New England Bancshares 10-Q 2012 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2011

or

£ 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.

YesSNo£

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).

YesSNo£

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£Accelerated filer£Non-accelerated filer£Smaller Reporting CompanyS

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

The Issuer had 5,807,583 shares of common stock, par value $0.01 per share, outstanding as of February 10, 2012.

NEW ENGLAND BANCSHARES, INC.

FORM 10-Q

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at December 31, 2011 (Unaudited) and March 31, 2011	1
	Condensed Consolidated Statements of Income for the Three and Nine Months Ended December 31, 2011 and 2010 (Unaudited)	2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity at December 31, 2011 and 2010 (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2011 and 2010 (Unaudited)	4
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures.	30
PART II:	OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	(Removed and Reserved)	31
Item 5.	Other Information	31
Item 6.	Exhibits	32
SIGNATURES		33
EXHIBITS		34-37

Part I. FINANCIAL INFORMATION

Item 1.  Financial Statements. 

NEW ENGLAND BANCSHARES, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets

(In thousands, except share amounts)

	December 31, 2011			March 31, 2011
ASSETS	(Unaudited)
Cash and due from banks	$	7,773		$	8,738
Interest-bearing demand deposits with other banks		58,089			34,865
Money market mutual funds		—			9
Total cash and cash equivalents		65,862			43,612
Investments in available-for-sale securities, at fair value		59,481			59,268
Federal Home Loan Bank stock, at cost		4,396			4,396
Loans, net of allowance for loan losses of $5,578 as of December 31, 2011 and $5,686 as of March 31, 2011		548,132			526,595
Loans held for sale		308			—
Premises and equipment, net		6,308			6,245
Other real estate owned		1,559			1,496
Accrued interest receivable		2,357			2,451
Deferred income taxes, net		4,738			4,874
Cash surrender value of life insurance		10,286			10,023
Identifiable intangible assets		1,005			1,287
Goodwill		16,783			16,783
Other assets		3,387			5,014
Total assets	$	724,602		$	682,044
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	65,523		$	59,787
Interest-bearing		509,938			480,982
Total deposits		575,461			540,769
Advanced payments by borrowers for taxes and insurance		2,539			1,400
Federal Home Loan Bank advances		37,577			39,113
Subordinated debentures		3,925			3,918
Securities sold under agreements to repurchase		27,494			21,666
Other liabilities		4,267			4,487
Total liabilities		651,263			611,353
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; 6,945,591 shares issued at December 31, 2011 and 6,938,087 shares issued at March 31, 2011		69			69
Paid-in capital		60,003			59,876
Retained earnings		22,949			20,091
Unearned ESOP shares, 147,641 shares at December 31, 2011 and 181,515 at March 31, 2011		(1,476	)		(1,714	)
Treasury stock, 931,776 shares at December 31, 2011 and 781,411 March 31, 2011, at cost		(8,922	)		(7,431	)
Unearned shares, stock-based plans, no shares at December 31, 2011 and 35,984 shares at March 31, 2011		—			(386	)
Accumulated other comprehensive income		716			186
Total stockholders’ equity		73,339			70,691
Total liabilities and stockholders’ equity	$	724,602		$	682,044

