price discounted by 10% and less 5% for realtor commission, instead of the tax assessment. The Company had a $49,000 loss on impaired loans for the three months ended September 30, 2014. There was no gain or loss for the three months ended September 30, 2013. Any resulting losses are recognized in earnings through the provision for loan losses. The Company charges off any collateral shortfall on collateral dependent impaired loans.

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. The Company had $44,000 gain on OREO for the three months ended September 30, 2014. The Company had a $4,000 loss on OREO for the three months ended September 30, 2013.

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 carrying amounts and related estimated fair values of the Company's financial instruments are as follows. 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.



	Carrying Amount		Fair Value
September 30, 2014	Carrying Amount		Level 1		Level 2		Level 3		Total
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	18,356	$	18,356	$	—	$	—	$	18,356
Securities available for sale	131,235		78		131,157		—		131,235
Securities held to maturity	10,615		—		—		10,615		10,615
Federal Home Loan Bank stock	6,810		—		—		6,810		6,810
Loans held for sale	1,384		—		1,384		—		1,384
Loans, net	506,145		—		—		510,652		510,652
Accrued interest receivable	1,646		—		—		1,646		1,646
Mortgage servicing rights ⁽¹⁾	870		—		—		870		870

Financial liabilities:
Deposits	489,618		—		—		490,966		490,966
Short-term borrowings	12,000		—		12,000		—		12,000
Long-term debt	111,778		—		114,612		—		114,612
Mortgagors' escrow accounts	1,201		—		—		1,201		1,201

June 30, 2014
Financial assets:
Cash and cash equivalents	$	12,667	$	12,667	$	—	$	—	$	12,667
Securities available for sale	133,936		79		133,857		—		133,936
Securities held to maturity	9,302		—		—		9,302		9,302
Federal Home Loan Bank stock	6,648		—		—		6,648		6,648
Loans held for sale	330		—		330		—		330
Loans, net	507,635		—		—		513,765		513,765
Accrued interest receivable	1,688		—		—		1,688		1,688
Mortgage servicing rights ⁽¹⁾	792		—		—		792		792

Financial liabilities:
Deposits	491,732		—		—		493,500		493,500
Short-term borrowings	4,000		—		4,000		—		4,000
Long-term debt	112,446		—		113,823		—		113,823
Mortgagors' escrow accounts	1,184		—		—		1,184		1,184

⁽¹⁾ Included in other assets

7. Investment Securities

The amortized cost and estimated fair value of the Company's investment securities, with gross unrealized gains and losses, follows:



	September 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale
Debt securities:
Corporate bonds	$	3,023	$	52	$	—		$	3,075
Residential mortgage-backed securities:
Agency	126,711		1,495		(1,743		)	126,463
Non-agency	1,607		17		(5		)	1,619
Total debt securities	131,341		1,564		(1,748		)	131,157
Marketable equity securities	51		27		—			78
Total securities available for sale	$	131,392	$	1,591	$	(1,748	)	$	131,235

Held to Maturity
Municipal bonds	$	10,615	$	—	$	—		$	10,615
Total securities held to maturity	$	10,615	$	—	$	—		$	10,615



	June 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available for Sale
Debt securities:
Corporate bonds	$	3,026	$	60	$	—		$	3,086
Residential mortgage-backed securities:
Agency	128,938		1,629		(1,494		)	129,073
Non-agency	1,688		15		(5		)	1,698
Total debt securities	133,652		1,704		(1,499		)	133,857
Marketable equity securities	51		28		—			79
Total securities available for sale	$	133,703	$	1,732	$	(1,499	)	$	133,936

Held to Maturity
Municipal bonds	$	9,302	$	—	$	—		$	9,302
Total securities held to maturity	$	9,302	$	—	$	—		$	9,302

Residential mortgage-backed agency securities are mortgage-backed securities that have been issued by the federal government or its agencies or government-sponsored enterprises. Residential mortgage-backed non-agency securities are mortgage-backed securities that have been issued by private mortgage originators.

The amortized cost and estimated fair value of debt securities by contractual maturity at September 30, 2014 are 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.



	Securities Available for Sale				Securities Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)
Within 1 year	$	999	$	1,006	$	8,027	$	8,027
After 1 year but within 5 years	2,024		2,069		2,588		2,588
Total bonds, obligations, and municipals	3,023		3,075		10,615		10,615
Residential mortgage-backed securities:
Agency	126,711		126,463		—		—
Non-agency	1,607		1,619		—		—
Total debt securities	$	131,341	$	131,157	$	10,615	$	10,615

Information pertaining to securities with gross unrealized losses at September 30, 2014 and June 30, 2014, 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)
September 30, 2014:
Residential mortgage-backed securities:
Agency	$	115	$	32,523	$	1,628	$	50,022	$	1,743	$	82,545
Non-agency	1		135		4		218		5		353
	$	116	$	32,658	$	1,632	$	50,240	$	1,748	$	82,898
June 30, 2014:
Corporate bonds	$	—			$	—	$	—	$	—	$	—
Residential mortgage-backed securities:
Agency	$	38	$	7,357	$	1,456	$	51,094	$	1,494	$	58,451
Non-agency	1		143		4		234		5		377
	$	39	$	7,500	$	1,460	$	51,328	$	1,499	$	58,828

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”). There was no impairment charge recognized for the three months ended September 30, 2014 and 2013.

At September 30, 2014, 59 debt securities had unrealized losses with aggregate depreciation of 2.1% 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, its agencies or government-sponsored enterprises, whether downgrades by bond rating agencies have occurred, and industry analyst's reports. The unrealized losses in residential mortgage-backed securities were primarily caused by interest rate changes. 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 September 30, 2014, eight securities issued by private mortgage originators had unrealized losses. Such securities had an amortized cost of $358,000 and a fair value of $353,000. All of these investments are “Senior” Class tranches and have underlying credit enhancement. These securities were originated in the period 2002-2005 and are performing in accordance with contractual terms. 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 determined that no OTTI existed as of September 30, 2014.

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.



