New England Bancshares 10-Q 2011 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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 EXCHANGE ACT OF 1934

For the transition period from __________________ to _________________

Commission File Number 0-51589

NEW ENGLAND BANCSHARES, INC.

(Exact name of small business issuer as specified in its charter)

Maryland	04-3693643
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

855 Enfield Street, Enfield, Connecticut	06082
(Address of principal executive offices)	(Zip Code)

 (860) 253-5200

(Issuer’s telephone number)

 Not Applicable

(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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yeso    No o

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

Large accelerated filer o        Accelerated filer o        Non-accelerated filer o        Smaller Reporting Companyx

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o Nox

The Issuer had 6,162,589 shares of common stock, par value $0.01 per share, outstanding as of November 8, 2010.

NEW ENGLAND BANCSHARES, INC.

FORM 10-Q

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at September 30, 2010 (Unaudited) and March 31, 2010	1
	Condensed Consolidated Statements of Income for the Three and Six Months Ended September 30, 2010 and 2009 (Unaudited)	2
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2010 and 2009 (Unaudited)	3
	Notes to Condensed Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures.	21
PART II:	OTHER INFORMATION
Item 1.	Legal Proceedings	21
Item 1A	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	24
Item 4.	(Removed and Reserved)	24
Item 5.	Other Information	24
Item 6.	Exhibits	24
SIGNATURES		24

Part I. FINANCIAL INFORMATION

Item 1.   Financial Statements.

NEW ENGLAND BANCSHARES, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets

(Dollars in thousands)

	September 30, 2010			March 31, 2010
ASSETS	(Unaudited)
Cash and due from banks	$	8,176		$	9,984
Interest-bearing demand deposits with other banks		51,966			28,998
Money market mutual funds		63			---
Total cash and cash equivalents		60,205			38,982
Interest-bearing time deposits with other banks		99			99
Investments in available-for-sale securities, at fair value		59,086			63,979
Federal Home Loan Bank stock, at cost		4,396			4,396
Loans, net of allowance for loan losses of $5,413 as of September 30, 2010
and $4,625 as of March 31, 2010		514,052			515,504
Loans held for sale		1,785			---
Premises and equipment, net		6,535			6,916
Other real estate owned		1,700			2,846
Accrued interest receivable		2,606			2,768
Deferred income taxes, net		4,296			4,296
Cash surrender value of life insurance		9,841			9,586
Identifiable intangible assets		1,488			1,704
Goodwill		16,783			16,783
Other assets		8,126			7,200
Total assets	$	690,998		$	675,059
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	52,945		$	53,091
Interest-bearing		481,226			464,481
Total deposits		534,171			517,572
Advanced payments by borrowers for taxes and insurance		988			1,171
Federal Home Loan Bank advances		49,261			56,860
Subordinated debentures		3,914			3,910
Securities sold under agreements to repurchase		28,669			23,460
Other liabilities		4,294			4,179
Total liabilities		621,297			607,152
Stockholders’ Equity:
Preferred stock, par value $.01 per share: 1,000,000 shares authorized
none issued		---			---
Common stock, par value $.01 per share: 19,000,000 shares authorized
6,938,087 shares issued at September 30, 2010
and March 31, 2010		69			69
Paid-in capital		59,843			59,786
Retained earnings		18,822			17,530
Unearned ESOP shares, 215,399 shares at September 30, 2010 and
March 31, 2010		(1,952	)		(1,952	)
Treasury stock, 769,898 shares at September 30, 2010 and 763,798
shares at March 31, 2010		(7,348	)		(7,302	)
Unearned shares, stock-based plans, 35,985 shares at September 30, 2010
and March 31, 2010		(454	)		(522	)
Accumulated other comprehensive income		721			298
Total stockholders’ equity		69,701			67,907
Total liabilities and stockholders’ equity	$	690,998		$	675,059

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

NEW ENGLAND BANCSHARES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Income

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended September 30,					Six Months Ended  September 30,
	2010		2009			2010		2009
Interest and dividend income:
Interest on loans	$	7,727	$	7,365		$	15,440	$	13,873
Interest and dividends on securities:
Taxable		452		641			997		1,313
Tax-exempt		183		143			334		299
Interest on federal funds sold, interest-bearing deposits and
dividends on money market mutual funds		37		155			59		200
Total interest and dividend income		8,399		8,304			16,830		15,685
Interest expense:
Interest on deposits		2,228		2,835			4,439		5,527
Interest on advanced payments by borrowers for
taxes and insurance		2		3			7		7
Interest on Federal Home Loan Bank advances		545		681			1,102		1,370
Interest on subordinated debentures		50		68			118		137
Interest on securities sold under agreements to repurchase		68		52			137		96
Total interest expense		2,893		3,639			5,803		7,137
Net interest and dividend income		5,506		4,665			11,027		8,548
Provision for loan losses		648		704			1,307		1,384
Net interest and dividend income after provision for loan losses		4,858		3,961			9,720		7,164
Noninterest income:
Service charges on deposit accounts		352		345			697		599
Gain on securities, net		161		40			209		99
Gain on sale of loans		217		3			217		8
Increase in cash surrender value of life insurance policies		95		99			184		183
Impairment loss on securities (includes total losses of $24 and $41, net
of $0 and $0 recognized in other comprehensive income, pretax)		---		(24	)		---		(41	)
Other income		197		148			275		449
Total noninterest income		1,022		611			1,582		1,297
Noninterest expense:
Salaries and employee benefits		2,088		1,927			4,197		3,785
Occupancy and equipment expense		835		836			1,656		1,554
Advertising and promotion		67		28			166		66
Professional fees		147		212			289		510
Data processing expense		174		183			335		333
FDIC insurance assessment		227		205			446		745
Stationery and supplies		33		98			107		133
Amortization of identifiable intangible assets		105		115			216		238
Other real estate owned		325		43			411		51
Other expense		550		540			1,074		1,065
Total noninterest expense		4,551		4,187			8,897		8,480
Income (loss) before income taxes		1,329		385			2,405		(19	)
Income tax expense (benefit)		480		84			875		(139	)
Net income	$	849	$	301		$	1,530	$	120
Earnings per share:
Basic	$	0.14	$	0.05		$	0.26	$	0.02
Diluted		0.14		0.05			0.26		0.02
Dividends per share		0.02		0.02			0.04		0.04