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					Nine Months Ended
	December 31,					December 31,
	2011		2010			2011		2010
Interest and dividend income:
Interest on loans	$	7,647	$	7,553		$	22,744	$	22,993
Interest and dividends on securities:
Taxable		295		372			988		1,368
Tax-exempt		179		179			506		513
Interest on federal funds sold, interest-bearing deposits and dividends on money market mutual funds		49		40			125		100
Total interest and dividend income		8,170		8,144			24,363		24,974
Interest expense:
Interest on deposits		2,057		2,211			6,258		6,650
Interest on advanced payments by borrowers for taxes and insurance		4		4			12		11
Interest on Federal Home Loan Bank advances		311		413			946		1,515
Interest on subordinated debentures		26		25			76		143
Interest on securities sold under agreements to repurchase		60		68			156		205
Total interest expense		2,458		2,721			7,448		8,524
Net interest and dividend income		5,712		5,423			16,915		16,450
Provision for loan losses		362		359			1,237		1,666
Net interest and dividend income after provision for loan losses		5,350		5,064			15,678		14,784
Noninterest income:
Service charges on deposit accounts		346		321			1,031		1,018
Gain on sale of securities, net		64		50			211		259
Gain on sale of loans		35		80			164		297
Increase in cash surrender value of life insurance policies		86		89			263		273
Gain from legal settlement		1,283		—			1,283		—
Other income		83		6			274		281
Total noninterest income		1,897		546			3,226		2,128
Noninterest expense:
Salaries and employee benefits		2,136		2,071			6,654		6,268
Occupancy and equipment expense		807		829			2,431		2,485
Advertising and promotion		134		70	��		408		237
Professional fees		488		187			841		476
Data processing expense		177		166			525		501
FDIC insurance assessment		157		228			539		674
Stationery and supplies		40		46			136		153
Amortization of identifiable intangible assets		90		101			283		316
Write-down of other real estate owned		—		—			141		308
Other real estate owned		54		37			153		140
Other expense		501		469			1,464		1,543
Total noninterest expense		4,584		4,204			13,575		13,101
Income before income taxes		2,663		1,406			5,329		3,811
Income tax expense		982		496			1,937		1,371
Net income	$	1,681	$	910		$	3,392	$	2,440
Earnings per share:
Basic	$	0.29	$	0.15		$	0.57	$	0.41
Diluted	$	0.28	$	0.15		$	0.57	$	0.41
Dividends per share	$	0.03	$	0.03		$	0.09	$	0.07

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

2

NEW ENGLAND BANCSHARES, INC. AND SUBSIDIARY

Condensed Consolidated Statements Changes in Stockholders’ Equity

For the Nine Months Ended December 31, 2010 and 2011

(in thousands except for share amounts)

													Unearned
													Shares
													Stock-						Accumulated
										Unearned			Based						Other
	Common Stock				Paid-in			Retained			ESOP			Incentive			Treasury			Comprehensive
	Shares		Amount		Capital			Earnings			Shares			Plans			Stock			Income			Total
Balance, March 31, 2010	6,938,087	$	69	$	59,786		$	17,530		$	(1,952	)	$	(522	)	$	(7,302	)	$	298		$	67,907
ESOP shares released (33,892 shares)	—		—		3			—			238			—			—			—			241
Compensation cost for stock-based incentive plans	—		—		86			—			—			102			—			—			188
Dividends paid ($0.07 per share)	—		—		—			(416	)		—			—			—			—			(416	)
Treasury stock purchases (17,613 shares)	—		—		—			—			—			—			(129	)		—			(129	)
Comprehensive income:
Net income	—		—		—			2,440			—			—			—			—			2,440
Other comprehensive loss, net of tax effect	—		—		—			—			—			—			—			(494	)		(494	)
Total Comprehensive income	—		—		—			—			—			—			—			—			1,946
Balance, December 31, 2010	6,938,087	$	69	$	59,875		$	19,554		$	(1,714	)	$	(420	)	$	(7,431	)	$	(196	)	$	69,737
Balance, March 31, 2011	6,938,087	$	69	$	59,876		$	20,091		$	(1,714	)	$	(386	)	$	(7,431	)	$	186		$	70,691
Issuance of stock for option exercise	7,504		—		62			—			—			—			—			—			62
ESOP shares released (33,874 shares)	—		—		85			—			238			—			—			—			323
Compensation cost for stock-based incentive plans	—		—		74			—			—			57			—			—			131
Dividends paid ($0.09 per share)	—		—		—			(534	)		—			—			—			—			(534	)
Treasury stock purchases (125,018 shares)	—		—		—			—			—			—			(1,256	)		—			(1,256	)
Transfer of ungranted incentive stock to treasury stock (25,347 shares)	—		—		(94	)		—			—			329			(235	)		—			—
Comprehensive income:
Net income	—		—		—			3,392			—			—			—			—			3,392
Other comprehensive income, net of tax effect	—		—		—			—			—			—			—			530			530
Total Comprehensive income	—		—		—			—			—			—			—			—			3,922
Balance, December 31, 2011	6,945,591	$	69	$	60,003		$	22,949		$	(1,476	)	$	—		$	(8,922	)	$	716		$	73,339