	September 30, 2014					June 30, 2014
	Amount			Percent		Amount			Percent		Change			% Change
	(Dollars In Thousands)
Mortgage loans on real estate:
One- to four-family⁽¹⁾	$	107,497		21.11	%	$	107,498		21.05	%	$	(1	)	—	%
Commercial	202,178			39.70	%	200,750			39.31	%	1,428			0.7	%
Home equity:
First lien	35,451			6.96	%	36,299			7.11	%	(848		)	(2.3	)%
Second lien	41,813			8.21	%	39,845			7.80	%	1,968			4.9	%
Construction:
Residential	3,790			0.74	%	3,807			0.75	%	(17		)	(0.4	)%
Commercial	34,405			6.76	%	36,189			7.09	%	(1,784		)	(4.9	)%
Total mortgage loans on real estate	425,134			83.48	%	424,388			83.11	%	746			0.2	%
Other loans:
Commercial	52,399			10.29	%	54,756			10.72	%	(2,357		)	(4.3	)%
Consumer:
Manufactured homes	22,157			4.35	%	21,766			4.26	%	391			1.8	%
Automobile and other secured loans	6,680			1.31	%	7,172			1.40	%	(492		)	(6.9	)%
Other	2,910			0.57	%	2,566			0.50	%	344			13.4	%
Total other loans	84,146			16.52	%	86,260			16.89	%	(2,114		)	(2.5	)%
Total loans	509,280			100.00	%	510,648			100.00	%

Net deferred loan costs	2,634					2,638
Allowance for loan losses	(5,769		)			(5,651		)
Total loans, net	$	506,145				$	507,635

⁽¹⁾Excludes loans held for sale of $1.4 million and $330,000 at September 30, 2014 and June 30, 2014, respectively.

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 Company 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 for that borrower at the time of restructuring.

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 three months ended September 30, 2014.

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 (special mention) 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% unless there is private mortgage insurance. All loans in this segment are collateralized by one- to four-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 these segments 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 one- to four-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 one- to four-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: Loans in these categories are considered “pass” rated loans with low to average risk.

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

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

Loans rated 9: Loans in this category 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. At origination, management assigns risk ratings to one- to four-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 tables present the Company’s loans by risk rating at September 30, 2014 and June 30, 2014:



September 30, 2014
	One- to Four-Family		Commercial Real Estate		Home Equity First Lien		Home Equity Second Lien		Residential Construction		Commercial Construction
	(In Thousands)
Loans rated 1-5	$	104,020	$	186,333	$	35,425	$	41,633	$	3,790	$	34,130
Loans rated 6	543		12,892		—		10		—		275
Loans rated 7	2,788		2,953		26		170		—		—
Loans rated 8	146		—		—		—		—		—
Loans rated 9	—		—		—		—		—		—
	$	107,497	$	202,178	$	35,451	$	41,813	$	3,790	$	34,405
	Commercial		Manufactured Homes		Automobile and Other Secured Loans		Other Consumer		Total
	(In Thousands)
Loans rated 1-5	$	47,899	$	21,916	$	6,680	$	2,905	$	484,731
Loans rated 6	430		99		—		—		14,249
Loans rated 7	4,070		51		—		5		10,063
Loans rated 8	—		91		—		—		237
Loans rated 9	—		—		—		—		—
	$	52,399	$	22,157	$	6,680	$	2,910	$	509,280



June 30, 2014
	One- to Four-Family		Commercial Real Estate		Home Equity First Lien		Home Equity Second Lien		Residential Construction		Commercial Construction
	(In Thousands)
Loans rated 1-5	$	104,221	$	184,317	$	36,299	$	39,688	$	3,807	$	36,189
Loans rated 6	523		12,447		—		7		—		—
Loans rated 7	2,608		3,986		—		150		—		—
Loans rated 8	146		—		—		—		—		—
Loans rated 9	—		—		—		—		—		—
	$	107,498	$	200,750	$	36,299	$	39,845	$	3,807	$	36,189
	Commercial		Manufactured Homes		Automobile and Other Secured Loans		Other Consumer		Total
	(In Thousands)
Loans rated 1-5	$	49,874	$	21,342	$	7,172	$	2,564	$	485,473
Loans rated 6	533		160		—		1		13,671
Loans rated 7	4,349		59		—		1		11,153
Loans rated 8	—		205		—		—		351
Loans rated 9	—		—		—		—		—
	$	54,756	$	21,766	$	7,172	$	2,566	$	510,648

The results of the Company’s quarterly loan review process are summarized by, and appropriate recommendations and loan loss allowances are approved by, the Loan Review Committee (the “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 Committee is chaired by the Company’s Chief Financial Officer. The allowance for loan losses 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 as of September 30, 2014 and June 30, 2014:



	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans on Non-accrual
September 30, 2014	(In Thousands)
Mortgage loans on real estate:
One- to four-family	$	946	$	82	$	2,681	$	3,709	$	2,977
Commercial	43		404		583		1,030		988
Home equity:
First lien	—		27		—		27		—
Second lien	144		27		24		195		143
Commercial	—		35		2,318		2,353		2,318
Consumer:
Manufactured homes	401		27		116		544		149
Automobile and other secured loans	—		—		—		—		—
Other	105		—		5		110		5
Total	$	1,639	$	602	$	5,727	$	7,968	$	6,580

June 30, 2014
Mortgage loans on real estate:
One- to four-family	$	607	$	236	$	2,437	$	3,280	$	2,755
Commercial	583		—		—		583		534
Home equity:
First lien	—		—		—		—		—
Second lien	159		—		111		270		150
Commercial	—		—		1,500		1,500		1,500
Consumer:
Manufactured homes	304		27		240		571		240
Automobile and other secured loans	—		—		—		—		—
Other	12		1		—		13		—
Total	$	1,665	$	264	$	4,288	$	6,217	$	5,179

At September 30, 2014 and June 30, 2014, there were no loans past due 90 days or more and still accruing.

