Naugatuck Valley Financial 10-Q 2010 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

____________

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2010

OR

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

For the transition period from ______________ to _____________

Commission file number:   0-50876

                  NAUGATUCK VALLEY FINANCIAL CORPORATION                  

(Exact name of registrant as specified in its charter)

UNITED STATES	65-1233977
(State or other jurisdiction of incorporation or	(I.R.S. Employer Identification No.)
organization)
333 CHURCH STREET, NAUGATUCK, CONNECTICUT	06770
(Address of principal executive offices)	(Zip Code)

                                    (203) 720-5000                                    

(Registrant’s telephone number, including area code)

                                                                              N/A                                                     &# 160;                        

(Former name, former address and former fiscal year, if changed since last report)

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 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 x      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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes £     No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large Accelerated Filer  o	Accelerated Filer  o
Non-accelerated Filer  o	Smaller Reporting Company  x
(Do not check if a smaller reporting company)

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

As of November 3, 2010, there were 7,018,823 shares of the registrant’s common stock outstanding.

NAUGATUCK VALLEY FINANCIAL CORPORATION

Table of Contents

Part I.  Financial Information			Page No.
	Item 1.	Financial Statements (Unaudited)
		Consolidated Statements of Financial Condition at September 30, 2010 and December 31, 2009	3
		Consolidated Statements of Income for the three and nine months ended September 30, 2010 and 2009	4
		Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009	5
		Notes to Unaudited Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
		Liquidity and Capital Resources	22
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
	Item 4.	Controls and Procedures	25
Part II.  Other Information
	Item 1.	Legal Proceedings	26
	Item 1A.	Risk Factors	26
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
	Item 3.	Defaults Upon Senior Securities	27
	Item 4.	(Removed and Reserved)	27
	Item 5.	Other Information	27
	Item 6.	Exhibits	27
Signatures
Exhibits

Part I - FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

2

Consolidated Statements of Financial Condition

(In thousands, except share data)

	September 30,			December 31,
	2010			2009
	(Unaudited)
ASSETS
Cash and due from depository institutions	$	23,849		$	9,003
Investment in federal funds		582			3,143
Investment securities available-for-sale, at fair value		33,925			37,623
Investment securities held-to-maturity, at amortized cost		10,269			1,451
Loans held for sale, at fair value		856			-
Loans receivable, net		478,738			473,304
Accrued income receivable		2,033			2,074
Foreclosed real estate and repossessed assets, net		506			140
Premises and equipment, net		9,690			9,948
Bank owned life insurance		9,168			8,920
Federal Home Loan Bank stock, at cost		6,252			6,252
Other assets		5,263			5,097
Total assets	$	581,131		$	556,955
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits	$	404,750		$	380,931
Borrowed funds		119,870			118,984
Mortgagors' escrow accounts		2,373			4,888
Other liabilities		2,036			1,844
Total liabilities		529,029			506,647
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value; 1,000,000 shares authorized;
no shares issued or outstanding		-			-
Common stock, $.01 par value; 25,000,000 shares authorized;
7,604,375 shares issued, 7,018,823 shares outstanding at September
30, 2010 and 7,022,866 shares outstanding at December 31, 2009		76			76
Paid-in capital		33,860			33,756
Retained earnings		25,811			24,849
Unearned ESOP shares (193,735 shares at September 30, 2010
and December 31, 2009)		(1,937	)		(1,937	)
Unearned stock awards (3,500 shares at September 30, 2010
and 32,340 shares at December 31, 2009)		(35	)		(355	)
Treasury stock, at cost 588,875 shares at September 30, 2010
and 583,342 shares at December 31, 2009)		(6,176	)		(6,132	)
Accumulated other comprehensive gain		503			51
Total stockholders' equity		52,102			50,308
Total liabilities and stockholders' equity	$	581,131		$	556,955

See notes to consolidated financial statements.

3

Consolidated Statements of Income

(In thousands, except per share data)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
	(Unaudited)
Interest income
Interest on loans	$	6,784	$	6,514	$	20,251	$	19,279
Interest and dividends on investments and deposits		427		541		1,289		1,871
Total interest income		7,211		7,055		21,540		21,150
Interest expense
Interest on deposits		1,853		2,049		5,479		6,513
Interest on borrowed funds		731		1,019		2,291		3,236
Total interest expense		2,584		3,068		7,770		9,749
Net interest income		4,627		3,987		13,770		11,401
Provision for loan losses		993		302		2,164		859
Net interest income after provision for loan losses		3,634		3,685		11,606		10,542
Noninterest income
Fees for other services		381		155		766		455
Fees for services related to deposit accounts		238		273		728		765
Income from bank owned life insurance		80		87		248		258
Income from investment advisory services, net		51		67		146		225
Gain on investments		-		203		11		379
Other income		19		27		100		83
Total noninterest income		769		812		1,999		2,165
Noninterest expense
Compensation, taxes and benefits		2,136		1,858		6,332		5,685
Office occupancy		554		542		1,733		1,635
Computer processing		231		221		693		691
FDIC insurance premiums		172		151		504		776
Directors compensation		79		119		467		437
Advertising		69		96		235		281
Loss on foreclosed real estate, net		16		7		47		15
Other expenses		519		489		1,538		1,359
Total noninterest expense		3,776		3,483		11,549		10,879
Income before provision
for income taxes		627		1,014		2,056		1,828
Provision for income taxes		423		311		859		517
Net income	$	204	$	703	$	1,197	$	1,311
Earnings per common share - Basic and Diluted	$	0.03	$	0.10	$	0.18	$	0.19

See notes to consolidated financial statements.

4

Consolidated Statements of Cash Flows

(In thousands)

	Nine Months Ended
	September 30,
	2010			2009
Cash flows from operating activities	(Unaudited)
Net income	$	1,197		$	1,311
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan losses		2,164			859
Depreciation and amortization expense		600			627
Loss on sale of assets		2			-
Gain on sale of loans		(267	)		-
Loans originated for sale		(23,677	)		-
Proceeds from sale of loans		22,893			-
Net amortization from investments		46			51
Amortization of intangible assets		25			25
Benefit from deferred tax		(226	)		-
Stock-based compensation		391			490
Gain on sale of investments		(11	)		(379	)
Net change in:
Accrued income receivable		41			124
Deferred loan fees		18			(9	)
Cash surrender value of life insurance		(248	)		(257	)
Other assets		(113	)		(4	)
Other liabilities		226			320
Net cash provided by operating activities		3,061			3,158
Cash flows from investing activities
Proceeds from maturities and repayments of available-for-sale securities		5,020			8,290
Proceeds from sale of available-for-sale securities		8,275			18,181
Proceeds from maturities of held-to-maturity securities		438			49
Purchase of available-for-sale securities		(8,995	)		-
Purchase of held-to-maturity securities		(9,276	)		(1,566	)
Loan originations net of principal payments		(7,927	)		(28,538	)
Purchase of property and equipment		(360	)		(109	)
Proceeds from the sale of other real estate owned		140			-
Net cash used by investing activities		(12,685	)		(3,693	)
Cash flows from financing activities
Net change in time deposits		12,406			(750	)
Net change in other deposit accounts		11,413			13,403
Net change in mortgagors' escrow deposits		(2,516	)		(2,047	)
Advances from Federal Home Loan Bank		19,900			17,150
Repayment of advances from Federal Home Loan Bank		(26,674	)		(37,935	)
Change in short term borrowings		-			(1,340	)
Net change in repurchase agreements		7,659			14,362
Treasury stock acquired		(44	)		(25	)
Dividends paid to stockholders		(235	)		(368	)
Net cash provided (used) by financing activities		21,909			2,450
Net change in cash and cash equivalents		12,285			1,915
Cash and cash equivalents at beginning of period		12,146			8,247
Cash and cash equivalents at end of period	$	24,431		$	10,162
Cash paid during the period for:
Interest	$	7,771		$	9,498
Income taxes		1,076			286
Non-cash transactions:
Transfer of loans to foreclosed assets	$	652		$	223

See notes to consolidated financial statements.