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

NEW ENGLAND BANCSHARES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Six Months Ended September 30,
	2010			2009
Cash flows from operating activities:
Net income	$	1,530		$	120
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Net amortization of fair value adjustments		(290	)		26
Accretion of securities, net		(60	)		(55	)
Gain on sales and calls of investments, net.		(209	)		(99	)
Writedown of available-for-sale securities.		---			41
Writedown of other real estate owned.		308			---
Provision for loan losses		1,307			1,384
Gain on sale of loans, net		(217	)		(8	)
Gain on sale of other real estate owned		(61	)		---
Change in deferred loan origination costs, net		(119	)		(61	)
Depreciation and amortization		446			464
Decrease (increase) in accrued interest receivable		196			(10	)
Deferred income tax (benefit) expense		(267	)		269
Increase in cash surrender value of life insurance policies		(183	)		(183	)
Decrease (increase) in prepaid expenses and other assets		1,978			(468	)
Amortization of identifiable intangible assets		216			238
Increase (decrease) in accrued expenses and other liabilities		115			(64	)
Undistributed net loss of subsidiary		40			---
Compensation cost for stock option plan		57			63
Compensation cost for stock-based incentive plan		68			68
Net cash provided by operating activities		4,855			1,725
Cash flows from investing activities:
Purchases of available-for-sale securities		(22,254	)		(19,303	)
Proceeds from sales of available-for-sale securities		9,669			13,199
Proceeds from maturities of available-for-sale securities		16,787			17,094
Purchases of Federal Home Loan Bank stock		---			(35	)
Purchases of interest-bearing time deposits with other banks		---			(1,500	)
Cash and cash equivalents acquired from Apple Valley Bank & Trust,
net of cash paid to shareholders		---			10,289
Proceeds from sale of other real estate owned		481			402
Loan originations and principal collections, net		463			(1,344	)
Purchases of loans		(8,346	)		(17,256	)
Proceeds from sale of loans		5,710			---
Investment in cash surrender value of life insurance		(71	)		---
Capital expenditures - premises and equipment		(68	)		(174	)
Net cash provided by investing activities		2,371			1,372

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

NEW ENGLAND BANCSHARES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

(continued)

	Six Months Ended September 30,
	2010			2009
Cash flows from financing activities:
Net increase in demand, NOW, MMDA and savings accounts		15,760			23,693
Net increase (decrease) in time deposits		1,092			(602	)
Net decrease in advanced payments by borrowers for taxes and insurance…		(183	)		(335	)
Principal payments on Federal Home Loan Bank long-term advances		(7,597	)		(5,608	)
Net increase in securities sold under agreement to repurchase		5,209			3,201
Purchase of treasury stock		(46	)		(61	)
Payments of cash dividends on common stock		(238	)		(234	)
Net cash provided by financing activities		13,997			20,054
Net increase in cash and cash equivalents		21,223			23,151
Cash and cash equivalents at beginning of period		38,982			41,433
Cash and cash equivalents at end of period	$	60,205		$	64,584
Supplemental disclosures:
Interest paid	$	5,517		$	7,081
Income taxes paid (received)		363			(109	)
Increase in due from broker		1,285			---
Decrease in due to broker		---			715
Loan transferred to other real estate owned		830			923
Other real estate owned transferred to other assets		1,248			---
Acquisition of Apple Valley Bank & Trust:
Assets acquired
Cash and cash equivalents	$	---		$	13,220
Investments in available-for-sale securities		---			3,004
Federal Home Loan Bank stock, at cost		---			465
Loans, net of allowance for loan losses		---			60,233
Premises and equipment, net		---			1,881
Other real estate owned		---			260
Accrued interest receivable		---			239
Deferred income taxes, net		---			1,968
Other assets		---			77
Total assets acquired		---			81,347
Liabilities assumed
Deposits		---			76,380
Advanced payments by borrowers for taxes and insurance		---			380
Other liabilities		---			403
Total liabilities assumed		---			77,163
Net assets acquired		---			4,184
Acquisition costs		---			6,112
Goodwill	$	---		$	1,928

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

NEW ENGLAND BANCSHARES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 – Nature of Operations

On September 7, 2005, NEBS Bancshares, Inc. (the “Company”) was incorporated under Maryland law to facilitate the conversion of Enfield Federal Savings and Loan Association (the “Association”) from the mutual holding company form of organization to the stock form of organization (the “second-step conversion”).  As a result of the second-step conversion, NEBS Bancshares, Inc. became the holding company for the Association and was immediately renamed New England Bancshares, Inc.  A total of 3,075,855 shares of common stock were sold in the stock offering at the price of $10.00 per share. In addition, a total of 2,270,728 shares were issued to the minority shareholders of the former New England Bancshares at an exchange ratio of 2.3683. Total shares outstanding after the stock offer ing and the exchange totaled 5,346,583 shares.  The second-step conversion was accounted for as a change in corporate form with no resulting change in the historical basis of the former New England Bancshares' assets, liabilities and equity. Direct offering costs totaling $1.1 million were deducted from the proceeds of the shares sold in the offering.  Net proceeds of $27.2 million were raised in the stock offering, excluding $2.5 million which was loaned by the Company to a trust for the Employee Stock Ownership Plan (ESOP) enabling it to purchase 246,068 shares of common stock in the stock offering. In addition, as part of the second-step conversion and dissolution of Enfield Federal Mutual Holding Company, the former mutual holding company parent of the Company, and the former New England Bancshares, the Association received $901,000 of cash previously held by these entities.

As a result of the second-step conversion, all share and per share amounts have been restated giving retroactive recognition to the second-step exchange ratio of 2.3683. Options granted under the Company's 2003 Stock-Based Incentive Plan and common shares held by the Association's ESOP and shares of restricted stock before the second-step conversion were also exchanged using the conversion ratio of 2.3683.

On July 12, 2007, the Company acquired First Valley Bancorp, Inc., Bristol, Connecticut.  First Valley Bancorp was the holding company for Valley Bank, Bristol, Connecticut, a Connecticut commercial bank.  Under the terms of the transaction, shareholders of First Valley Bancorp received 0.8907 shares of Company common stock and $9.00 in cash for each share of First Valley Bancorp common stock for a total of 1,068,625 shares and $10.8 million.  In addition, the Company incurred cash payments for transaction expenses, payout of stock options and employee expenses totaling $2.4 million, creating $13.6 million of goodwill.