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)

	Nine Months Ended
	December 31,
	2011			2010
Cash flows from operating activities:
Net income	$	3,392		$	2,440
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of fair value adjustments		79			(309	)
Accretion of securities, net		68			(45	)
Gain on sales and calls of investments, net		(211	)		(259	)
Writedown of other real estate owned		141			308
Provision for loan losses		1,237			1,666
Gain on sale of loans, net		(164	)		(297	)
Loans originated for sale		(3,872	)		(2,479	)
Proceeds from sale of loans for sale		3,641			2,562
Loss on sale of other real estate owned		15			9
Change in deferred loan origination costs, net		(204	)		(574	)
Depreciation and amortization		638			659
Decrease in accrued interest receivable		94			280
Deferred income tax benefit		(202	)		(264	)
Increase in cash surrender value of life insurance policies		(263	)		(273	)
Decrease in prepaid expenses and other assets		1,611			2,474
Amortization of identifiable intangible assets		282			316
Increase (decrease) in accrued expenses and other liabilities		114			(543	)
Undistributed net loss of subsidiary		—			52
ESOP shares released		323			241
Compensation cost for stock option plan		57			85
Compensation cost for stock-based incentive plan		74			102
Net cash provided by operating activities		6,850			6,151
Cash flows from investing activities:
Purchases of available-for-sale securities		(32,576	)		(32,136	)
Proceeds from sales of available-for-sale securities		18,968			15,065
Proceeds from maturities of available-for-sale securities		14,076			21,964
Proceeds from sales of other real estate owned		311			589
Loan originations and principal collections, net		(28,528	)		(5,699	)
Purchases of loans		—			(9,206	)
Recoveries of loans previously charged off		89			—
Proceeds from sale of loans		5,344			8,276
Non-refundable deposit on other real estate owned		6			—
Investment in cash surrender value of life insurance		—			(71	)
Capital expenditures - premises and equipment		(682	)		(107	)
Net cash used in investing activities		(22,992	)		(1,325	)

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

4

NEW ENGLAND BANCSHARES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

(continued)

	Nine Months Ended
	December 31,
	2011			2010
Cash flows from financing activities:
Net increase in demand, NOW, MMDA and savings accounts		31,543			16,107
Net increase in time deposits		3,149			466
Net increase in advanced payments by borrowers for taxes and insurance		1,139			952
Proceeds from Federal Home Loan Bank advances		—			1,798
Principal payments on Federal Home Loan Bank advances		(1,539	)		(23,038	)
Net increase in securities sold under agreement to repurchase		5,828			5,232
Purchase of treasury stock		(1,256	)		(129	)
Proceeds from exercise of stock options		62			—
Payments of cash dividends on common stock		(534	)		(416	)
Net cash provided by financing activities		38,392			972
Net increase in cash and cash equivalents		22,250			5,798
Cash and cash equivalents at beginning of period		43,612			38,982
Cash and cash equivalents at end of period	$	65,862		$	44,780
Supplemental disclosures:
Interest paid	$	7,463		$	8,980
Income taxes paid		2,461			1,417
(Decrease) increase in due from broker		(335	)		500
Loans transferred to other real estate owned		536			966
Other real estate owned transferred to other assets		—			1,248

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

5

NEW ENGLAND BANCSHARES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 – Nature of Operations

New England Bancshares, Inc. (“New England Bancshares,” or the “Company”) is a Maryland corporation and the bank holding company for New England Bank (the “Bank”). The principal asset of the Company is its investment in the Bank with branches in Hartford, Tolland and New Haven Counties. The Bank, incorporated in 1999, is a Connecticut chartered commercial bank headquartered in Enfield, Connecticut. The Bank’s deposits are insured by the FDIC. The Bank is engaged principally in the business of attracting deposits from the general public and investing those deposits primarily in residential real estate loans, commercial real estate loans, and commercial loans, and to a lesser extent, home equity loans and lines of credit and consumer loans.