5

Notes to Consolidated Financial Statements

NOTE 1 – NATURE OF OPERATIONS

Naugatuck Valley Financial Corporation (the “Company”) was organized as a federal corporation at the direction of Naugatuck Valley Savings and Loan (the “Bank”) in connection with the mutual holding company reorganization of Naugatuck Valley Savings.  The reorganization and initial public offering of Naugatuck Valley Financial was completed on September 30, 2004.  In the offering, Naugatuck Valley Financial issued a majority of its outstanding shares of common stock to Naugatuck Valley Mutual Holding Company, the mutual holding company parent of the Bank.  As long as Naugatuck Valley Mutual exists, it will own at least a majority of Naugatuck Valley Financial Corporation’s common stock.

Originally organized in 1922, the Bank is a federally chartered stock savings bank which is headquartered in Naugatuck, Connecticut. The Bank provides a full range of personal banking services to individual and small business customers located primarily in the Naugatuck Valley and the immediate surrounding vicinity.  It is subject to competition from other financial institutions throughout the region.  The Bank is also subject to the regulations of various federal agencies and undergoes periodic examinations by those regulatory authorities.

The Bank owns the Naugatuck Valley Mortgage Servicing Corporation, which qualifies and operates as a Connecticut passive investment company pursuant to legislation.

Termination of Merger Agreement. On November 12, 2010, the Company, Naugatuk Valley Financial Corporation, a Maryland corporation, and Southern Connecticut Bancorp, Inc. (“SCBI”), entered into a Mutual Termination Agreement (the “Termination Agreement”) terminating their previously reported Agreement and Plan of Merger, as amended, citing inability to obtain regulatory approval of the proposed transaction.  Under the Termination Agreement, the Company has paid SCBI a termination payment of $350,000 as reimbursement for its transaction expenses.

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NOTE 2 - BASIS OF PRESENTATION

The accompanying consolidated interim financial statements are unaudited and include the accounts of the Company, the Bank, and the Bank’s wholly owned subsidiary, Naugatuck Valley Mortgage Servicing Corporation. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to SEC Form 10-Q.  Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.  All significant intercompany accounts and transactions have been eliminated in the consolidation. These financial statements reflect, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessa ry for a fair presentation of the Company’s financial position and the results of its operations and its cash flows for the periods presented.

In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet, and income and expenses for the period.  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 losses on loans, the valuation of real estate acquired in connection with foreclosure or in satisfaction of loans, and the valuation of certain investment securities.  While management uses available information to recognize losses and properly value these assets, future adjustments may be necessary based on changes in economic conditions both in Connecticut and nationally.

Management has evaluated subsequent events for potential recognition or disclosure in the financial statements.  No subsequent events were identified that would have required a change to the financial statements or disclosure in the notes to the financial statements.

Operating results for the nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.  The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.

Certain reclassifications have been made to prior period financial statements to conform to the September 30, 2010 financial statement presentation. These reclassifications only changed the reporting categories but did not affect our results of operations or financial position.

NOTE 3 - CRITICAL ACCOUNTING POLICIES

The Company considers accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies.  The Company considers the following to be critical accounting policies:  other-than-temporary impairment, allowance for loan losses and deferred income taxes.

Other-than-temporary impairment. Each quarter, the Company reviews its investment portfolio to determine whether unrealized losses are temporary, based on an evaluation of the creditworthiness of the issuers/guarantors as well as the underlying collateral, if applicable, as well as the continuing performance of the securities.  Management also evaluates other facts and circumstances that may be indicative of an other-than-temporary impairment condition.  This includes, but is not limited to, an evaluation of the type of security and length of time and extent to which the fair value has been less than cost as well as certain collateral related characteristics.

Allowance for Loan Losses.  Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment.  Management reviews the level of the allowance on a quarterly basis, at a minimum, and establishes the provision for loan losses based on the composition of the loan portfolio, delinquency levels, loss experience, economic conditions, and other factors related to the collectability of the loan portfolio.

7

Although the Company believes that it uses the best information available to establish the allowance for loan losses, future additions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors.  The Company engages an independent review of its commercial loan portfolio at least annually and adjusts its loan ratings based upon this review.  In addition, the Company’s regulatory authorities, as an integral part of their examination process, periodically review the Company’s allowance for loan losses.  Such an agency may require the Company to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination.

Deferred Income Taxes.  The Company accounts for certain income and expense items differently for financial reporting purposes than for income tax purposes.  Provisions for deferred taxes are being made in recognition of these temporary differences. It is the Company's policy to recognize interest and penalties related to unrecognized tax liabilities within income tax expense in the consolidated statements of income.

NOTE 4 — Accounting Standards Updates

In 2010, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance expanding disclosures related to fair value measurements including (i) the amounts of significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy and the reasons for the transfers, (ii) the reasons for transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy, with significant transfers disclosed separately, (iii) the policy for determining when transfers between levels of the fair value hierarchy are recognized and (iv) for recurring fair value measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross presentation of information about purchases, sales, issuances and settlements. The new guidance further clarifies that (i) fair value measurement disclosures should be provided for each class of assets and liabilities (rather than major category), which would generally be a subset of assets or liabilities within a line item in the statement of financial position and (ii) disclosures should be provided about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. The disclosures related to the gross presentation of purchases, sales, issuances and settlements of assets and liabilities included in Level 3 of the fair value hierarchy will be required beginning January 1, 2011. The remaining disclosure requirements and clarifications made by the new guidance became effective on January 1, 2010.

On July 21, 2010, the FASB issued ASU No. 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”, which requires significant new disclosures about the allowance for credit losses and the credit quality of financing receivables. The requirements are intended to enhance transparency regarding credit losses and the credit quality of loan and lease receivables by disclosing an evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Under this statement, allowance for credit losses a nd fair value are to be disclosed by portfolio segment, while credit quality information, impaired financing receivables and nonaccrual status are to be presented by class of financing receivable. Disclosure of the nature and extent, the financial impact and segment information of troubled debt restructurings will also be required. The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the portfolio’s risk and performance. ASU 2010-20 will be effective for the Company’s consolidated financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period will be required for the Company’s consolidated financial statements that include periods beginning on or after January 1, 2011.

8

NOTE 5 – INVESTMENT SECURITIES

At September 30, 2010, the composition of the investment portfolio was:

	Amortized		Gross Unrealized					Fair
(In thousands)	Cost Basis		Gains		Losses			Value
Available-for-sale securities:
U.S. government and agency obligations	$	1,023	$	80	$	-		$	1,103
Mortgage-backed securities		20,940		1,011		-			21,951
Collateralized mortgage obligations		2,903		20		(65	)		2,858
Total debt securities		24,866		1,111		(65	)		25,912
Auction-rate trust preferred securities		8,200		-		(187	)		8,013
Total available-for-sale securities	$	33,066	$	1,111	$	(252	)	$	33,925
	Amortized		Gross Unrealized					Fair
(In thousands)	Cost Basis		Gains		Losses			Value
Held-to-maturity securities:
Mortgage-backed securities	$	10,269	$	76	$	(5	)	$	10,340
Total held-to-maturity securities	$	10,269	$	76	$	(5	)	$	10,340

At December 31, 2009, the composition of the investment portfolio was:

	Amortized		Gross Unrealized					Fair
(In thousands)	Cost Basis		Gains		Losses			Value
Available-for-sale securities:
U.S. government and agency obligations	$	1,529	$	54	$	-		$	1,583
Corporate bonds		1,000		-		(340	)		660
Mortgage-backed securities		23,561		939		-			24,500
Collateralized mortgage obligations		3,091		13		(104	)		3,000
Total debt securities		29,181		1,006		(444	)		29,743
Auction-rate trust preferred securities		8,200		-		(320	)		7,880
Total available-for-sale securities	$	37,381	$	1,006	$	(764	)	$	37,623
	Amortized		Gross Unrealized					Fair
(In thousands)	Cost Basis		Gains		Losses			Value
Held-to-maturity securities:
U.S. government and agency obligations	$	1,451	$	24	$	-		$	1,475
Total held-to-maturity securities	$	1,451	$	24	$	-		$	1,475

The Company has identified investment securities in which the fair value of the security is less than the cost of the security.  This can be from an increase in interest rates since the time of purchase or from deterioration in the credit quality of the issuer.  All investment securities which have unrealized losses have undergone an internal impairment review.