On May 1, 2009, the Company merged the Association with and into Valley Bank, and renamed the surviving Connecticut commercial bank “New England Bank.” The Company retained the name of each bank at their respective branches and operates the branches as divisions of New England Bank (the “Bank”).  The subsidiary merger was designed to improve the efficiencies of the Company by eliminating the additional regulatory and administrative costs of maintaining two separately chartered banking subsidiaries with similar products, services and operations. The consolidation allows the Company to reduce its operating expenses while maintaining the financial products and services offered by both banks. The combined structure also assists the combined bank in offering a higher level of customer service.

5

On June 8, 2009 the Company acquired Apple Valley Bank & Trust Company (“Apple Valley Bank”) Cheshire, Connecticut, a Connecticut commercial bank.  As part of the acquisition, Apple Valley Bank was merged with and into New England Bank.  Under the terms of the transaction, shareholders of Apple Valley Bank were entitled to elect to receive either one share of New England Bancshares common stock or $8.50 in cash for each share of Apple Valley Bank common stock, subject to an aggregate allocation of 60% stock and 40% cash.  Based upon the $8.50 per share price at January 14, 2009, the consideration was approximately 119% of Apple Valley Bank’s tangible book value and represented a 2% franchise premium to core deposits.

New England Bank is a state chartered commercial bank that commenced operations on November 15, 1999.  The Bank is engaged principally in the business of attracting deposits from the general public and investing those deposits in small business, commercial real estate, residential real estate and consumer loans.  The Bank operates from fifteen locations in Connecticut.

NOTE 2 – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and the instructions to Form 10-Q, and accordingly do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments necessary, consisting of only normal recurring accruals, to present fairly the financial position, results of operations and cash flows of the Company for the periods presented.  In preparing the interim 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 revenues and expenses for the period.  Actual results could differ significantly from those estimates.  The interim results of operations presented are not necessarily indicative of the operating results to be expected for the year ending March 31, 2011 or any interim period.

While management believes that the disclosures presented are adequate so as not to make the information misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes included in the Company’s Form 10-K for the year ended March 31, 2010.

The condensed consolidated balance sheet as of March 31, 2010 was derived from the Company’s audited financial statements, but does not include all the disclosures required by accounting principles generally accepted in the United States of America.

NOTE 3 – Earnings per Share (EPS)

Basic EPS is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period.  Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.  As of September 30, 2010, 158,664 and 156,664 shares were anti-dilutive for the three and six months periods, respectively.  As of September 30, 2009, 336,416 and 331,416 shares were anti-dilutive for the three and six month periods, respectively.

6

Anti-dilutive shares are stock options with exercise prices in excess of the weighted-average market value for the same period and are not included in the determination of diluted earnings per share.  Unallocated common shares held by the Bank’s employee stock ownership plan are not included in the weighted-average number of common shares outstanding for purposes of calculating both basic and diluted EPS.

	Income (Numerator)			Shares (Denominator)		Per-Share Amount
	(In Thousands)
Three Months ended September 30, 2010
Basic EPS
Net income	$	849			---
Dividends and undistributed earnings allocated
to unvested shares		(3	)		---
Net income and income available to common stockholders		846			5,911,312	$	0.14
Effect of dilutive securities options		---			21,962
Diluted EPS
Income available to common stockholders and
assumed conversions	$	846			5,933,274	$	0.14
Six Months ended September 30, 2010
Basic EPS
Net income	$	1,530			---
Dividends and undistributed earnings allocated
to unvested shares		(5	)		---
Net income and income available to common stockholders		1,525			5,911,317	$	0.26
Effect of dilutive securities options		---			29,910
Diluted EPS
Income available to common stockholders and
assumed conversions	$	1,525			5,941,227	$	0.26
Three Months ended September 30, 2009
Basic EPS
Net income	$	301			---
Dividends and undistributed eanings allocated
to unvested shares		(2	)		---
Net income and income available to common stockholders		299			6,086,699	$	0.05
Effect of dilutive securities options		---			---
Diluted EPS
Income available to common stockholders and
assumed conversions	$	299			6,086,699	$	0.05
Six Months ended September 30, 2009
Basic EPS
Net income	$	120			---
Dividends and undistributed income allocated
to unvested shares		(1	)		---
Net income and income available to common stockholders		119			5,893,344	$	0.02
Effect of dilutive securities options		---			---
Diluted EPS
Income available to common stockholders and
assumed conversions	$	119			5,893,344	$	0.02

NOTE 4 – Recent Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets,” and SFAS No. 167, “Amendments to FASB Interpretation No. 46(R).”  These standards

7

are effective for the first interim reporting period of fiscal year 2011.  SFAS No. 166 amends the guidance in ASC 860 to eliminate the concept of a qualifying special-purpose entity (“QSPE”) and changes some of the requirements for derecognizing financial assets. SFAS No. 167 amends the consolidation guidance in ASC 810-10.  Specifically, the amendments will (a) eliminate the exemption for QSPEs from the new guidance, (b) shift the determination of which enterprise should consolidate a variable interest entity (“VIE”) to a current control approach, such that an entity that has both the power to make decisions and right to receive benefits or absorb losses that could potentially be significant, will consolidate a VIE, and (c) change when it is necessary to reassess who should consolidate a VIE.  The adoption had no impact on the Company’s financial statements.

In January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair Value Measurements.”  The ASU requires disclosing the amounts of significant transfers in and out of Level 1 and 2 of the fair value hierarchy and describing the reasons for the transfers.  The disclosures are effective for reporting periods beginning after December 15, 2009.  The Company adopted ASU 2010-06 as of April 1, 2010.  Additionally, disclosures of the gross purchases, sales, issuances and settlements activity in the Level 3 of the fair value measurement hierarchy will be required for fiscal years beginning after December 15, 2010.