The following are summaries of impaired loans:



	September 30, 2014						June 30, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In Thousands)
Impaired loans without a valuation allowance:
Mortgage loans on real estate:
One- to four-family	$	2,977	$	3,196	$	—	$	2,755	$	2,814	$	—
Commercial	3,429		3,429		—		3,147		3,147		—
Commercial construction	275		275		—		—		—		—
Home equity:
Second lien	144		163		—		150		170		—
Other loans:
Commercial	3,031		3,031		—		2,952		2,952		—
Manufactured homes	149		159		—		239		275		—
Consumer other	5		5		—		—		—		—
Total	10,010		10,258		—		9,243		9,358		—
Impaired loans with a valuation allowance:
Mortgage loans on real estate:
Commercial	534		534		10		537		537		11
Total	534		534		10		537		537		11
Total impaired loans	$	10,544	$	10,792	$	10	$	9,780	$	9,895	$	11

Information pertaining to impaired loans for the three months ended September 30, 2014 and 2013 are as follows:



	Three Months Ended September 30, 2014						Three Months Ended September 30, 2013
	Average		Interest Income				Average		Interest Income
	Recorded Investment on Impaired Loans		Recognized		Recognized on a Cash Basis		Recorded Investment on Impaired Loans		Recognized		Recognized on a Cash Basis
	(In Thousands)
Mortgage loans on real estate:
One- to four-family	$	2,986	$	14	$	14	$	1,239	$	21	$	15
Commercial	3,971		31		2		7,818		106		106
Home equity:
Second lien	147		4		4		350		5		1
Construction:
Commercial	278		5		—		—		—		—
Commercial	3,052		28		16		4,799		68		36
Consumer:
Manufactured homes	150		4		4		79		1		—
Other	5		—		—		—		—		—
Total loans	$	10,589	$	86	$	40	$	14,285	$	201	$	158

At September 30, 2014, the Company had one impaired loan that had $129,000 committed to be advanced. The $10.5 million of impaired loans as of September 30, 2014 includes $6.6 million of non-accrual loans and $3.7 million of accruing TDR loans. The remaining $241,000 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 $10.5 million of impaired loans, $4.0 million, or 38%, are current with all payment terms. As of June 30, 2014, the $9.8 million of impaired loans included $5.2 million of non-accrual loans and $4.6 million of accruing TDRs. Of the $9.8 million of impaired loans, $4.6 million, or 47%, were current with all payment terms as of June 30, 2014.

The Company had no new TDRs during the three months ended September 30, 2014 and 2013. As of September 30, 2014 and 2013, there were no TDRs that were restructured within the previous twelve months that had any payment defaults.

Information pertaining to activity in the allowance for loan losses for the three months ended September 30, 2014 and 2013, is as follows:



	One- to Four-Family			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)
Balance at June 30, 2014	$	697		$	2,288		$	204	$	268		$	30	$	472	$	1,216		$	417		$	30		$	29		$	5,651
Charge-offs	(26		)	—			—		(7		)	—		—		—			(14		)	—			(2		)	(49		)
Recoveries	—			—			—		1			—		—		12			—			4			—			17
Provision (credit)	160			128			34		69			2		—		(360		)	115			(4		)	6			150
Balance at September 30, 2014	$	831		$	2,416		$	238	$	331		$	32	$	472	$	868		$	518		$	30		$	33		$	5,769

Balance at June 30, 2013	$	762		$	2,215		$	233	$	302		$	33	$	315	$	1,065		$	432		$	34		$	23		$	5,414
Charge-offs	—			(4		)	—		—			—		—		—			(46		)	—			—			(50		)
Recoveries	—			—			1		—			—		—		1			—			—			11			13
Provision (credit)	—			90			—		—			—		—		—			10			—			—			100
Balance at September 30, 2013	$	762		$	2,301		$	234	$	302		$	33	$	315	$	1,066		$	396		$	34		$	34		$	5,477

Information pertaining to the allowance for loan losses and recorded investment in loans at September 30, 2014, and June 30, 2014 are as follows:



	At September 30, 2014
	One- to Four-Family		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
Allowance:	(In Thousands)
Impaired loans	$	—	$	10	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	10
Non-impaired loans	831		2,406		238		331		32		472		868		518		30		33		5,759
Total allowance for loan losses	$	831	$	2,416	$	238	$	331	$	32	$	472	$	868	$	518	$	30	$	33	$	5,769
Loans:
Impaired loans	$	2,977	$	3,963	$	—	$	144	$	—	$	275	$	3,031	$	149	$	—	$	5	$	10,544
Non-impaired loans	104,520		198,215		35,451		41,669		3,790		34,130		49,368		22,008		6,680		2,905		498,736
Total loans	$	107,497	$	202,178	$	35,451	$	41,813	$	3,790	$	34,405	$	52,399	$	22,157	$	6,680	$	2,910	$	509,280



	At June 30, 2014
	One- to Four-Family		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
Allowance:	(In Thousands)
Impaired loans	$	—	$	11	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	11
Non-impaired loans	697		2,277		204		268		30		472		1,216		417		30		29		5,640
Total allowance for loan losses	$	697	$	2,288	$	204	$	268	$	30	$	472	$	1,216	$	417	$	30	$	29	$	5,651
Loans:
Impaired loans	$	2,755	$	3,684	$	—	$	150	$	—	$	—	$	2,952	$	239	$	—	$	—	$	9,780
Non-impaired loans	104,743		197,066		36,299		39,695		3,807		36,189		51,804		21,527		7,172		2,566		500,868
Total loans	$	107,498	$	200,750	$	36,299	$	39,845	$	3,807	$	36,189	$	54,756	$	21,766	$	7,172	$	2,566	$	510,648

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 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 September 30, 2014 and June 30, 2014, the Company was servicing loans for participants aggregating $36.6 million and $34.4 million, respectively.

HAMPDEN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)

9. Subsequent Events

Subsequent events represent events or transactions occurring after the balance sheet date but before the financial statements are issued or are available to be issued. Financial statements are considered “issued” when they are widely distributed to shareholders and others for general use and reliance in a form and format that complies with GAAP. Financial statements are considered “available to be issued” when they are complete in form and format that complies with GAAP and all approvals necessary for their issuance have been obtained.

The Company is an SEC filer and management has evaluated subsequent events through the date that the financial statements were issued.