Management’s review for impairment generally entails identification and analysis of individual investments that have fair values less than amortized cost, including consideration of the length of time the investment has been in an unrealized loss position and the expected recovery period; discussion of evidential matter, including an evaluation of factors or triggers that could cause individual investments to qualify as having other-than-temporary impairment and those that would not support other-than-temporary impairment; and documentation of the results of these analyses. As a result of the reviews, management has determined that there has been no deterioration in credit quality subsequent to purchase, and believes that these unrealized losses are temporary and are the result of changes in market interest rates and market conditio ns over the past several years.

9

At September 30, 2010, these securities had an aggregate fair value of $7.8 million which resulted in an unrealized loss of $257,000 as compared to an aggregate fair value of $3.4 million with an unrealized loss of $764,000 at December 31, 2009.

NOTE 6 – LOANS RECEIVABLE

A summary of loans receivable at September 30, 2010 and December 31, 2009 is as follows:

	September 30,		December 31,
(In thousands)	2010		2009
Real estate loans:
One-to-four family	$	219,250	$	229,693
Construction		32,441		46,298
Multi-family and commercial real estate		161,284		134,931
Total real estate loans		412,975		410,922
Commercial business loans		35,090		31,325
Consumer loans:
Savings accounts		983		1,113
Personal		294		256
Automobile		169		230
Home equity		36,716		37,276
Total consumer loans		38,162		38,875
Totals loans		486,227		481,122
Less:
Allowance for loan losses		5,294		3,996
Undisbursed construction loans		1,692		3,336
Deferred loan origination fees		503		486
Loans receivable, net	$	478,738	$	473,304

Nonperforming loans totaled $13.8 million at September 30, 2010 and $6.0 million at December 31, 2009.  These loans, primarily delinquent 90 days or more, were accounted for on a nonaccrual basis.  The amount of income that was contractually due but not recognized on nonperforming loans totaled $553,000 at September 30, 2010, compared with $328,000 at December 31, 2009.

At September 30, 2010, the Bank had $8.1 million of loans which were considered to be impaired, with an allocated allowance of $719,000, compared to $744,000 of such loans at December 31, 2009 with an allowance of $98,000.  The increase is primarily due to four commercial loans secured by real estate, six residential mortgage loans and two home equity loans which were classified during the period.

Transactions in the allowance for loan losses account were as follows for the periods indicated:

	Nine months ended			For the year ended
	September 30,			December 31,
(In thousands)	2010			2009
Balance at beginning of year	$	3,996		$	2,869
Provision for loan losses		2,164			1,144
Charge-offs		(882	)		(18	)
Recoveries		16			1
Balance at end of period	$	5,294		$	3,996

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NOTE 7 - EARNINGS PER SHARE

Basic net income per common share is calculated by dividing the net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income per common share is computed in a manner similar to basic net income per common share except that the weighted-average number of common shares outstanding is increased to include the incremental common shares (as computed using the treasury stock method) that would have been outstanding if all potentially dilutive common stock equivalents were issued during the period. The Company's common stock equivalents are comprised of stock options and restricted stock awards. Anti-dilutive shares are common stock equivalents with weighted-average exercise prices in excess of the weighted-average market value for the periods presented.   For the three and nine months ended September 30, 2010, anti-dilutive options excluded from the calculations totaled 318,800 options (with an exercise price of $11.10) and 7,500 options (with an exercise price of $12.49).  For the three and nine months ended September 30, 2009, anti-dilutive options excluded from the calculations totaled 345,930 options (with an exercise price of $11.10) and 7,500 options (with an exercise price of $12.49).  Unallocated common shares held by the ESOP are not included in the weighted-average number of common shares outstanding for purposes of calculating either basic or diluted net income per common share.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
Net income	$	204,000	$	703,000	$	1,197,000	$	1,311,000
Weighted-average common shares outstanding:
Basic		6,826,255		6,810,357		6,828,085		6,812,259
Effect of dilutive stock options
and restrictive stock awards		-		-		-		-
Diluted		6,826,255		6,810,357		6,828,085		6,812,259
Net income per common share:
Basic	$	0.03	$	0.10	$	0.18	$	0.19
Diluted	$	0.03	$	0.10	$	0.18	$	0.19

NOTE 8 - COMPREHENSIVE INCOME

Comprehensive income is net income adjusted for any changes in equity from non-owner sources that are not recorded in the income statement (such as changes in the net unrealized gain/loss on available-for-sale securities). The purpose of reporting comprehensive income is to provide a measure of all changes in equity that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners. The Company’s sole source of other comprehensive income is the net unrealized gain on its available-for-sale securities.

11

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
	(In thousands)
Net income	$	204		$	703		$	1,197		$	1,311
Other comprehensive income:
Unrealized gain on securities available-for-sale		484			878			628			2,957
Reclassification adjustment for gains
realized in net income		-			(203	)		(11	)		(379	)
Other comprehensive income before tax effect		484			675			617			2,578
Income tax effect related to items of other
comprehensive income		(14	)		112			165			146
Other comprehensive income net of tax effect		498			563			452			2,432
Total comprehensive income	$	702		$	1,266		$	1,649		$	3,743

NOTE 9 - EQUITY INCENTIVE PLAN

Under the Naugatuck Valley Financial Corporation 2005 Equity Incentive Plan (the “Incentive Plan”), the Company may grant up to 372,614 stock options and 149,045 shares of restricted stock to its employees, officers and directors for an aggregate amount of up to 521,659 shares of the Company’s common stock for issuance upon the grant or exercise of awards.  Both incentive stock options and non-statutory stock options may be granted under the Incentive Plan.

The amounts and terms of the awards granted under the Incentive Plan are summarized in the following table.

	Grant date
	July 26,		December 18,		March 20,		March 21,		July 26,
	2008		2007		2007		2006		2005
Option awards
Awarded		1,000		2,000		7,500		6,500		354,580
Exercise price	$	11.10	$	11.10	$	12.49	$	11.10	$	11.10
Maximum term in years		10		10		10		10		10
Restricted stock awards
Awarded		1,000		3,000		2,000		1,500		139,712

To date, stock option awards have been granted with an exercise price equal to the higher of the market price of the Company’s stock at the date of grant or $11.10, which was the market price of the Company’s stock at the date stock option awards were initially granted under the Incentive Plan.  All granted stock options and restricted stock awards vest at 20% per year beginning on the first anniversary of the date of grant.

Stock options and restricted stock awards are considered common stock equivalents for the purpose of computing earnings per share on a diluted basis.

The Company is recording share-based compensation expense related to outstanding stock option and restricted stock awards based upon the fair value at the date of grant over the vesting period of such awards on a straight-line basis.  The fair value of each restricted stock allocation, based on the market price at the date of grant, is recorded to unearned stock awards.  Compensation expenses related to unearned restricted shares are amortized to compensation, taxes and benefits expense over the vesting period of the restricted stock awards.  The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing method as described below.  The Company recorded share-based compensation expense of $1,281 for the three months ended September 30, 2010, compare d to $131,169 for the three months ended September 30, 2009, and $279,161 and $402,929 for the comparable nine month periods, in connection with the stock option and restricted stock awards.  The expense declined in the 2010 periods due to the final vesting of the initial grants.