In March 2010, the FASB issued ASU 2010-11, “Scope Exception Related to Embedded Credit Derivatives.”  The ASU clarifies that certain embedded derivatives, such as those contained in certain securitizations, CDOs and structured notes, should be considered embedded credit derivatives subject to potential bifurcation and separate fair value accounting.  The ASU allows any beneficial interest issued by a securitization vehicle to be accounted for under the fair value option at transition.  At transition, the Company may elect to reclassify various debt securities (on an instrument-by-instrument basis) from held-to-maturity (HTM) or available-for-sale (AFS) to trading.  The new rules are effective July 1, 2010.  The Company is currently analyzing the impact of the changes to determine the population of instruments that may be reclassified to trading upon adoption.

In April 2010, the FASB issued ASU 2010-18, “Effect of a Loan Modification When the Loan is Part of a Pool That is Accounted for as a Single Asset.” As a result of this ASU, modifications of loans that are accounted for within a pool under Subtopic 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. The amendments in this ASU are effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The amendments are to be applied prospectively. Early ap plication is permitted.

In July 2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” This ASU is created to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. This ASU is intended to provide additional information to assist financial statement users in assessing the entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. The amendments in this ASU are effective as of the end of a reporting period for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010.

8

NOTE 5 – Stock-Based Incentive Plan

At September 30, 2010, the Company maintained a stock-based incentive plan and an equity incentive plan.  For the six months ended September 30, 2010 and 2009, compensation cost for the Company’s stock plans was measured at the grant date based on the value of the award and was recognized over the service period, which was the vesting period.  The compensation cost that has been charged against income in the six months ended September 30, 2010 and 2009 for the granting of stock options under the plans was $57,000 and $63,000, respectively.  During the six months ended September 30, 2010, the Company granted 6,000 stock options.

The compensation cost that has been charged against income for the granting of restricted stock awards under the plan for the six months ended September 30, 2010 and 2009 was $68,000 and $68,000.

NOTE 6 – Allowance for Loan Losses and Impaired Assets

Management determines the adequacy of the allowance for loan losses on a regular basis.  The determination is based upon management’s assessment of the credit quality and composition of the loan portfolio, previous loss experience, current economic conditions and their effect on borrowers and the market area in general, and the performance of individual credits in relation to the contract terms.

The Company’s methodology for assessing the appropriateness of the allowance for loan losses consists of specific allowances for identified problem loans and a general valuation allowance on the remainder of the loan portfolio.  Although we determine the amount of each element of the allowance separately, the entire allowance for loan losses is available for the entire portfolio.

There have been no significant changes in the Company’s methodology for evaluating the allowance for loan losses from that discussed in the section captioned “Critical Accounting Policies -- Loan Loss Allowance” in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2010.

Provisions for loan losses are charges to earnings to bring the total allowance for loan losses to a level considered by management as adequate to provide for estimated loan losses based on management’s evaluation of the collectibility of the loan portfolio.  While management believes that, based on information currently available, the Company’s allowance for loan losses is sufficient to cover losses inherent in its loan portfolio at this time, no assurances can be given that the Company’s level of allowance for loan losses will be sufficient to cover actual loan losses incurred by the Company or that future adjustments to the allowance for loan losses will not be necessary if economic and other conditions differ substantially from the economic and other conditions used by management to determine the c urrent level of the allowance for loan losses.  In addition, regulators as an integral part of its examination process, periodically review the Company’s allowance for loan losses and may require the Company to provide additions to the allowance based upon judgments different from management.

Activity in the allowance for loan losses for the six months ended September 30, 2010 is summarized below:

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	Total
	(In thousands)
Balance at March 31, 2010	$	4,625
Provision for loan losses		1,307
Charge-offs		(542	)
Recoveries		23
Balance at September 30, 2010	$	5,413

The following table indicates our nonperforming assets and the relationship between the allowance for loan losses, total loans outstanding and nonperforming loans at the dates indicated.

	September 30, 2010			March 31, 2010
	(Dollars in thousands)
Allowance for loan losses	$	5,413		$	4,625
Gross loans outstanding		519,474			519,939
Nonaccrual loans:
Residential mortgage loans	$	5,644		$	3,221
Commercial mortgage loans		2,597			2,303
Construction mortgage loans		829			361
Commercial business loans		1,499			3,064
Consumer loans		43			46
Total nonaccrual loans		10,612			8,995
Other real estate owned		2,948			2,846
Other repossessed assets		---			173
Total nonperforming assets	$	13,560		$	12,014
Allowance/Loans outstanding		1.04	%		0.89	%
Allowance/Nonperforming loans		51.01	%		51.42	%
Allowance/Nonperforming assets		39.92	%		38.50	%

The $10.6 million balance of nonaccrual loans at September 30, 2010 was comprised of sixty seven loans – thirty four residential real estate loans, thirteen commercial loans, fifteen commercial real estate loans, three consumer loans and two construction loans.  The sixty one nonaccrual loans at March 31, 2010 were comprised of twenty two residential real estate loans, twenty one commercial loans, ten commercial real estate loans, seven consumer loans and one construction loans.  Other real estate owned at September 30, 2010 consisted of four commercial real estate properties and three residential properties compared to four commercial real estate properties and two residential properties at March 31, 2010.  Included in the $2.9 million balance of other real estate owned balance at September 30 , 2010 is a commercial property owned by a limited liability corporation in which the Company is a 60% owner.  The Company’s investment in the limited liability company totaled $1.3 million which is included in other assets on the balance sheet.

The allowance for loan losses as a percentage of gross loans outstanding increased from 0.89% at March 31, 2010 to 1.04% at September 30, 2010.  The increase was caused primarily by the $788,000 increase in the allowance for loan losses.  For the six months ended September 30, 2010 the Company recorded $519,000 in net charge-offs.

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NOTE 7 – Other-Than-Temporary Impairment Losses

The following table summarizes gross unrealized losses and fair value, aggregated by investment category and length of time the investments have been in a continuous unrealized loss position, at September 30, 2010:

	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Debt securities issued by states of the United States and political subdivisions
of the states	$	2,809	$	27	$	3,927	$	194	$	6,736	$	221
Mortgage-backed securities		896		5		1,794		437		2,690		442
Total temporarily impaired securities	$	3,705	$	32	$	5,721	$	631	$	9,426	$	663

Management has assessed the securities which are classified as available-for-sale and in an unrealized loss position at September 30, 2010 and determined the decline in fair value below amortized cost to be temporary, except for those securities described below.  In making this determination management considered the period of time the securities were in a loss position, the percentage decline in comparison to the securities’ amortized cost, the financial condition of the issuer and the Company’s ability and intent to hold these securities until their fair value recovers to their amortized cost.  Management believes the decline in fair value is primarily related to the current interest rate environment and not to the credit deterioration of the individual issuer, except for those securities describ ed below.