On November 3, 2014, the Company, and Berkshire Hills Bancorp, Inc. (“Berkshire Hills”), the holding company for Berkshire Bank (“Berkshire Bank”), entered into an Agreement and Plan of Merger pursuant to which (i) the Company will merge with and into Berkshire Hills, the separate corporate existence of the Company will thereupon cease and Berkshire Hills will continue as the surviving corporation (the “Merger”), and (ii) it is anticipated that the Bank will merge with and into Berkshire Bank, the separate corporate existence of the Bank will thereupon cease and Berkshire Bank will continue as the surviving corporation. The consummation of the Merger is subject to customary closing conditions, including the receipt of regulatory approvals and approval of the Merger by the stockholders of the Company. The Merger is currently expected to be completed early in the second quarter of 2015.

Pursuant to the terms of the Merger Agreement, at the effective time of the Merger, each outstanding share of common stock, par value $0.01 per share, of the Company will be exchanged for 0.81 shares of common stock, par value $0.01 per share, of Berkshire Hills. The Merger Agreement provides each of the Company and Berkshire Hills with specified termination rights. If the Merger is not consummated under specified circumstances, including if Hampden terminates the Merger Agreement for a Superior Proposal (as defined in the Merger Agreement), Hampden has agreed to pay Berkshire Hills a termination fee equal to (i) $3.6 million, if such fee shall become payable within 45 days from the date of the Merger Agreement, or (ii) $4.7 million, if such fee shall become payable thereafter.

On November 4, 2014, the Company announced that its Board of Directors had declared a cash dividend of $0.08 per common share. The dividend will be paid on November 28, 2014 to shareholders of record as of November 14, 2014.

On November 10, 2014, the Company received a $601,000 recovery on a commercial loan previously charged off.

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 September 30, 2014 and June 30, 2014 and our consolidated results of operations for the three months ended September 30, 2014 and 2013, 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 effect 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, the quality and composition of our loan or investment portfolio, demand for financial services in our market area, changes in real estate values in our market area, 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, 2014, 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 collectability 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 in Note 8.

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 in Note 8.

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 Federal Deposit Insurance Corporation ("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 realizability of the deferred tax asset, 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 to determine if a valuation allowance is warranted. 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 September 30, 2014 and June 30, 2014

Total Assets. The Company’s total assets increased $4.2 million, or 0.6%, from $701.5 million at June 30, 2014 to $705.7 million at September 30, 2014. Net loans, including loans held for sale, decreased $436,000, or 0.1%, from $508.0 million at June 30, 2014 to $507.5 million at September 30, 2014. Investment securities decreased $1.4 million, or 1.0%, to $141.9 million and cash and cash equivalents increased $5.7 million, or 44.9%, to $18.4 million at September 30, 2014.

Investment Activities. The composition and fair value of the Company’s investment portfolio is included in Note 7 to the Company’s accompanying unaudited consolidated financial statements. Current period purchases of municipal bonds were partially offset by the principal payments and unrealized losses on residential mortgage-backed securities during the three months ended September 30, 2014.

Net Loans. The composition of the Company’s loan portfolio is included in Note 8 to the Company’s accompanying unaudited consolidated financial statements. Net loans, including loans held for sale, remained relatively flat with a small decrease of $436,000, or 0.1%, to $507.5 million at September 30, 2014. The decrease in net loans was due to two large loan payoffs in the commercial loan portfolio of $6.4 million and $4.1 million. The Company’s strategy continues to be focused on obtaining commercial loans.

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 three months ended September 30, 2014, loans sold totaled $7.0 million. Of the $7.0 million of loans sold, $2.8 million were sold on a servicing-released basis and $4.2 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 consolidated financial statements.



	At September 30,			At June 30,
	2014			2014
	(Dollars in Thousands)
Mortgage loans on real estate:
One- to four-family	$	2,977		$	2,755
Commercial	988			534
Home equity:
First lien	—			—
Second lien	143			150
Commercial	2,318			1,500
Consumer:
Manufactured homes	149			240
Automobile and other secured loans	—			—
Other	5			—
Total non-performing loans	6,580			5,179
Other real estate owned	159			309
Total non-performing assets	$	6,739		$	5,488

Performing troubled debt restructurings, not reported above	$	3,724		$	4,601

Ratios:
Non-performing loans to total loans	1.29		%	1.01		%
Non-performing assets to total assets	0.95		%	0.78		%

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, 2014 to September 30, 2014, commercial non-performing loans have increased $818,000; residential mortgage non-performing loans have increased $222,000; consumer, including home equity and manufactured homes, non-performing loans have decreased $93,000. In addition, commercial real estate non-performing loans have increased $454,000. At September 30, 2014, the Company had twelve TDRs totaling approximately $5.1 million, of which $1.3 million 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 $73,000 for the three month period ended September 30, 2014. At June 30, 2014, the Company had twelve TDRs consisting of commercial and mortgage loans totaling approximately $5.1 million, of which $534,000 was on non-accrual status. The interest income recorded from the restructured loans amounted to $276,000 for the year ended June 30, 2014.

As of September 30, 2014, loans on non-accrual status totaled $6.6 million, which consisted of $5.7 million in loans that were 90 days or greater past due, $404,000 in loans that are 31-89 days past due and $451,000 in loans that are current or less than 30 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 September 30, 2014, there were no commercial real estate and commercial non-accrual loans less than 90 days past due. One- to four-family residential non-accrual loans less than 90 days past due were $279,000, manufactured homes non-accrual less than 90 days past due were $34,000 and home equity second lien non-accrual loans less than 90 days past due were $120,000. All non-accrual loans, TDRs, and loans with risk ratings of six or higher are assessed by the Company for impairment. On November 10, 2014, the Company received a $601,000 recovery on a commercial loan previously charged off.

In the normal course of business, the Company may modify a loan for a creditworthy borrower where the modified loan is not considered a TDR. In these cases, the modified terms are consistent with loan terms available to creditworthy 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 TDRs, 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 or fair value of collateral if the loan is collateral dependent and any change in present value is recorded within the provision for loan loss. Impaired loans increased to $10.5 million at September 30, 2014 from $9.8 million at June 30, 2014. The Company established specific reserves aggregating $10,000 and $11,000 for impaired loans at September 30, 2014 and June 30, 2014, respectively. Such reserves relate to one impaired loan relationships with a carrying value of $534,000, and are based on management’s analysis of the expected cash flows for troubled debt restructurings as of September 30, 2014.