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The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing method which includes several assumptions such as volatility, expected dividends, expected term and risk-free rate for each stock option award.  In determining the expected term of the option awards, the Company elected to follow the simplified method as permitted by the SEC Staff Accounting Bulletin 107.  Under this method, the Company has estimated the expected term of the options as being equal to the average of the vesting term plus the original contractual term. The Company estimated its volatility using the historical volatility of other, similar companies during a period of time equal to the expected life of the options. The risk-free rate for the periods within the contractual life of the options i s based upon the U.S. Treasury yield curve in effect at the time of grant.  Assumptions used to determine the weighted-average fair value of stock options granted were as follows:

	July 26,			December 18,			March 20,			March 21,			July 26,
Grant date	2008			2007			2007			2006			2005
Dividend yield		2.74	%		2.20	%		1.60	%		1.89	%		1.44	%
Expected volatility		13.40	%		11.00	%		10.49	%		11.20	%		11.47	%
Risk-free rate		3.56	%		3.63	%		4.48	%		4.61	%		4.18	%
Expected life in years		6.5			6.5			6.5			6.5			6.5
Weighted average fair value
of options at grant date	$	1.51		$	1.18		$	2.55		$	2.25		$	2.47

NOTE 10 - DIVIDENDS

On July 20, 2010, the Company's Board of Directors declared a cash dividend of $0.03 per outstanding common share, which was paid on September 1, 2010, to stockholders of record as of the close of business on August 10, 2010.

Naugatuck Valley Mutual Holding Company, the Company's mutual holding company and majority stockholder, waived receipt of its dividend upon non-objection from the Office of Thrift Supervision ("OTS").

NOTE 11 – FAIR VALUE

The Company uses fair value to record adjustments to certain assets and liabilities and to prepare required disclosures. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined using market quotes. However, in many instances, there are no quoted market prices available. In such instances, fair values are determined using various valuation techniques. Various assumptions and observable inputs must be relied upon in applying these techniques. Accordingly, the fair value estimates may not be realized in an immediate transfer of the respective asset or liability.

The following is a summary of the carrying value and estimated fair value of the Company’s significant financial instruments as of September 30, 2010 and December 31, 2009:

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	September 30, 2010				December 31, 2009
	Carrying		Estimated		Carrying		Estimated
(In thousands)	Amount		Fair Value		Amount		Fair Value
Financial Assets
Cash and cash equivalents	$	24,431	$	24,431	$	12,146	$	12,146
Investment securities available for sale		33,925		33,925		37,623		37,623
Investment securities held-to-maturity		10,269		10,340		1,451		1,475
Loans held for sale		856		856		-		-
Loans receivable, net		478,738		491,181		473,304		476,665
Accrued income receivable		2,033		2,033		2,074		2,074
Financial Liabilities
Deposits	$	404,750	$	405,248	$	380,931	$	379,176
Borrowed funds		119,870		123,161		118,984		120,719
Mortgagors' escrow accounts		2,373		2,373		4,888		4,888

Fair Value Hierarchy

FASB ASC Topic 820 “Fair Value Measurements” establishes a fair value hierarchy for use in grouping assets and liabilities. The three levels within the hierarchy are as follows:

• Level 1: Valuation is based upon unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

• Level 2: Fair value is calculated using inputs other than quoted market prices that are directly or indirectly observable for the asset or liability. The valuation may rely on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit ratings, etc.) or inputs that are derived principally or corroborated by market data by correlation or other means.

• Level 3: Inputs for determining the fair value of the respective assets or liabilities are not observable. Level 3 valuations are reliant upon pricing models and techniques that require significant management judgment or estimation.  

Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. A description of the valuation methodologies used by the Company is presented below.

Cash and cash equivalents- The carrying amount of cash, due from banks, and interest-bearing deposits is used to approximate fair value, given the short timeframe to maturity and as such assets do not present unanticipated credit concerns.

Investment Securities - When quoted prices are available in an active market, the Company classifies securities within level 1 of the valuation hierarchy.  The Company had no securities classified as level 1 at September 30, 2010 or December 31, 2009.

If quoted market prices are not available, the Company employs an independent pricing service who utilizes matrix pricing to calculate fair value. Such fair value measurements consider observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayments speeds, credit information, and the respective terms and conditions for debt instruments. Level 2 securities include CMOs, mortgage backed securities and corporate bonds issued by GSEs.

When a market is illiquid or there is a lack of transparency around the inputs to valuation, the respective securities are classified as level 3 and reliance is placed upon internally developed models and management judgment and evaluation for valuation.  Auction-rate trust preferred securities (“ARPs”) are currently classified as level 3.

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Management uses an internally developed model to value ARPs.  The valuation model is based on a discounted cash flow using the expected value of the collateral preferred shares, either at call dates or the maturity date of the trust, the credit rating of the issuer of each of the ARPs, the expected yield during the holding period and current rates for U.S. Treasury securities matching the expected remaining term of the trust.  The expected value of the collateral preferred shares (either when called or upon maturity of the trust) is assumed to range between current market prices and par.  Discount rates are implied from observable market inputs. The resulting discounted cash flows for each of the ARPs indicated little to no impairment in the fair value of the securities.  On a quarterly basis, manag ement reviews the trust preferred securities pricing generated from our internal model.

Loans Receivable - Loans held for sale are accounted for at the lower of cost or market. The fair value of loans held for sale are based on quoted market prices of similar or identical loans sold in conjunction with securitization transactions, adjusted as required for changes in loan characteristics. The Company employs an independent third party to provide fair value estimates for loans held for investment. Such estimates are calculated using discounted cash flow analysis, using market interest rates for comparable loans. The associated cash flows are adjusted for credit and other potential losses. Fair value for impaired loans is estimated using the net present value of the expected cash flows or the fair value of the underlying collateral if repayment is collateral dependent.

Foreclosed Property and Repossessed Assets - Foreclosed property and repossessed assets are recorded as held for sale initially at the lower of the loan balance or fair value of the collateral less estimated selling costs. For the nine months ended September 30, 2010 and 2009, foreclosed properties and repossessed assets with a carrying value of $652,000 and $154,000, respectively, were transferred to foreclosed property and repossessed assets from loans. Prior to the transfer, the assets whose fair value less costs to sell was less than their carrying value, were written down to fair value through a charge to the allowance for loan losses. Subsequent to foreclosure, valuations are updated periodically, and the assets may be marked down further, reflecting a new cost basis. The re were no subsequent valuation adjustments to foreclosed properties and repossessed assets for the nine months ended September 30, 2010 and 2009.  Fair value measurements may be based upon appraisals or third-party price opinions and, accordingly, those measurements are classified as Level 2. Other fair value measurements may be based on internally developed pricing methods, and those measurements are classified as Level 3.

Deposit Liabilities - The fair values disclosed for demand deposits are by definition equal to the amount payable on demand at the reporting date which is also their carrying value. The carrying amounts of variable-rate, fixed term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates on comparable instruments to a schedule of aggregated expensed monthly maturities on time deposits.

 Borrowed Funds - Carrying value is as an estimate of fair value for securities sold under agreements to repurchase and other short term debt that matures within 90 days. The fair values of other borrowings are estimated using discounted cash flow analyses based on current market rates adjusted, as appropriate, for associated credit and option risks.

Under certain circumstances we make adjustment to fair value for our assets although they are not measured at fair value on an ongoing basis. These include assets that are measured at the lower of cost or market that were recognized at fair value (i.e., below cost) at the end of the period, as well as assets that are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment).

Assets and liabilities measured at fair value, including financial assets and liabilities for which the Company has elected the fair value option, are summarized below:

15

	September 30, 2010
	Carrying Value
(In thousands)	Level 1		Level 2		Level 3		Total
Assets measured at fair value on a recurring basis:
Available-for-sale investment securities	$	-	$	25,912	$	8,013	$	33,925
Residential loans held for sale		-		856		-		856
Assets measured at fair value on a non-recurring basis:
Impaired loans		-		7,411		16		7,427
Real estate owned and other repossessed assets		-		-		506		506

There were no significant transfers of assets between Levels 1, 2 or 3 of the fair value hierarchy during the three months ended September 30, 2010.

The following table shows a reconciliation of the beginning and ending balances for level 3 assets measured at fair value on a recurring basis:

	For the Nine		For the Year
	Months Ended		Ended
	September 30,		December 31,
(In thousands)	2010		2009
Balance at beginning of period	$	7,880	$	6,744
New purchases		-		-
Transfer to (from) level 3		-		-
Increase (decrease) in fair value of securities				-
included in accumulated other
comprehensive income		133		2,219
Impairment charges included in net income				-
Proceeds from sale of level 3 securities		-		(83	)
Redemptions at par		-		(1,000	)
Balance at end of period	$	8,013	$	7,880

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

This discussion should be read in conjunction with the Company’s Consolidated Financial Statements for the year ended December 31, 2009 included in the Company’s Annual Report on Form 10-K.