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis and more frequently when economic or market conditions warrant such evaluation. The investment securities portfolio is generally evaluated for other-than-temporary impairment under ASC 320-10, “Investments – Debt and Equity Securities.”  However, certain purchased beneficial interests, including non-agency mortgage-backed securities and pooled trust preferred securities are evaluated using ASC 325-40, “Beneficial Interests in Securitized Financial Assets.”

For those debt securities for which the fair value of the security is less than its amortized cost and the Company does not intend to sell such security and it is more likely than not that it will not be required to sell such security prior to the recovery of its amortized cost basis less any credit losses, ASC 320-10 requires that the credit component of the other-than-temporary impairment losses be recognized in earnings while the noncredit component is recognized in other comprehensive loss, net of related taxes.

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Activity related to the credit component recognized in earnings on debt securities held by the Company for which a portion of other-than-temporary impairment was recognized in other comprehensive loss for the six months ended September 30, 2010 is as follows:

	Total
	(In Thousands)
Balance, April 1, 2010	$	63
Additions for the credit component on debt securities
in which other-than-temporary impairment was
not previously recognized		---
Balance, September 30, 2010	$	63

For the six months ended September 30, 2010, securities with other-than-temporary impairment losses related to credit that wererecognized in earnings consisted of non-agency mortgage-backed securities. In accordance with ASC 320-10, the Company estimated the portion of loss attributable to credit using a discounted cash flow model.  Significant inputs for the non-agency mortgage-backed securities included the estimated cash flows of the underlying collateral based on key assumptions, such as default rate, loss severity and prepayment rate. Assumptions used can vary widely from loan to loan, and are influenced by such factors as loan interest rate, geographical location of the borrower, borrower characteristics and collateral type.  The present value of the expected cash flows was compared to the Company’s holdings to determine the credit-related impairment loss.  Based on the expected cash flows derived from the model, the Company expects to recover the remaining unrealized losses on non-agency mortgage-backed securities.  Significant assumptions used in the valuation of non-agency mortgage-backed securities were as follows as of September 30, 2010:

	Weighted			Range
	Average			Minimum			Maximum
Prepayment rates		17.5	%		7.6	%		26.0	%
Default rates		3.5			1.0			8.8
Loss severity		43.8			25.0			72.0

NOTE 8 – Fair Value Measurement Disclosures

The following table presents the fair value disclosures of assets and liabilities in accordance with ASC 820-10 which became effective for the Company’s consolidated financial statements on April 1, 2008.  The fair value hierarchy established by this guidance is based on observable and unobservable inputs participants use to price an asset or liability.  ASC 820-10 has prioritized these inputs into the following fair value hierarchy:

            Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that are available at the measurement date.

            Level 2 Inputs – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.  These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

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Level 3 Inputs – Unobservable inputs for determining the fair value of the asset or liability and are based on the entity’s own assumptions about the assumptions that market participants would use to price the asset or liability.

The following summarizes assets measured at fair value on a recurring basis for the period ending September 30, 2010:

	Fair Value Measurements at Reporting Date Using:
	Total		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable  Inputs Level 2		Significant Unobservable  Inputs Level 3
	(in thousands)
Securities available-for-sale	$	59,086	$	2,554	$	56,532	$	---

Under certain circumstances we make adjustments to fair value for our assets and liabilities although they are not measured at fair value on an ongoing basis.  The following table presents the financial instruments carried on the consolidated balance sheet by caption and by level in the fair value hierarchy at September 30, 2010, for which a nonrecurring change in fair value has been recorded:

	Fair Value Measurements at Reporting Date Using:
	Total		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable  Inputs Level 3
	(in thousands)
Impaired loans	$	3,314	$	---	$	2,201	$	1,113
Other real estate owned		2,948		---		---		2,948
Total	$	6,262	$	---	$	2,201	$	4,061

Included in the $2.9 million balance of other real estate owned at September 30, 2010 is a commercial property owned by a limited liability corporation in which the Company is a 60% owner.

	Fair Value Measurements Using Significant Unobservable Inputs Level 3
	Impaired Loans  (in thousands)
Beginning balance March 31, 2010	$	1,282
Net transfers into Level 3		2,779
Ending balance, September 30, 2010	$	4,061

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The following are the carrying amounts and estimated fair values of the Company’s financial assets and liabilities:

	September 30, 2010				March 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	60,205	$	60,205	$	38,982	$	38,982
Interest-bearing time deposits with other banks		99		99		99		99
Available-for-sale securities		59,086		59,086		63,979		63,979
Federal Home Loan Bank stock		4,396		4,396		4,396		4,396
Loans, net		514,052		520,091		515,504		518,387
Loans held for sale		1,785		1,836		---		---
Accrued interest receivable		2,606		2,606		2,768		2,768
Financial liabilities:
Deposits		534,171		539,962		517,572		521,382
Advanced payments by borrowers for taxes and insurance		988		988		1,171		1,171
FHLB advances		49,261		51,564		56,860		59,041
Securities sold under agreements to repurchase		28,669		28,679		23,460		23,465
Subordinated debentures		3,914		1,353		3,910		1,390

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

The following analysis discusses changes in the financial condition and results of operations at and for the three and six months ended September 30, 2010 and 2009, and should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and the notes thereto, appearing in Part I, Item 1 of this document.

Forward-Looking Statements

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of these safe harbor provisions.  Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions.& #160; By identifying these forward-looking statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include, among others, those discussed under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K and Part II, Item 1A of this Report on Form 10-Q, as well as the following factors:  interest rates, general economic conditions, legislation and regulations, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial ser vices in the Company’s market area, accounting principles and guidelines, and our ability to recognize enhancements related to our acquisition within expected time frames.  These risks and

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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 and regulation, the Company does not undertake – and specifically disclaims any obligation – to publicly release the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Comparison of Financial Condition at September 30, 2010 and March 31, 2010

Assets

Total assets were $691.0 million at September 30, 2010, an increase of $15.9 million compared to $675.1 million at March 31, 2010. The increase in total assets was primarily due to the $21.2 million increase in cash and cash equivalents and a $1.8 million increase in loans held for sale, partially offset by a $4.9 million decrease in investments and a $1.5 million decrease in net loans.