We believe that the determination of our allowance for loan losses, including amounts required for impaired loans, is consistent with GAAP 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 September 30, 2014, the Company had four properties with a carrying value of $159,000 classified as OREO. All four properties were manufactured homes.

Allowance for Loan Losses. The following table sets forth ratios relating to 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 consolidated financial statements.



	Three Months Ended September 30,
	2014		2013
Ratios:
Net charge-offs to average loans outstanding	0.01	%	0.01	%
Allowance for loan losses to non-performing loans at end of period	87.67	%	151.34	%
Allowance for loan losses to total loans at end of period	1.13	%	1.13	%

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 of a borrower.

When calculating the general allowance component of the allowance for loan losses, the Company analyzes the trend in delinquencies, among other things as further described in Note 8 to the accompanying unaudited consolidated financial statements. 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 residential 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 on a quarterly basis by an independent third party, using a statistical 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. For the three months ended September 30, 2014, the increase in the fair market value of mortgage servicing assets was $41,000.

The changes in servicing assets measured using fair value are on included in detail in Note 6 to the accompanying unaudited consolidated financial statements. 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 three months ended September 30, 2014 and 2013, amounts recognized for loan servicing fees amounted to $94,000 and $107,000, 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 $75.0 million and $71.8 million at September 30, 2014 and June 30, 2014, respectively.

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



	At September 30,				At June 30,
	2014				2014
	Balance		Percent		Balance		Percent		Change			% Change
	(Dollars in Thousands)
Deposit type:
Demand deposits	$	80,193	16.38	%	$	84,224	17.13	%	$	(4,031	)	(4.79	)%
Savings deposits	101,468		20.72	%	102,909		20.93	%	(1,441		)	(1.40	)%
Money market	100,304		20.49	%	99,505		20.24	%	799			0.80	%
NOW accounts	49,581		10.13	%	42,376		8.62	%	7,205			17.00	%
Total transaction accounts	331,546		67.72	%	329,014		66.91	%	2,532			0.77	%
Certificates of deposit	158,072		32.28	%	162,718		33.09	%	(4,646		)	(2.86	)%
Total deposits	$	489,618	100.00	%	$	491,732	100.00	%	$	(2,114	)	(0.43	)%

Deposits decreased $2.1 million, or 0.43%, to $489.6 million at September 30, 2014 from $491.7 million at June 30, 2014. Deposits decreased due a $4.0 million, or 4.79%, decrease in demand deposits, a $1.4 million, or 1.40%, decrease in savings deposits and a $4.6 million, or 2.86%, decrease in time deposits. Theses decreases were offset by a increase of $7.2 million, or 17.00% in NOW accounts and a $799,000, or 0.80%, increase in money market accounts. The Company’s focus remains to increase core deposits and reduce its time deposits.

Total borrowings (including both short term and long term advances) from the FHLB and have increased $7.3 million, or 6.3%, to $123.8 million at September 30, 2014 from $116.4 million at June 30, 2014. The Company primarily used these FHLB borrowings to fund its loan demand.

Stockholders’ Equity. Stockholders’ equity increased $4.2 million, or 0.6%, to $85.7 million at September 30, 2014 from $87.2 million at June 30, 2014. During the three months ended September 30, 2014, the Company purchased 127,700 shares of Company stock for $2.2 million at an average price of $17.05 per share pursuant to the Company’s previously announced stock repurchase programs. In addition, the Company repurchased 253 shares of Company stock, at an average price of $17.00 per share, in the three months ended September 30, 2014 in connection with the vesting of certain restricted stock grants issued pursuant to our 2008 Equity Incentive Plan. The Company repurchased these shares from an employee plan participant for settlement of tax withholding obligations. In addition, there was a $259,000 decrease in accumulated other comprehensive income from June 30, 2014 to September 30, 2014 due to the continued impact of the rising interest rate environment on the fair value of securities available for sale, a $106,000 decrease in ESOP unearned compensation and a $1,000 decrease in equity incentive plan unearned compensation. Offsets to the increase in treasury stock and decrease in accumulated other comprehensive income were a $746,000 increase in retained earnings, and a $85,000 increase in additional paid-in capital. Our ratio of capital to total assets decreased to 12.1% at September 30, 2014 compared to 12.4% at June 30, 2014. The Company’s book value per share as of September 30, 2014 was $15.49 compared to $14.43 at June 30, 2014.

Comparison of Operating Results for the Three Months Ended September 30, 2014 and September 30, 2013

Net Income. The Company had net income of $1.2 million, or $0.22 per fully diluted share, for the three months ended September 30, 2014 compared to $1.2 million, or $0.22 per fully diluted share, for the same period in 2013. The Company had an increase in net interest income of $444,000, or 9.1%, for the three months ended September 30, 2014 compared to the three months ended September 30, 2013. Interest and dividend income increased $465,000, or 7.6%, for the three months ended September 30, 2014 compared to the same period last year mainly due to a $415,000 increase in loan interest income. For the three months ended September 30, 2014, interest expense increased by $21,000, or 1.7%, compared to the three months ended September 30, 2013. This included a decrease in deposit interest expense of $70,000 due to a decrease in rates offset by an increase in the average balance of deposits. There was an increase in borrowing interest expense of $91,000 for the three months ended September 30, 2014 compared to the same period last year due to an increase in average balances partially offset by a decrease in rates. The net interest margin increased to 3.17% for the three months ended September 30, 2014 compared to 3.08% for the three months ended September 30, 2013.