Forward-Looking Statements

This report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company.  These forward-looking statements are generally identified by use of the words “believe”, “expect”, “intend”, “anticipate”, “estimate”, “project” or similar expressions.  The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including poli cies of the U.S. Treasury and the Federal Reserve Board, the size, quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area, changes in real estate market values in the Company’s market area, and changes in relevant accounting principles and guidelines.  Additional factors are discussed below under “Item 1A – Risk Factors” and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 and Part II of this Quarterly Report on Form 10-Q under “Item 1A. Risk Factors”.  These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.  Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that ma y be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

16

Comparison of Financial Condition at September 30, 2010 and December 31, 2009

Total assets increased by $24.1 million, or 4.3%, to $581.1 million from December 31, 2009 to September 30, 2010, primarily due to an increase of $12.3 million in cash and cash equivalents, an increase of $5.1 million in investments and an increase of $5.4 million in loans.  The increase in loans primarily reflects an increase of $26.4 million in multi-family and commercial real estate loans and an increase of $3.8 million in commercial business loans, partially offset by a decrease of $13.8 million in construction loans, a decrease of $10.4 million in residential mortgage loans and a decrease of $713,000 in consumer loans.  The increase in loans was primarily funded by increases in deposits, and, to a lesser extent, borrowings.  The decrease in the residential mortgage portfolio is due to the sale of fixed r ate residential mortgage loans, primarily through the Bank’s efforts to build a secondary mortgage operation.

Total liabilities were $529.0 million at September 30, 2010 compared to $506.6 million at December 31, 2009.  Deposits at September 30, 2010 increased $23.8 million, or 6.3%, over December 31, 2009.  Borrowed funds, including advances from the Federal Home Loan Bank of Boston and reverse repurchase agreements, increased $886,000, from $119.0 million at December 31, 2009 to $119.9 million at September 30, 2010.  The increases in deposits were used primarily to fund the growth in loans, and to a lesser extent, to purchase investments.

Total stockholders’ equity increased $1.8 million, from $50.3 million at December 31, 2009 to $52.1 million at September 30, 2010.  The increase in stockholders’ equity was primarily due to net income of $1.2 million for the nine month period, a net increase in the unrealized gain on available for sale securities of $452,000 and $385,000 in capital adjustments related to the Company’s 2005 Equity Incentive Plan, partially offset by dividends of $238,000 paid to stockholders.

Comparison of Operating Results For the Three and Nine Months Ended September 30, 2010 and 2009

General.   For the three months ended September 30, 2010, the Company recorded net income of $204,000 compared to net income of $703,000 for the three months ended September 30, 2009, a decrease of $499,000, or 71.0%.  Net income decreased $114,000, or 8.7%,  to $1.2 million for the nine months ended September 30, 2010 from $1.3 million for the nine months ended September 30, 2009.  The decrease in both the three and nine month periods was primarily due to higher loan loss provisions and higher noninterest expense, partially offset by a higher level of net interest income.

Net Interest Income.Net interest income increased $640,000, or 16.1%, to $4.6 million for the three months ended September 30, 2010 and increased by $2.4 million, or 20.8%, to $13.8 million for the nine months ended September 30, 2010.  The increase in net interest income for the three month period resulted from a $156,000, or 2.2%, increase in total interest income, combined with a $484,000, or 15.8%, decrease in interest expense.  For the nine months ended September 30, 2010, total interest income increased $390,000, or 1.8%, combined with a decrease of $2.0 million, or 20.3%, in total interest e xpense.  The Company experienced an increase in the average balances of interest earning assets of 5.6% in the three month period and an increase of 4.2% in the nine month period, while the average rate earned on these assets decreased by 18 basis points and by 12 basis points in the three and nine month periods, respectively.  The increase in interest earning assets is attributed primarily to an increase in the loan portfolio.  The average balance in the loan portfolio increased by $32.3 million, or 7.2%, in the three month period and by $37.8 million, or 8.5%, in the nine month period, primarily in the commercial mortgage portfolio.  The Company experienced a decrease in the average balance of investment securities of 10.5% in the three month period and a decrease of 25.1% in the nine month period, due to sales of mortgage-backed securities and increased prepayment speeds in the mortgage-backed securities portfolio.

17

Interest expense decreased by $484,000, or 15.8%, for the three months ended September 30, 2010, due to a reduction of 54 basis points in the average cost of interest bearing liabilities, from 2.51% to 1.97%.  The decrease in the average cost of interest bearing liabilities, due primarily to the decreasing rate environment, was partially offset by a $36.0 million increase in the average balance of interest bearing liabilities.  The average balance of interest-bearing deposits increased by $26.5 million, or 7.0%, and the average balance of borrowed funds increased by $9.5 million, or 8.5%, over this period.  Interest expense also decreased in the nine months ended September 30, 2010 by $2.0 million, or 20.3%, also as a result of a decrease of 64 basis points in the average cost, partially offset by an increase in the average balance of interest-bearing liabilities of $24.1 million, or 4.9%.

The following table summarizes changes in interest income and interest expense for the three and nine months ended September 30, 2010 and 2009.

	Three Months							Nine Months
	Ended September 30,							Ended September 30,
	2010		2009		% Change			2010		2009		% Change
	(Dollars in thousands)
Interest income:
Loans	$	6,784	$	6,514		4.14	%	$	20,251	$	19,279		5.04	%
Fed Funds sold		1		-		N/A			2		4		(50.00	) %
Investment securities		426		541		(21.26	) %		1,287		1,867		(31.07	) %
Total interest income		7,211		7,055		2.21	%		21,540		21,150		1.84	%
Interest expense:
Certificate accounts		1,669		1,874		(10.94	) %		4,961		5,949		(16.61	) %
Regular savings accounts		117		96		21.88	%		310		292		6.16	%
Checking and NOW accounts		12		12		-	%		36		35		2.86	%
Money market savings accounts		55		67		(17.91	) %		172		237		(27.43	) %
Total interest-bearing deposits		1,853		2,049		(9.57	) %		5,479		6,513		(15.88	) %
FHLB advances		698		967		(27.82	) %		2,201		3,133		(29.75	) %
Other borrowings		33		52		(36.54	) %		90		103		(12.62	) %
Total interest expense		2,584		3,068		(15.78	) %		7,770		9,749		(20.30	) %
Net interest income	$	4,627	$	3,987		16.05	%	$	13,770	$	11,401		20.78	%

The following table summarizes average balances and average yields and costs for the three and nine months ended September 30, 2010 and 2009.

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	Three Months Ended September 30,										Nine Months Ended September 30,
	2010					2009					2010					2009
	Average		Yield/			Average		Yield/			Average		Yield/			Average		Yield/
	Balance		Cost			Balance		Cost			Balance		Cost			Balance		Cost
	(Dollars in thousands)
Interest-earning assets
Loans	$	483,110		5.62	%	$	450,825		5.78	%	$	480,524		5.62	%	$	442,714		5.81	%
Fed Funds sold		3,267		0.12	%		2,452		0.00	%		3,596		0.07	%		6,636		0.08	%
Investment securities		41,687		4.09	%		46,591		4.64	%		39,823		4.31	%		53,180		4.68	%
Federal Home Loan Bank stock		6,252		0.00	%		6,252		0.00	%		6,252		0.00	%		6,252		0.00	%
Total interest-earning assets	$	534,316		5.40	%	$	506,120		5.58	%	$	530,195		5.42	%	$	508,782		5.54	%
Interest-bearing liabilities
Certificate accounts	$	242,271		2.76	%	$	237,254		3.16	%	$	237,290		2.79	%	$	239,424		3.31	%
Regular savings accounts & escrow		77,903		0.60	%		62,341		0.62	%		73,535		0.56	%		58,679		0.66	%
Checking and NOW accounts		56,532		0.08	%		51,004		0.09	%		56,785		0.08	%		52,710		0.09	%
Money market savings accounts		26,247		0.84	%		25,831		1.04	%		26,275		0.87	%		25,590		1.23	%
Total interest-bearing deposits		402,953		1.84	%		376,430		2.18	%		393,885		1.85	%		376,403		2.31	%
FHLB advances		107,142		2.61	%		96,532		4.01	%		108,177		2.71	%		104,997		3.98	%
Other borrowings		14,483		0.91	%		15,609		1.33	%		12,647		0.95	%		9,193		1.49	%
Total interest-bearing liabilities	$	524,578		1.97	%	$	488,571		2.51	%	$	514,709		2.01	%	$	490,593		2.65	%

