The economy in the market area has benefited from the presence of large employers such as the University of Massachusetts, Baystate Health System, MassMutual Financial Group, Big Y Foods, Inc., Yankee Candle, Friendly Ice Cream Corporation, Hasbro Games, Verizon and Top-Flite Golf Company. Other employment and economic activity is provided by financial institutions, eight other colleges and universities, five other hospitals and a variety of wholesale and retail trade businesses.

In 2004, per capita income for Hampden and Hampshire Counties was $21,661 and $24,655, respectively, and the median household income was $42,946 and $51,048, respectively. This compares to per capita income for the State of Massachusetts and the United States of $29,837 and $24,092, respectively, and median household income of $57,033 and $46,475, respectively. The December 2004 unemployment rate for Hampden County of 5.0% was higher than the comparable Massachusetts rate, but lower than the United States rate, while the unemployment rate for Hampshire County of 3.0% was lower than the comparable Massachusetts and United States unemployment rates of 4.1% and 5.1%, respectively. Consistent with the national and Massachusetts unemployment trends, Hampden and Hampshire Counties’ December 2004 unemployment rates were lower compared to their respective December 2003 unemployment rates of 6.5% and 3.8%.

The Bank’s principal lending activity is the origination of first mortgage loans for the purchase or refinancing of one- to four-family residential real property, as well as the origination of commercial real estate and commercial and industrial loans.

The Bank’s primary lending activity consists of the origination of one- to four-family residential mortgage loans substantially all of which are secured by properties located in the Bank’s primary market area. One-to four-family mortgage loan originations are generally obtained from the Bank’s in-house loan representatives, from existing or past customers, through advertising, and through referrals from local builders, real estate brokers, and attorneys and are underwritten pursuant to the Bank’s policies and standards.

The Bank also offers home equity loans and home equity of lines of credit, both of which are secured by one- to four-family residences, substantially all of which are located in the Bank’s primary market area.

The Bank originates commercial real estate loans that are generally secured by five or more unit apartment buildings, industrial properties and properties used for business purposes such as small office buildings, hotels, motels, recreational and retail facilities primarily located in the Bank’s primary market area.

The Bank also originates construction loans for the development of one-to four-family residential properties located in its primary market area. Residential construction loans are generally offered to experienced local developers operating in the Bank’s primary market area and to individuals for the construction of their personal residences.

Commercial and industrial loans have been a substantial part of the Bank’s lending operations for a number of years. The Bank makes commercial and industrial loans primarily in its market area to a variety of professionals, sole proprietorships and small and mid-size businesses. Commercial and industrial lending products include term loans and revolving lines of credit.

The Bank offers direct automobile loans with terms of up to 60 months. For new cars, the Bank’s lending policy provides that the amount financed should not exceed 100% of the gross selling price of the vehicle. For used cars, the Bank’s lending policy provides that the amount of the loan should not exceed the “loan value” of the vehicle, as established by industry guides. The interest rates offered are the same for new and used automobile loans.

Net interest income before provision for loan losses increased $2.1 million, or 9.3%, to $24.6 million for the year ended December 31, 2004.

Interest income increased $2.7 million, or 7.8%, to $36.8 million for the year ended December 31, 2004 from $34.1 million for the year ended December 31, 2003.

Interest expense increased $565,000, or 4.9%, to $12.1 million for the year ended December 31, 2004 from $11.6 million for the year ended December 31, 2003.

Noninterest income decreased $446,000, or 8.3%, to $4.9 million for the year ended December 31, 2004 from $5.4 million for the year ended December 31, 2003.