Average Balance Sheet and Analysis of Net Interest and Dividend 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 tables set 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 fees, 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 September 30,
	2014							2013
	Average Outstanding Balance			Interest		Yield /Rate⁽⁵⁾		Average Outstanding Balance			Interest		Yield /Rate⁽⁵⁾
	(Dollars in Thousands)
Interest-earning assets:
Loans ⁽¹⁾	$	516,671		$	5,924	4.59	%	$	469,548		$	5,509	4.69	%
Investment securities	149,464			687		1.84	%	148,339			628		1.69	%
Federal funds sold and other short-term investments	6,676			4		0.24	%	18,045			12		0.27	%
Total interest-earning assets	672,811			6,615		3.93	%	635,932			6,149		3.87	%
Allowance for loan losses	(5,708		)					(5,392		)
Total interest-earning assets net of allowance for loan losses	667,103							630,540
Non-interest earning-assets	41,588							41,711
Total assets	$	708,691						$	672,251
Interest-bearing liabilities:
Savings deposits	$	103,114		39		0.15	%	$	109,658		42		0.15	%
Money market	100,036			110		0.44	%	82,186			70		0.34	%
NOW accounts	47,862			32		0.27	%	44,817			27		0.24	%
Certificates of deposit	158,461			550		1.39	%	164,628			662		1.61	%
Total deposits	409,473			731		0.71	%	401,289			801		0.80	%
Borrowed funds	123,997			552		1.78	%	107,607			460		1.71	%
Total interest-bearing liabilities	533,470			1,283		0.96	%	508,896			1,261		0.99	%
Demand deposits	82,242							73,569
Other non-interest-bearing liabilities	5,659							6,120
Total liabilities	621,371							588,585
Equity	87,320							83,666
Total liabilities and equity	$	708,691						$	672,251
Net interest income				$	5,332						$	4,888
Net interest rate spread ⁽²⁾						2.97	%						2.88	%
Net interest-earning assets ⁽³⁾	$	139,341						$	127,036
Net interest margin ⁽⁴⁾						3.17	%						3.08	%
Average interest-earning assets to interest-bearing liabilities						126.12	%						124.96	%

⁽¹⁾ Includes loans held for sale.

⁽²⁾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.

⁽³⁾ Net interest-earning assets represents total interest-earning assets less total interest-earning liabilities.

⁽⁴⁾ Net interest margin represents net interest income divided by average total interest-earning assets.

⁽⁵⁾ Yields and rates for the three months ended September 30, 2014 and 2013 are annualized.

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). Changes attributable to changes in both rate and volume have been allocated proportionally based on the absolute value of the change due to rate and the change due to volume.



	Three Months Ended September 30, 2014 vs. 2013
	Increase (Decrease) Due to						Total Increase (Decrease)
	Volume			Rate			Total Increase (Decrease)
	(Dollars in Thousands)
Interest income:
Loans ⁽¹⁾	$	580		$	(165	)	$	415
Investment securities	5			54			59
Federal funds sold and other short-term investments	(7		)	(1		)	(8		)
Total interest income	578			(112		)	466

Interest expense:
Savings deposits	(3		)	—			(3		)
Money market	17			23			40
NOW accounts	2			3			5
Certificates of deposits	(24		)	(88		)	(112		)
Total deposits	(8		)	(62		)	(70		)
Borrowed funds	73			19			92
Total interest expense	65			(43		)	22
Change in net interest income	$	513		$	(69	)	$	444

⁽¹⁾ Includes loans held for sale.

Interest Income. Interest income increased to $6.6 million for the three months ended September 30, 2014 from $6.1 million for the three months ended September 30, 2013. This increase of $466,000, or 7.6%, was primarily the result of an increase in loan interest income of $415,000, or 7.5%, due to an increase in average balances, offset by a decrease in rates.

Interest Expense. Interest expense for the three months ended September 30, 2014 was $1.3 million, which represented a increase of $22,000, or 1.7%, from the three months ended September 30, 2013. This included a decrease in deposit interest expense of $70,000, or 8.7%, due to a decrease in rates, offset by an increase in the average balance of deposits. The decrease in deposit interest expense was partially offset by an increase in borrowing interest expense of $92,000 due to an increase in average balances.

Provision for Loan Losses. The provision for loan losses was $150,000 for the three months ended September 30, 2014 compared to $100,000 for the same period in 2013, primarily due to the increase in loan balances. The allowance for loan losses of $5.8 million at September 30, 2014 represented 1.13% of total loans, as compared to an allowance of $5.7 million, representing 1.11% of total loans at June 30, 2014.

Non-interest Income. For the three months ended September 30, 2014, there was a decrease in total non-interest income of $135,000, or 12.2%, compared to the three months ended September 30, 2013. For the three months ended September 30, 2014 compared to the same period in 2013, there was a $137,000, or 43.5%, decrease in other non-interest income which was mainly due to a $99,000 decrease in the fair value adjustment of mortgage servicing rights and a $25,000 decrease in OREO rental income due to the sale of an OREO property. During the three months ended September 30, 2014, the Company had an $115,000 gain on the sale of loans compared to $86,000 for the same period in 2013.

Non-interest Expense. Non-interest expense increased $315,000 or 7.9%, for the three months ended September 30, 2013 compared to the three months ended September 30, 2014. There was a $262,000, or 11.8%, increase in salaries and employee benefits due to an increase in the number of employees; a $121,000, or 13.8%, increase in other general and administrative expenses; and a $73,000, or 35.9%, increase in data processing expenses for the three months ended September 30, 2014 compared to the same period in 2013.

Income Taxes. Income tax expense decreased $20,000, or 2.9%, from $679,000 for the three months ended September 30, 2013 to $659,000 for the three months ended September 30, 2014. The Company’s combined federal and state effective tax rate remained flat at 36.0% for the three months ended September 30, 2014 compared to the same period in 2013.

Minimum Regulatory Capital Requirements. As of September 30, 2014, the most recent notification from the FDIC categorized the 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 the Bank’s category. The Company’s and the Bank’s capital amounts and ratios as of September 30, 2014 and June 30, 2014 are presented in the following table.