Allowance for Loan Losses and Asset Quality.  The allowance for loan losses is a valuation allowance for the probable losses inherent in the loan portfolio.  We evaluate the need to establish allowances against losses on loans on a quarterly basis, or more often if warranted.  When additional allowances are needed a provision for loan losses is charged against earnings.  The recommendations for increases or decreases to the allowance are presented by management to the Board of Directors on a quarterly basis, or more often if warranted. The methodology for assessing the appropriateness of the allowance for loan losses consists of the following process:

On a quarterly basis, or more often if warranted, management analyzes the loan portfolio.  For individually evaluated loans that are considered impaired, an allowance will be established based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or for loans that are considered collateral dependant, the fair value of the collateral.  A loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due under the contractual term of the loan agreement.

All other loans, including loans that are individually evaluated but not considered impaired, are segregated into groups based on similar risk factors.  Each of these groups is then evaluated based on several factors to estimate credit losses.  Management will determine for each category of loans with similar risk characteristics the historical loss rate.  Historical loss rates provide a reasonable starting point for the Bank’s analysis but analysis and trends in losses do not form a sufficient basis to determine the appropriate level of the loan loss allowance.  Management also considers qualitative and environmental factors likely to cause losses.  These factors include but are not limited to: changes in the amount and severity of past due, non-accrual and adversely classified loan s; changes in local, regional, and national economic conditions that will affect the collectibility of the portfolio; changes in the nature and volume of loans in the portfolio; changes in concentrations of credit, lending area, industry concentrations, or types of borrowers; changes in lending policies, procedures, competition, management, portfolio mix, competition, pricing, loan to value trends, extension and modification requests; and loan quality trends.  This analysis establishes factors that are applied to each of the segregated groups of loans to determine an acceptable level of loan loss allowance.

In addition, we engage an independent consultant to review our commercial loan portfolio and consider recommendations based on their review of specific credits in the portfolio for classifying and monitoring these loans.

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Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. In addition, because further events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above.

Furthermore, while we believe we have established our allowance for loan losses in conformity with generally accepted accounting principles, there can be no assurance that regulators, in reviewing our loan portfolio during their examination process, will not request us to increase our allowance for loan losses based on information available to them at the time of their examination and their judgment, which may differ from ours.

Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.

The following table summarizes the activity in the allowance for loan losses and provision for loan losses for the three and nine months ended September 30, 2010 and 2009.

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2010			2009			2010			2009
	(In thousands)
Allowance at beginning of period	$	5,119		$	3,416		$	3,996		$	2,869
Provision for loan losses		993			302			2,164			859
Charge-offs		(834	)		(6	)		(882	)		(17	)
Recoveries		16			-			16			1
Net recoveries (charge-offs)		(818	)		(6	)		(866	)		(16	)
Allowance at end of period	$	5,294		$	3,712		$	5,294		$	3,712

The Company recorded a provision for loan losses of $993,000 for the three months ended September 30, 2010, compared to $302,000 for the same 2009 period.  Provisions of $2.2 million and $859,000 were recorded for the nine months ended September 30, 2010 and 2009, respectively.  The increase in the provision in the 2010 periods was due primarily to an increase in non-performing and classified loans, the growth of the total loan portfolio, a change in the mix of the portfolio towards commercial real estate loans which are generally inherently riskier than one-to-four family loans, and general economic conditions.  The charge-offs in the 2010 period were due to the charge off of six commercial term loans, four commercial lines of credit, two commercial mortgages and two personal lines of credit. The charge-offs also include the write down of the value of two properties taken as a deed-in-lieu of foreclosure, a short sale on a mortgage loan and the write down of value on a home equity loan due to a foreclosure sale.

The following table provides information with respect to the Company’s nonperforming assets at the dates indicated. The Company modified the terms of one commercial mortgage totaling $1.1 million during the quarter ended September 30, 2010.  The Company did not have any accruing loans past due 90 days or more at the dates presented.

	At September 30,			At December 31,
	2010			2009			% Change
	(Dollars in thousands)
Nonaccrual loans	$	11,356		$	6,000			89.27	%
Troubled debt restructurings		2,396			-			N/A
Real estate owned		416			140			197.14
Other repossessed assets		90			-			N/A
Total nonperforming assets	$	14,258		$	6,140			132.21	%
Total nonperforming loans to total loans		2.84	%		1.26	%		125.40	%
Total nonperforming loans to total assets		2.37	%		1.08	%		119.44	%
Total nonperforming assets to total assets		2.45	%		1.10	%		122.73	%

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Non-performing loans (defined as nonaccrual loans and troubled debt restructurings) totaled $13.8 million at September 30, 2010 compared to $6.0 million at December 31, 2009.  The increase was primarily the result of the placing of two commercial mortgage relationships totaling $4.2 million on non-accrual status during the first quarter. One loan, amounting to $1.1 million, is secured by a storage facility in Connecticut.  Management has obtained a recent appraisal and the loan has been modified and has been paying under the new terms.  The second relationship, amounting to $3.1 million, is secured by an approved residential subdivision totaling 40 units, none of which have been sold.  Four units have been built on speculation.  Management is working with the borrower to complete the proje ct.  It is anticipated that the Bank will make additional advances totaling approximately $640,000 to fund infrastructure improvements needed to complete this project.  During the second quarter of 2010, a commercial real estate loan relationship (secured by retail space located in Connecticut) of $828,000 was placed on non-accrual status and the Bank has initiated foreclosure proceedings.  The Bank is well collateralized and does not anticipate a loss on this relationship.  In the third quarter of 2010, six commercial real estate loans totaling $1.7 million, five commercial loans totaling $141,000 and four one-to-four family mortgages totaling $820,000 were added to non-accrual.  Six loans totaling $750,000 were charged off or taken into foreclosed real estate or repossessed assets.

The following table shows the aggregate amounts of our classified assets at the dates indicated.

	At September 30,		At December 31,
	2010		2009
	(In thousands)
Special mention assets	$	29,639	$	43,539
Substandard assets		31,046		16,890
Doubtful assets		198		37
Loss assets		-		-
Total classified assets	$	60,883	$	60,466

There was a 0.7% increase in the level of classified assets from December 31, 2009 to September 30, 2010 primarily in our commercial loan portfolio.  Assets migrated from special mention to substandard as the Bank identified weaknesses among some loans, leading to their downgrade to substandard.  Classified assets are primarily loans rated special mention or substandard in accordance with regulatory guidance.  These assets warrant and receive increased management oversight and loan loss allowances have been established to account for the increased credit risk of these assets.  At September 30, 2010, $14.3 million of classified assets were nonperforming assets.

Noninterest Income.  The following table summarizes noninterest income for the three and nine months ended September 30, 2010 and 2009.

	Three Months							Nine Months
	Ended September 30,							Ended September 30,
	2010		2009		% Change			2010		2009		% Change
	(Dollars in thousands)
Fees for other services	$	381	$	155		145.81	%	$	766	$	455		68.35	%
Fees for services related to deposit accounts		238		273		(12.82	) %		728		765		(4.84	) %
Income from bank owned life insurance		80		87		(8.05	) %		248		258		(3.88	) %
Income from investment advisory services, net		51		67		(23.88	) %		146		225		(35.11	) %
Gain on investments		-		203		(100.00	) %		11		379		(97.10	) %
Other income		19		27		(29.63	) %		100		83		20.48	%
Total	$	769	$	812		(5.30	) %	$	1,999	$	2,165		(7.67	) %

Noninterest income decreased $43,000, or 5.3%, for the three months ended September 30, 2010, and decreased $166,000, or 7.7%, in the nine month period, as compared to the same 2009 periods.  The decrease in both periods is primarily due to a lower level of gains realized on the sale of investments in the 2010 periods, combined with decreases in income from investment advisory services, fees for services related to deposit accounts and income from bank owned life insurance.  These decreases were partially offset by an increase in fees for other services in both periods.  The increase in fees for other services in both periods is largely due to the fees associated with our initiative to increase activity in the secondary mortgage mark et.