Liabilities

Total liabilities were $621.3 million at September 30, 2010, an increase of $14.1 million compared to $607.2 million at March 31, 2010.  The increase in total liabilities was caused primarily by the $16.6 million increase in total deposits and the $5.2 million increase in repurchase agreements, partially offset by the $7.6 million decrease in FHLB advances.  At September 30, 2010, deposits are comprised of savings accounts totaling $72.0 million, money market deposit accounts totaling $104.3 million, demand and NOW accounts totaling $70.5 million, and certificates of deposits totaling $287.3 million.  The Company’s core deposits, all deposits except for certificates of deposits, increased to 46.2% of total deposits at September 30, 2010 from 44.6% at March 31, 2010.

Stockholders’ Equity

Total stockholders’ equity increased $1.8 million to $69.7 million at September 30, 2010 from $67.9 million at March 31, 2010.  The increase was primarily caused by net income of $1.5 million and an increase in accumulated other comprehensive income of $423,000, partially offset by dividends paid of $238,000.

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

General

The Company’s results of operations depend primarily on net interest and dividend income, which is the difference between the interest and dividend income earned on its interest-earning assets, such as loans and securities, and the interest expense on its interest-bearing liabilities, such as deposits and borrowings.  The Company also generates noninterest income, primarily from fees and service charges.  Gains on sales of securities and increases in cash surrender value of life insurance policies are additional sources of noninterest income.  The Company’s noninterest expense primarily consists of employee compensation and benefits, occupancy and equipment expense, advertising and promotion, data processing, professional fees and other operating expense.

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Net Income

For the three months ended September 30, 2010, the Company reported net income of $849,000, compared to $301,000 for the year ago period.  Basic and diluted income per share for the quarter ended September 30, 2010 were $0.14 each, compared to $0.05 each for the quarter ended September 30, 2009.

Net Interest and Dividend Income

Net interest and dividend income for the three months ended September 30, 2010 and 2009 totaled $5.5 million and $4.7 million, respectively.  The increase in net interest income caused the Company’s net interest margin to increase to 3.52% for the three months ended September 30, 2010 from 3.00% for the three months ended September 30, 2009.  The increase for the quarter was primarily due to a 53 basis point decrease in the rate paid on interest-bearing liabilities and an increase in average interest-earning assets of $9.9 million, partially offset by a $3.6 million increase in average interest-bearing liabilities.  The changes to the yield on average interest-earning assets and the rate paid on average interest-bearing liabilities caused the Company’s interest rate spread to increase fro m 2.74% for the quarter ended September 30, 2009 to 3.30% for the quarter ended September 30, 2010.

Interest and dividend income amounted to $8.4 million and $8.3 million for the three months ended September 30, 2010 and 2009, respectively.  Average interest-earning assets were $636.7 million for the quarter ended September 30, 2010; an increase of $9.9 million, or 1.6%, compared to $626.8 million for the quarter ended September 30, 2009.  The increase in average interest-earning assets was caused primarily by a $24.1 million increase in average net loans, partially offset by a $13.7 million decrease in federal funds sold.  The yield earned on average interest-earning assets decreased 4 basis points to 5.34% for the three months ended September 30, 2010 from 5.30% for the three months ended September 30, 2009.

Interest expense for the quarters ended September 30, 2010 and 2009 was $2.9 million and $3.6 million, respectively.  Average interest-bearing liabilities grew $3.6 million during the quarter ended September 30, 2010 from $562.9 million to $566.5 million primarily due to a $3.8 million increase in average interest-bearing deposits and an $11.8 million increase in average repurchase agreements, partially offset by a $12.1 million decrease in FHLB advances.  The average rate paid on interest-bearing liabilities decreased to 2.04% for the quarter ended September 30, 2010 from 2.57% for the year ago period, due primarily to the decrease in rates paid on certificates of deposit, money market deposit accounts and securities sold under agreements to repurchase.  The average rate paid on certificates of depo sit decreased from 2.96% for the quarter ended September 30, 2009 to 2.50% for the current year quarter as market rates have decreased for this type of deposit.

Provision for Loan Losses

The provision for loan losses for the quarters ended September 30, 2010 and 2009 were $648,000 and $704,000, respectively.  The additions to the allowance for loan losses reflected continued growth in the commercial loan portfolio and the challenging economic climate.

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Noninterest Income

For the quarter ended September 30, 2010, noninterest income was $1.0 million compared to $611,000 for the quarter ended September 30, 2009.  Affecting noninterest income for the three months ended September 30, 2010 were increases of $121,000 and $214,000 on gain on sale of securities and loans, respectively.

Noninterest Expense

Noninterest expense for the quarters ended September 30, 2010 and 2009 was $4.6 million and $4.2 million, respectively.  During the quarter ended September 30, 2010 the Company recorded a $282,000 increase in other real estate owned expense which included $308,000 in write-downs of other real estate owned.

Provision for Income Taxes

The Company recorded income tax expense of $480,000 and $84,000 for the quarters ended September 30, 2010 and 2009, respectively, with effective tax rates of 36.1% and 21.8%, respectively.

Comparison of Operating Results for the Six Months Ended September 30, 2010 and 2009

Net Income

For the six months ended September 30, 2010, the Company reported net income of $1.5 million, compared to $120,000 for the year ago period.  Basic and diluted income per share for the quarter ended September 30, 2010 were $0.26 each, compared to $0.02 each for the quarter ended September 30, 2009.

Net Interest and Dividend Income

Net interest and dividend income for the six months ended September 30, 2010 and 2009 totaled $11.0 million and $8.5 million, respectively.  The increase in net interest income caused the Company’s net interest margin to increase to 3.55% for the six months ended September 30, 2010 from 2.92% for the six months ended September 30, 2009.  The increase for the period was primarily due to a 62 basis point decrease in the rate paid on interest-bearing liabilities and an increase in average interest-earning assets of $39.9 million, partially offset by a $33.7 million increase in average interest-bearing liabilities.  The changes to the yield on average interest-earning assets and the rate paid on average interest-bearing liabilities caused the Company’s interest rate spread to increase from 2. 64% for the six months ended September 30, 2009 to 3.32% for the six months ended September 30, 2010.