									Minimum To Be Well
					Minimum For Capital				Capitalized Under Prompt Corrective
	Actual				Adequacy Purposes				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in Thousands)
As of September 30, 2014
Total capital (to risk weighted assets):
Consolidated	$	91,452	17.6	%	$	41,500	8.0	%	N/A		N/A
Bank	82,233		16.3	%	40,415		8.0	%	$	50,519	10.0	%
Tier 1 capital (to risk weighted assets):
Consolidated	85,671		16.5	%	20,750		4.0	%	N/A		N/A
Bank	76,437		15.1	%	20,207		4.0	%	30,311		6.0	%
Tier 1 capital (to average assets):
Consolidated	85,671		12.1	%	28,231		4.0	%	N/A		N/A
Bank	76,437		10.8	%	28,191		4.0	%	35,239		5.0	%
As of June 30, 2014
Total capital (to risk weighted assets):
Consolidated	$	92,586	18.3	%	$	40,547	8.0	%	N/A		N/A
Bank	80,715		15.9	%	40,570		8.0	%	$	50,712	10.0	%
Tier 1 capital (to risk weighted assets):
Consolidated	86,922		17.2	%	18,538		4.0	%	N/A		N/A
Bank	75,051		14.8	%	18,394		4.0	%	30,427		6.0	%
Tier 1 capital (to average assets):
Consolidated	86,922		12.2	%	26,240		4.0	%	N/A		N/A
Bank	75,051		10.6	%	25,827		4.0	%	35,372		5.0	%

In July 2013, the FDIC and the other federal bank regulatory agencies issued a final rule that will revise their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate

facilities that finance the acquisition, development or construction of real property. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital unless a one-time opt-out is exercised. The rule limits a banking organization's capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The final rule becomes effective for the Company and the Bank on January 1, 2015. The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective. Management believes that the Company and the Bank will continue to exceed all minimum capital ratio requirements.

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, loan prepayments and the maturity of loans, 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 September 30, 2014, cash and due from banks, federal funds sold and short-term investments totaled $18.4 million, or 2.6%, of total assets, which is a increase of $5.7 million, or 44.9%, from June 30, 2014.

The Company also relies on outside borrowings from the FHLB as an additional funding source. Since June 30, 2014, the Company has increased FHLB borrowings by $7.3 million to a total of $123.8 million outstanding as of September 30, 2014. On that date, the Company had the ability to borrow an additional $56.1 million from the FHLB. At September 30, 2014 and June 30, 2014, the Company had an Ideal Way Line of Credit available with the FHLB of $2.0 million, of which there were no amounts outstanding. In addition, the Company had lines of credit with the Federal Reserve Bank of Boston and Bankers Bank Northeast totaling $7.4 million at September 30, 2014 and June 30, 2014, of which there were no amounts outstanding. As of September 30, 2014, the investments pledged for collateral with the Federal Reserve Bank of Boston has a market value of $10.8 million.

The Company uses its 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 September 30, 2014 and June 30, 2014.



	September 30, 2014		June 30, 2014
	(In Thousands)
Commitments to grant loans ⁽¹⁾	$	17,011	$	15,930
Commercial loan lines-of-credit ⁽²⁾	34,130		37,789
Unused portions of home equity lines-of-credit ⁽³⁾	35,544		35,718
Unused portion of construction loans ⁽⁴⁾	29,092		37,889
Unused portion of personal lines-of-credit ⁽⁵⁾	1,790		1,828
Standby letters of credit ⁽⁶⁾	595		500
Total loan commitments	$	118,162	$	129,654

⁽¹⁾ Commitments for loans are generally extended to customers for up to 60 days after which they expire.

⁽²⁾ The majority of commercial lines-of-credit 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 Risk

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, 2014 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 September 30, 2014, 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.



	% Change in Estimated Net Interest Income over 12 months
400 basis point increase in rates	(12.19)%
300 basis point increase in rates	(8.49)%
200 basis point increase in rates	(4.93)%
100 basis point increase in rates	(1.67)%
100 basis point decrease in rates	(5.53)%

As indicated in the table above, a 200 basis point increase in interest rates is estimated to decrease net interest income by 4.93% and 8.49% 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 5.53%. 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

Risks Related to the Merger

If the merger with Berkshire Hills Bancorp, Inc. is not completed, we will have incurred substantial expenses without our stockholders realizing the expected benefits.

On November 3, 2014, we entered into an Agreement and Plan of Merger with Berkshire Hills Bancorp, Inc., or “Berkshire Hills,” pursuant to which we will merge with and into Berkshire Hills, with Berkshire Hills as the surviving corporation. Completion of the merger is subject to closing conditions including, but not limited to, various regulatory approvals and the approval of our stockholders. We currently expect that the merger will be completed early in the second quarter of 2015. It is possible, however, that factors outside of our control could require the parties to complete the merger at a later time, or not to complete the merger at all. In the event that the merger is not consummated for any reason, we will be subject to many risks, including the costs related to the merger, such as legal, accounting and advisory fees, which must be paid even if the merger is not completed, and, potentially, the payment of a termination fee under certain circumstances. If the merger is not consummated, the market price of our common stock could decline. We also could be subject to litigation related to any failure to complete the merger or related to any enforcement proceeding commenced against us to perform our obligations under the merger agreement.

Our stockholders will receive a fixed ratio of 0.81 shares of Berkshire Hills common stock for each share of Hampden Bancorp, Inc. common stock, regardless of any changes in the market value of our common stock or Berkshire Hills common stock before the completion of the merger.

Upon completion of the merger, each share of Company common stock will be converted into the right to receive 0.81 shares of Berkshire Hills common stock. There will be no adjustment to the exchange ratio (except for adjustments to reflect the effect of any stock split, reverse stock split, stock dividend, recapitalization, reclassification or other similar transaction with respect to Company common stock), and we do not have a right to terminate the merger agreement based upon changes in the market price of Berkshire Hills common stock, subject to the limited exception described below. Accordingly, the dollar value of Berkshire Hills common stock that our stockholders will receive upon completion of the merger will depend upon the market value of Berkshire Hills common stock at the time of completion of the merger, which may be lower or higher than the closing price of Berkshire Hills common stock on the last full trading day preceding public announcement that Berkshire Hills and we entered into the merger agreement, the last full trading day prior to the date of proxy statement delivered to our stockholders or the date of the stockholder meeting. The market values of Berkshire Hills’ common stock and our common stock have varied since Berkshire Hills and we entered into the merger agreement and will continue to vary in the future due to changes in the business, operations or prospects of Berkshire Hills and us, market assessments of the merger, regulatory considerations, market and economic considerations, and other factors, most of which are beyond our control.