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 Noninterest Expense.  The following table summarizes noninterest expense for the three and nine months ended September 30, 2010 and 2009.

	Three Months							Nine Months
	Ended September 30,							Ended September 30,
	2010		2009		% Change			2010		2009		% Change
	(Dollars in thousands)
Compensation, taxes and benefits	$	2,136	$	1,858		14.96	%	$	6,332	$	5,685		11.38	%
Office occupancy		554		542		2.21	%		1,733		1,635		5.99	%
Computer processing		231		221		4.52	%		693		691		0.29	%
FDIC insurance premiums		172		151		13.91	%		504		776		(35.05	) %
Directors compensation		79		119		(33.61	) %		467		437		6.86	%
Advertising		69		96		(28.13	) %		235		281		(16.37	) %
Loss on foreclosed real estate, net		16		7		128.57	%		47		15		213.33	%
Other expenses		519		489		6.13	%		1,538		1,359		13.17	%
Total	$	3,776	$	3,483		8.41	%	$	11,549	$	10,879		6.16	%

Noninterest expense increased by $293,000 and by $670,000 for the three and nine months ended September 30, 2010, respectively, over the same 2009 periods.  The increase in the three month period was primarily the result of increases in compensation costs, office occupancy, computer processing, FDIC insurance premiums and loss on foreclosed real estate, partially offset by decreases in directors compensation and advertising over the 2009 periods.  The increase in the nine month period was due to increases in all categories of noninterest expense except FDIC insurance premiums and advertising.  The 2009 period included the accrual for the FDIC one-time special assessment of $250,000.  Additionally, costs associated with the proposed acquisition of Southern Connecticut Bancorp are included in both 2010 and 2009 periods.  Approximately $109,000 and $264,000 is included for the three and nine months ended September 30, 2010, respectively, and approximately $96,000 is included for both the three and nine months ended September 30, 2009.

Income Taxes. Provision for income taxes was $423,000 for the quarter ended September 30, 2010 compared to $311,000 for the quarter ended September 30, 2009, and $859,000 for the nine months ended September 30, 2010 compared to $517,000 for the nine months ended September 30, 2009.  The primary reason for the increase was the write-off of the deferred tax asset of $250,000 related to the expiration of the charitable contribution carry forward.  The contribution was made by the Company in connection with the establishment of the Naugatuck Valley Savings and Loan Foundation.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future short-term financial obligations.  The Company’s primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of investment securities and advances from the Federal Home Loan Bank of Boston.  While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

Each quarter the Company projects liquidity availability and demands on this liquidity for the next 90 days.  The Company regularly adjusts its investments in liquid assets based upon its assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of our asset/liability management program.  Excess liquid assets are invested generally in federal funds and short- and intermediate-term U.S. Government agency obligations.

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The Company’s most liquid assets are cash and cash equivalents.  The levels of these assets depend on our operating, financing, lending and investing activities during any given period.  At September 30, 2010, cash and cash equivalents totaled $24.4 million, including federal funds of $582,000.  Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $33.9 million at September 30, 2010.  At September 30, 2010, the Company had the ability to borrow a total of $149.8 million from the Federal Home Loan Bank of Boston, of which $105.8 million in borrowings was outstanding, along with $14.1 million in repurchase agreements.  At September 30, 2010, the Company had arranged overnight lines of credit of $2.5 million with the Federal Home Loan Bank of Boston.  The Company had no overnight advances outstanding with the Federal Home Loan Bank of Boston as of that date.  In addition, at September 30, 2010, the Company had the ability to borrow $3.5 million from a correspondent bank.  The Company had no advances outstanding on this line at September 30, 2010.

The following table summarizes the commitments and contingent liabilities as of the dates indicated:

	September 30,		December 31,
(In thousands)	2010		2009
Commitments to extend credit:
Loan commitments	$	10,631	$	10,611
Unused lines of credit		19,448		21,142
Amounts due mortgagors on construction loans		21,795		28,843
Amounts due on commercial  loans		18,017		17,899
Commercial letters of credit		4,191		4,332

Certificates of deposit due within one year of September 30, 2010 totaled $169.2 million, or 41.8% of total deposits.  If these deposits do not remain with us, the Company will be required to seek other sources of funds, including other certificates of deposit and our available lines of credit.  Depending on market conditions, the Company may be required to pay higher rates on such deposits or other borrowings than are currently paid on the certificates of deposit due on or before September 30, 2011.  Based on past experience, however, the Company believes that a significant portion of our certificates of deposit will remain with us.  The Company has the ability to attract and retain deposits by adjusting the interest rates offered.

Historically, the Company (on a consolidated basis) has remained highly liquid.  The Company is not aware of any trends and/or demands, commitments, events or uncertainties that could result in a material decrease in liquidity.  The Company expects that all of our liquidity needs, including the contractual commitments stated above, the estimated costs of our branch expansion plans and increases in loan demand can be met by our currently available liquid assets and cash flows.  In the event loan demand was to increase at a pace greater than expected, or any unforeseen demand or commitment were to occur, we could access our borrowing capacity with the Federal Home Loan Bank of Boston.  The Company expects that our currently available liquid assets and our ability to borrow from the Federal Home Loan B ank of Boston would be sufficient to satisfy our liquidity needs without any material adverse effect on our liquidity.

The Company’s primary investing activities are the origination of loans and the purchase of securities.  For the nine months ended September 30, 2010, the Company originated $97.3 million of loans, including renewals, refinances and advances, and purchased $18.3 million of securities.  These activities were funded primarily by the proceeds from sales and maturities of available-for-sale securities and held to maturity securities of $13.7 million and an increase of $23.8 million in deposits.

Financing activities consist primarily of activity in deposit accounts and in Federal Home Loan Bank advances.  The Company experienced a net increase in total deposits of $23.8 million for the nine months ended September 30, 2010.  Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and its local competitors and other factors.  The Company generally manages the pricing of deposits to be competitive and to increase core deposit relationships.  Occasionally, the Company offers promotional rates on certain deposit products in order to attract deposits.  The Company experienced a net increase in Federal Home Loan Bank advances and repurchase agreements of $886,000 for the nine months ended September 30, 2010.  The increase s in deposit accounts and borrowings primarily funded our lending activities and, to a lesser extent, the purchase of investments.

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The Company is a separate legal entity from the Bank and must provide for its own liquidity.  In addition to its operating expenses, the Company, on a stand-alone basis, is responsible for paying any dividends declared to its shareholders.  The Company also has repurchased shares of its common stock.  The Company’s primary source of income is dividends received from the Bank.  The amount of dividends that the Bank may declare and pay to the Company in any calendar year, without the receipt of prior approval from the Office of Thrift Supervision (“OTS”) but with prior notice to the OTS, cannot exceed net income for that year to date plus retained net income (as defined) for the preceding two calendar years.  On a stand-alone basis, the Company had liquid assets of $2.3 mil lion at September 30, 2010.

The Company is not subject to separate regulatory capital requirements.  At September 30, 2010, the Bank was subject to the regulatory capital requirements of the OTS, including a risk-based capital measure.  The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories.  At September 30, 2010, the Bank exceeded all of its regulatory capital requirements, and was considered “well capitalized” under regulatory guidelines.

The following table is a summary of the Bank’s actual capital as computed under the standards established by the OTS at September 30, 2010.