Interest and dividend income amounted to $16.8 million and $15.7 million for the six months ended September 30, 2010 and 2009, respectively.  Average interest-earning assets were $630.4 million for the six months ended September 30, 2010; an increase of $40.0 million, or 6.8%, compared to $590.4 million for the six months ended September 30, 2009.  The increase in average interest-earning assets was caused primarily by a $58.2 million increase in average net loans, partially offset by a $16.8 million decrease in federal funds sold.  The yield earned on average interest-earning assets increased slightly to 5.38% for the six months ended September 30, 2010 from 5.32% for the six months ended September 30, 2009.

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Interest expense for the six months ended September 30, 2010 and 2009 was $5.8 million and $7.1 million, respectively.  Average interest-bearing liabilities grew $33.7 million during the six months ended September 30, 2010 from $528.3 million to $562.0 million primarily due to a $31.5 million increase in average interest-bearing deposits and a $14.0 million increase in average repurchase agreements, partially offset by a $12.0 million decrease in FHLB advances.  The average rate paid on interest-bearing liabilities decreased to 2.06% for the six months ended September 30, 2010 from 2.68% for the year ago period, due primarily to the decrease in rates paid on certificates of deposit, money market deposit accounts and securities sold under agreements to repurchase.
60; The average rate paid on certificates of deposit decreased from 3.14% for the six months ended September 30, 2009 to 2.51% for the current year period as market rates have decreased for this type of deposit.

Provision for Loan Losses

The provision for loan losses for the six months ended September 30, 2010 and 2009 were $1.3 million and $1.4 million, respectively.  The additions to the allowance for loan losses reflected the continued challenging economic climate.

Noninterest Income

For the six months ended September 30, 2010, noninterest income was $1.6 million compared to $1.3 million for the six months ended September 30, 2009.  Affecting noninterest income for the six months ended September 30, 2010 were increases of $110,000 and $209,000 on gain on sale of securities and loans, respectively.

Noninterest Expense

Noninterest expense for the six months ended September 30, 2010 and 2009 was $8.9 million and $8.5 million, respectively.  During the six months ended September 30, 2010 the Company recorded a $360,000 increase in other real estate owned expense which included $308,000 in write-downs of other real estate owned.

Provision for Income Taxes

The Company recorded income tax expense of $875,000 for the six months ended September 30, 2010 and an income tax benefit of $139,000 for the six months ended September 30, 2009.  The effective tax rate was 36.4% for the six months ended September 30, 2010.

Liquidity and Capital Resources

The term liquidity refers to the ability of the Company to meet current and future short-term financial obligations.  The Company further defines liquidity as the ability to generate adequate amounts of cash to fund loan originations, deposit withdrawals and operating expenses.  Liquidity management is both a daily and long-term function of business management.  The Bank’s primary sources of liquidity are deposits, scheduled amortization and prepayments of loan principal and mortgage-related securities, funds provided by operations and borrowings.  The Bank can borrow funds from the Federal Home Loan Bank based on eligible collateral of loans and

18

securities.  The Bank had Federal Home Loan Bank borrowings as of September 30, 2010 of $49.3 million, with unused borrowing capacity of $34.2 million.

The Company’s primary investing activities are the origination of loans and the purchase of mortgage and investment securities.  During the six months ended September 30, 2010 and 2009 the Company originated loans, net of principal paydowns, of approximately $463,000 and $(1.3 million), respectively. Purchases of investment securities totaled $22.3 million and $19.3 million for the six months ended September 30, 2010 and 2009, respectively.

Loan repayment and maturing investment securities are a relatively predictable source of funds.  However, deposit flows, calls of investment securities and prepayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and local economic conditions and competition in the marketplace.  These factors reduce the predictability of the timing of these sources of funds.  Total deposits were $534.2 million at September 30, 2010, a $16.6 million increase from the $517.6 million balance at March 31, 2010.

At September 30, 2010, the Company had outstanding commitments to originate $9.9 million of loans, and available home equity and unadvanced lines of credit and construction loans of approximately $37.6 million.  In addition, the Company had $2.6 million of commercial letters of credit.  Management of the Bank anticipates that the Bank will have sufficient funds to meet its current loan commitments.  Retail certificates of deposit scheduled to mature in one year or less totaled $136.3 million, or 25.5% of total deposits at September 30, 2010.  The Company relies on competitive rates, customer service and long-standing relationships with customers to retain deposits.  Based on the Company’s experience with deposit retention and current retention strategies, management believes that , although it is not possible to predict future terms and conditions upon renewal, a significant portion of such deposits will remain with the Company.

Management believes, as of September 30, 2010, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

(dollars in thousands)

				New England Bancshares, Inc.
	Required			Amount		Ratio
Tier 1 Capital		4	%	$	50,001	7.39		%
Total Risk-Based Capital		8	%	$	55,414		10.84	%
Tier 1 Risk-Based Capital		4	%	$	55,414		12.01	%

The Bank’s actual capital amounts and ratios as of September 30, 2010 are presented in the table.

	Actual					For Capital Adequacy Purposes			To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio	Amount		Ratio
(Dollar amounts in thousands)
Total Capital (to Risk Weighted Assets)	$	54,774		11.91	%	$	36,788	> 8.0%	$	45,985	> 10.0%
Tier 1 Capital (to Risk Weighted Assets)		49,361		10.73			18,394	> 4.0		27,591	> 6.0
Tier 1 Capital (to Average Assets)		49,361		7.32			26,976	> 4.0		33,720	> 5.0

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Management is not aware of any known trends, events or uncertainties that will have or are reasonably likely to have a material effect on the Company’s or the Bank’s liquidity, capital or operations, nor is management aware of any current recommendations by regulatory authorities which, if implemented, would have a material effect on the Company’s or the Bank’s liquidity, capital or operations.

Off-Balance Sheet Arrangements

In the normal course of operations, the Bank engages in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in its financial statements.  These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk.  Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, lines of credit and letters of credit.

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

Item 3.       Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk Management

The Bank 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 Bank’s earnings while decreases in interest rates may beneficially affect its earnings.  To reduce the potential volatility of its earnings, the Bank has sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread.  Also, the Bank attempts to manage its interest rate risk through: its investment por tfolio; an increased focus on commercial and multi-family and commercial real estate lending, which emphasizes the origination of shorter-term adjustable-rate loans; and efforts to originate adjustable-rate residential mortgage loans.  In addition, the Bank sells a portion of its originated long-term, fixed-rate one- to four-family residential loans in the secondary market.  The Bank currently does not participate in hedging programs, interest rate swaps or other activities involving the use of off-balance sheet derivative financial instruments.