If, on the date on which all regulatory approvals for the merger have been received, the average closing price of Berkshire Hills common stock for the 10-trading period ending on such date is less than $20.62, and since the date of the merger agreement the percentage decrease in the market price of the Berkshire Hills common stock is more than 20% greater than any percentage decrease in the average market price of a prescribed index, we may elect to terminate the merger agreement. If we provide notice of our intent to terminate, Berkshire Hills will have the option of paying additional consideration, as specified in the merger agreement, in order to proceed with the merger.

We will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on employees, suppliers and customers may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers, suppliers and others who deal with us to seek to change existing business relationships with us. Our employee retention and recruitment may be particularly challenging prior to the effective time of the merger, as employees and prospective employees may experience uncertainty about their future roles with the combined company.

The pursuit of the merger and the preparation for the integration may place a significant burden on management and internal resources. Any significant diversion of management attention away from ongoing business and any difficulties encountered in the transition and integration process could affect our financial results. In addition, the merger agreement requires that we operate in the usual, regular and ordinary course of business and restricts us from taking certain actions prior to the effective time of the merger or termination of the merger agreement without Berkshire Hills’ consent in writing. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the merger.

Regulatory approvals may not be received, may take longer than expected or impose conditions that are not presently anticipated.

Before the merger may be completed, certain approvals or consents must be obtained from the various bank regulatory and other authorities in the United States and the Commonwealth of Massachusetts. There can be no assurance as to whether the federal or state regulatory approval will be received or the timing of the approvals. Berkshire Hills is not obligated to complete the merger if the regulatory approvals received in connection with the completion of the merger include any conditions or restrictions that would constitute a “Material Adverse Effect” as defined in the merger agreement. While we do not currently expect that any such conditions or restrictions would be imposed, there can be no assurance that they will not be, and such conditions or restrictions could have the effect of delaying completion of the merger.

The termination fee and the restrictions on solicitation contained in the merger agreement may discourage other companies from trying to acquire us.

Until the completion of the merger, we are prohibited from soliciting, initiating, encouraging, or with some exceptions, considering any inquiries or proposals that may lead to a proposal or offer for a merger or other business combination transaction with any person other than Berkshire Hills. In addition, we have agreed to pay a termination fee of $3.6 million for the period ending 45 days from the date of the merger agreement and $4.7 million thereafter to Berkshire Hills in specified circumstances. These provisions could discourage other companies from trying to acquire us even though those other companies might be willing to offer greater value to our stockholders than Berkshire Hills has offered in the merger. The payment of the termination fee also could have a material adverse effect on our results of operations.

Item 2. Unregistered Shares 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 127,700 shares of Company stock for $2.2 million, at an average price of $17.05 per share, in the three months ended September 30, 2014 pursuant to the Company’s previously announced stock repurchase programs. In addition, the Company repurchased 253 shares of Company stock, at an average price of $17.00 per share, in the three months ended September 30, 2014 in connection with the annual vesting of certain restricted stock grants issued pursuant to our 2008 Equity Incentive Plan. The Company repurchased these shares from the employee plan participant for settlement of tax withholding obligations. The Company is currently repurchasing shares under its eighth stock repurchase program, pursuant to which the Company was authorized to purchase up to 275,525 shares, or approximately 5%, of the Company’s outstanding common stock, of which 237,064 remain available to purchase as of September 30, 2014.



	(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
Fourth Quarter	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share
July 1, 2014 - July 31, 2014	—	$	—	—	364,764
August 1, 2014 - August 31, 2014	253	$	17.00	—	364,764
September 1, 2014 - September 30, 2014	127,700	$	17.05	127,700	237,064
	127,953	$	17.05	127,700

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits



2.1		Agreement and Plan of Merger, dated as of November 3, 2014, by and between Berkshire Hills Bancorp, Inc. and Hampden Bancorp, Inc. ⁽⁷⁾
3.1		Certificate of Incorporation of Hampden Bancorp, Inc. ⁽¹⁾
3.2		Bylaws of Hampden Bancorp, Inc. ⁽²⁾
3.3		Amendment #1 to Amended and Restated Bylaws of Hampden Bancorp, Inc. ⁽³⁾
3.4		Amendment #2 to Amended and Restated Bylaws of Hampden Bancorp, Inc. ⁽⁴⁾
3.5		Amendment #3 to Amended and Restated Bylaws of Hampden Bancorp, Inc. ⁽⁶⁾
4.1		Stock Certificate of Hampden Bancorp, Inc.⁽¹⁾
10.1*		Executive Compensation Proposal, dated as of November, 3 2014, by and between Berkshire Hills Bancorp, Inc. and Glenn S. Welch ⁽⁷⁾
10.2*		Executive Compensation Proposal dated as of November 3, 2014, by and between Berkshire Hills Bancorp, Inc. and Luke D. Kettles⁽⁷⁾
31.1		Certification pursuant to Rule 13a-14(a)/15d-14(a) of Chief Executive Officer (filed herewith)
31.2		Certification pursuant to Rule 13a-14(a)/15d-14(a) of Chief Financial Officer (filed herewith)
32.0		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer (furnished herewith)
101		The following materials from the Registrant’s Annual Report on Form 10-Q for the quarter ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Unaudited Consolidated Balance Sheets, (ii) Unaudited Consolidated Statements of Net Income, (iii) Unaudited Consolidated Statements of Comprehensive Income, (iv) Unaudited Consolidated Statements of Changes in Stockholders’ Equity, (v) Unaudited Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Consolidated Financial Statements.


⁽¹⁾	Incorporated by reference to the Company’s Registration Statement on Form S-1 (File No. 333-137359), as amended, filed with the SEC on September 15, 2006.


⁽²⁾	Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 3, 2007.


⁽³⁾	Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on September 14, 2009.


⁽⁴⁾	Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on June 9, 2011.


⁽⁵⁾	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, as filed with the SEC on December 22, 2012.


⁽⁶⁾	Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on August 12, 2013.


⁽⁷⁾	Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on November 4, 2014.


*	Denotes management compensation plan or contract.

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: November 10, 2014		/s/ Glenn S. Welch

		Glenn S. Welch
		Chief Executive Officer and President

Date: November 10, 2014		/s/ Tara G. Corthell

		Tara G. Corthell
		Chief Financial Officer and Treasurer

Hampden Bancorp, Inc. - FORM 10-Q - November 10, 2014

Attached files

Hampden Bancorp, Inc. Reports