							Naugatuck Valley
	OTS Regulation						Savings and Loan
	Adequately			Well
(Dollars in thousands)	Capitalized			Capitalized			Amount		Ratio
Total Risk-Based Capital (to Risk-Weighted Assets)		8.00	%		10.00	%	$	49,435		11.45	%
Tier I Risk-Based Capital (to Risk-Weighted Assets)		4.00	%		6.00	%		44,860		10.38	%
Tier I  Capital (to Adjusted Total Assets)		4.00	%		5.00	%		44,860		7.76	%
Tangible Equity Capital (to Tangible Assets)		1.50	%		2.00	%		44,860		7.76	%

Off-Balance Sheet Arrangements

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements.  These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risks.  Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, unused lines of credit, amounts due on construction loans, amounts due on commercial loans, commercial letters of credit and commitments to sell loans.

For the nine months ended September 30, 2010, the Company did not engage in any off-balance-sheet transactions reasonably likely to have a material effect on its financial condition, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Qualitative Aspects of Market Risk.The Company’s most significant form of market risk is interest rate risk.  The Company manages the interest rate sensitivity of its interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment.  Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturities of deposits.  As a result, sharp increases in interest rates may adversely affect the Company’s earnings while decreases in interest rates may beneficially affect the Company’s earnings.  To re duce the potential volatility of the Company’s earnings, the Company has sought to improve the match between assets and liability maturities (or rate adjustment periods), while maintaining an acceptable interest rate spread, by originating adjustable-rate mortgage loans for retention in the loan portfolio, variable-rate home equity lines and variable-rate commercial loans and by purchasing variable-rate investments and investments with expected maturities of less than 10 years.  The Company currently does not

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participate in hedging programs, interest rate swaps or other activities involving the use of off-balance sheet derivative financial instruments.

The Bank’s Asset/Liability Committee communicates, coordinates and controls all aspects of asset/liability management.  The committee establishes and monitors the volume and mix of assets and funding sources with the objective of managing assets and funding sources.

Quantitative Aspects of Market Risk.  The Bank uses an interest rate sensitivity analysis prepared by the OTS to review its level of interest rate risk.  This analysis measures interest rate risk by computing changes in net portfolio value of the Bank’s cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates.  Net portfolio value represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items.  This analysis assesses the risk of loss in market risk sensitive instruments in the event of a sudden and sustained 50 to 300 basis point increase or 50 to 10 0 basis point decrease in market interest rates with no effect given to any steps that we might take to counter the effect of that interest rate movement.  The Bank measures interest rate risk by modeling the changes in net portfolio value over a variety of interest rate scenarios.  The following table, which is based on information that the Bank provides to the OTS, presents the change in the Bank’s net portfolio value at June 30, 2010 (the most current information available) that would occur in the event of an immediate change in interest rates based on OTS assumptions, with no effect given to any steps that the Bank might take to counteract that change.

									Net Portfolio Value as % of
Basis Point ("bp")	Net Portfolio Value								Present Value of Assets
Change in Rates	$ Amount		$ Change			% Change			NPV Ratio			Change
	(Dollars in thousands)
300 bp	$	45,374	$	(16,320	)		(26	) %		8.10	%		(2.33	) %
200		53,212		(8,482	)		(14	) %		9.29	%		(1.14	) %
100		59,541		(2,153	)		(3	) %		10.19	%		(0.24	) %
50		61,307		(387	)		(1	) %		10.42	%		(0.01	) %
0		61,694		-			-			10.43	%		-
(50)		60,956		(738	)		(1	) %		10.27	%		(0.16	) %
(100)		59,461		(2,233	)		(4	) %		10.01	%		(0.42	) %

The OTS uses certain assumptions in assessing the interest rate risk of savings associations.  These assumptions relate to interest rates, loan prepayment rates, deposit decay rates, and the market values of certain assets under differing interest rate scenarios, among others.  As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table.  For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates.  Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates .  Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset.  Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table.

Item 4. Controls and Procedures.

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures”, as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”).  Based upon that evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, proces sed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

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There were no changes in the Company’s internal control over financial reporting during the three months ended September 30, 2010 that have materially affected, or are reasonable 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.  The Bank 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 its financial condition and results of operations.

Item 1A. – Risk Factors.

Recently enacted regulatory reform may have a material impact on our operations.

On July 21, 2010, the President signed into law The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).  The Dodd-Frank Act restructures the regulation of depository institutions.  Under the Dodd-Frank Act, the Office of Thrift Supervision will be merged into the Office of the Comptroller of the Currency, which regulates national banks.  Savings and loan holding companies will be regulated by the Federal Reserve Board.  The Dodd-Frank Act contains various provisions designed to enhance the regulation of depository institutions and prevent the recurrence of a financial crisis such as occurred in 2008-2009.  Also included is the creation of a new federal agency to administer and enforce consumer and fair lending laws, a function that is now performed by the depository institution regulators.  The federal preemption of state laws currently accorded federally chartered depository institutions will be reduced as well.  The Dodd-Frank Act also will impose consolidated capital requirements on savings and loan holding companies effective in five years, which will limit our ability to borrow at the holding company and invest the proceeds from such borrowings as capital in the Bank that could be leveraged to support additional growth.  The full impact of the Dodd-Frank Act on our business and operations will not be known for years until regulations implementing the statute are written and adopted.  The Dodd-Frank Act may have a material impact on our operations, particularly through increased compliance costs resulting from possible future consumer and fair lending regulations.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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

The following table sets forth information regarding the Company’s repurchases of its common stock for the quarter ended September 30, 2010.

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					Total Number of		Maximum Number
					Shares Purchased as		of Shares that May
	Total Number		Average Price		Part of Publicly		Yet Be Purchased
	of Shares		Paid		Announced Plans		Under the Plans
Period	Purchased (1)		per Share		or Programs		or Programs
July		3,836	$	6.00		-		159,676
August		-	$	-		-		159,676
September		-	$	-		-		159,676
Total		3,836	$	6.00		-		159,676

(1)  Included the withholding of 3,836 shares at $6.00 per share subject to restricted stock awards under the Naugatuck Valley Financial Corporation 2005 Equity Incentive Plan as payment of taxes due upon the vesting of the restricted stock awards.

The Company announced on February 19, 2008, that the Board of Directors authorized the Company to repurchase up to 361,207 shares, or approximately 5%, of the outstanding shares including shares held by Naugatuck Valley Mutual Holding Company.  The repurchases will be conducted through open-market purchases or privately negotiated transactions and will be made from time to time depending on market conditions and other factors.  No time limit was placed on the duration of the share repurchase program.  Any repurchased shares will be held as treasury stock and will be available for general corporate purposes.

Item 3. – Defaults Upon Senior Securities.  Not applicable

Item 4. – (Removed and Reserved)

Item 5. – Other Information.  Not applicable

Item 6. – Exhibits.

Exhibits –
2.1	First Amendment to Agreement and Plan of Merger (1)
2.2	Mutual Termination Agreement by and among Naugatuck Valley Financial Corporation, a federal chartered subsidiary holding company, Naugatuck Valley Financial Corporation, a Maryland corporation, and Southern Connecticut Bancorp, Inc., a Connecticut corporation, dated November 12, 2010 (2)
3.1	Charter of Naugatuck Valley Financial Corporation (3)
3.2	Bylaws of Naugatuck Valley Financial Corporation (4)
4.1	Specimen Stock Certificate of Naugatuck Valley Financial Corporation (5)
31.1	Rule 13a-14(a)/15d-14(a) Certification.
31.2	Rule 13a-14(a)/15d-14(a) Certification.
32	Section 1350 Certifications.

____________________

(1) Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on September 17, 2010.

(2) Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on November 15, 2010.

(3)  Incorporated by reference to the Exhibits to the Company’s Form 10-Q for the three months ended September 30, 2004.

(4)  Incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on October 18, 2007.

(5)  Incorporated herein by reference to the Exhibits to the Company’s Registration Statement on Form S-1, as amended, initially filed on June 18, 2004.

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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.

Naugatuck Valley Financial Corporation

Date: November 15, 2010	by:	/s/ John C. Roman
		John C. Roman
		President and Chief Executive Officer
		(principal executive officer)
Date: November 15, 2010	by:	/s/ Lee R. Schlesinger
		Lee R. Schlesinger
		Senior Vice President and Chief Financial Officer
		(principal financial officer)

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