The Bank has an Asset/Liability Committee, which includes members of both the board of directors and management, to communicate, coordinate and control all aspects involving asset/liability management.  The committees establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.

Net Interest Income Simulation Analysis

The Bank analyzes its interest rate sensitivity position to manage the risk associated with interest rate movements through the use of interest income simulation.  The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest

20

sensitive.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period.

The Bank’s goal is to manage asset and liability positions to moderate the effects of interest rate fluctuations on net interest income.  Interest income simulations are completed quarterly and presented to the Asset/Liability Committee.  The simulations provide an estimate of the impact of changes in interest rates on net interest income under a range of assumptions.  The numerous assumptions used in the simulation processes are reviewed by the Asset/Liability Committee on a quarterly basis.  Changes to these assumptions can significantly affect the results of the simulation.  The simulations incorporate assumptions regarding the potential timing in the repricing of certain assets and liabilities when market rates change and the changes in spreads between different market r ates.  The simulation analyses incorporate managements’ current assessment of the risk that pricing margins will change adversely over time due to competition or other factors.

   The simulation analyses are only an estimate of the Bank’s interest rate risk exposure at a particular point in time.  The Bank continually reviews the potential effect changes in interest rates could have on the repayment of rate sensitive assets and funding requirements of rate sensitive liabilities.

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 their 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 Com mission (the “SEC”) (1) is recorded, processed, 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 officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that has materially affected or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1.       Legal Proceedings.

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

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Item 1A.    Risk Factors.

The following risk factor represents a material update and addition to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2010 (“Form 10-K”).  The risk factor below should be read in conjunction with the risk factors and other information disclosed in our Form 10-K.  The risks described below and in our Form 10-K are not the only risks facing the Company.  Additional risks not presently known to the Company, or that we currently deem immaterial, may also adversely affect the Company’s business, financial condition or results of operations.

Financial reform legislation recently enacted will, among other things, create a new Consumer Financial Protection Bureau, tighten capital standards and result in new laws and regulations that are expected to increase our costs of operations.

On July 21, 2010 the President signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). This new law will significantly change the current bank regulatory structure and affect the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impacts of the Dodd-Frank Act may not be known for many months or years.

The Dodd-Frank Act creates a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks with more than $10 billion in assets. Banks with $10 billion or less in assets will continue to be examined for compliance with the consumer laws by their primary bank regulators. The Dodd-Frank Act also weakens the federal preemption rules that have been applicable for national banks and federal savings associations, and gives state attorn eys general the ability to enforce federal consumer protection laws.

The Dodd-Frank Act requires minimum leverage (Tier 1) and risk based capital requirements for bank and savings and loan holding companies that are no less than those applicable to banks, which will exclude certain instruments that previously have been eligible for inclusion by bank holding companies as Tier 1 capital.

The new law provides that the Office of Thrift Supervision will cease to exist one year from the date of the new law’s enactment. The Office of the Comptroller of the Currency, which is currently the primary federal regulator for national banks, will become the primary federal regulator for federal thrifts. The Board of Governors of the Federal Reserve System will supervise and regulate all savings and loan holding companies that were formerly regulated by the Office of Thrift Supervision.

Effective one year after the date of enactment is a provision of the Dodd-Frank Act that eliminates the federal prohibitions on paying interest on demand deposits, thus allowing businesses to have interest bearing checking accounts. Depending on competitive responses, this significant change to existing law could have an adverse impact on our interest expense.

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The Dodd-Frank Act also broadens the base for Federal Deposit Insurance Corporation deposit insurance assessments. Assessments will now be based on the average consolidated total assets less tangible equity capital of a financial institution, rather than deposits. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2009, and non-interest bearing transaction accounts have unlimited deposit insurance through December 31, 2012.  The legislation also increases the required minimum reserve ratio for the Deposit Insurance Fund, from 1.15% to 1.35% of insured deposits, and directs the FDIC to offset the effects of increased assessments on depository institutions with less than $10 billio n in assets.

The Dodd-Frank Act will require publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments, and by authorizing the Securities and Exchange Commission to promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy materials. The legislation also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded or not.

It is difficult to predict at this time what specific impact the Dodd-Frank Act and the yet to be written implementing rules and regulations will have on community banks. However, it is expected that at a minimum they will increase our operating and compliance costs and could increase our interest expense.

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

The Company repurchased 4,800 shares of its common stock in the quarter ended September 30, 2010 as follows:

For the three months ended September 30, 2010	Total shares repurchased		Average price paid per share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July		1,000	$	7.32		1,000		39,424
August		1,100		7.28		1,100		38,324
September		2,700		7.26		2,700		35,624
Total		4,800	$	7.28		4,800		35,624

On May 12, 2008, the Board of Directors approved a stock repurchase program, which authorized the repurchase of up to 304,924 shares of the Company’s outstanding shares of common stock.  Stock repurchases will be made from time to time and may be effected through open market purchases, block trades and in privately negotiated transactions.

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Item 3.      Defaults Upon Senior Securities.

None.

Item 4.      (Removed and Reserved)

Item 5.      Other Information.

None.

Item 6.  Exhibits.
3.1	Articles of Incorporation of New England Bancshares, Inc. (1)
3.2	Bylaws of New England Bancshares, Inc. (2)
4.1	Specimen stock certificate of New England Bancshares, Inc.(2)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer

_____________________________

(1) Incorporated by reference into this document from the Registration Statement on Form SB-2 (No. 333-128277) as filed on September 13, 2005.

(2) Incorporated by reference into this document from Exhibit 3.1 to the Form 8-K as filed with the Securities and Exchange Commission on October 11, 2007.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		NEW ENGLAND BANCSHARES, INC.
Dated:	November 10, 2010	By:	/s/ Scott D. Nogles
		Scott D. Nogles
		Chief Financial Officer
		(principal financial officer)
Dated:	November 10, 2010	By:	/s/ David J. O’Connor
		David J. O’Connor
		Chief Executive Officer

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