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, 2012 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, 2011.

The condensed consolidated balance sheet as of March 31, 2011 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.

6

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. There were 130,146 and 143,293 shares that were anti-dilutive for the three and nine month periods ended December 31, 2011, respectively. As of December 31, 2010, 158,664 shares were anti-dilutive for both the three and nine month periods. 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			Shares		Per-Share
	(Numerator)			(Denominator)		Amount
	(In thousands)
Three Months ended December 31, 2011
Basic EPS
Net Income	$	1,681			—
Dividends and undistributed earnings allocated to unvested shares		—			—
Net income and income available to common stockholders	$	1,681			5,891,989	$	0.29
Effect of dilutive securities options		—			83,719
Diluted EPS
Income available to common stockholders and assumed conversions	$	1,681			5,975,708	$	0.28
Nine Months ended December 31, 2011
Basic EPS
Net Income	$	3,392			—
Dividends and undistributed earnings allocated to unvested shares		(4	)		—
Net income and income available to common stockholders	$	3,388			5,923,897	$	0.57
Effect of dilutive securities options		—			66,983
Diluted EPS
Income available to common stockholders and assumed conversions	$	3,388			5,990,880	$	0.57
Three Months ended December 31, 2010
Basic EPS
Net Income	$	910			—
Dividends and undistributed earnings allocated to unvested shares		(2	)		—
Net income and income available to common stockholders	$	908			5,910,582	$	0.15
Effect of dilutive securities options		—			26,992
Diluted EPS
Income available to common stockholders and assumed conversions	$	908			5,937,574	$	0.15
Nine Months ended December 31, 2010
Basic EPS
Net Income	$	2,440			—
Dividends and undistributed earnings allocated to unvested shares		(7	)		—
Net income and income available to common stockholders	$	2,433			5,911,071	$	0.41
Effect of dilutive securities options		—			28,877
Diluted EPS
Income available to common stockholders and assumed conversions	$	2,433			5,939,948	$	0.41

7

NOTE 4 – Recent Accounting Pronouncements

In April 2011, the FASB issued ASU 2011-02, “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” This ASU provides additional guidance or clarification to help creditors determine whether a restructuring constitutes a troubled debt restructuring. For public entities, the amendments in this ASU are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired, and should measure impairment on those receivables prospectively for the first interim or annual period beginning on or after June 15, 2011. Additional disclosures are also required under this ASU. The Company adopted this ASU as of July 1, 2011. Refer to Note 7 – Allowance for Loan Losses, Impaired Assets and Troubled Debt Restructuring for this disclosure.

In April 2011, the FASB issued ASU 2011-03, “Reconsideration of Effective Control for Repurchase Agreements.” The objective of this ASU is to improve the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. This ASU prescribes when an entity may or may not recognize a sale upon the transfer of financial assets subject to repurchase agreements. The guidance in this ASU is effective for the first interim or annual period beginning on or after December 15, 2011. Early adoption is not permitted. The Company does not expect this ASU to have a significant impact on its financial position or results of operations.

In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards.” The amendments in this ASU explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. The Company does not expect this ASU to have a significant impact on its financial position or results of operations.

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income.” The objective of this ASU is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. Under this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. An entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. An entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amendments in this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not expect this ASU to have a significant impact on its financial position or results of operations.

8

In December 2011, the FASB issued ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities.” This ASU is to enhance current disclosures. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The amendments in this ASU are effective for annual periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company does not anticipate that the adoption of this guidance will have a material impact on its financial position or results of operations.

In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The amendments in this update defer those changes in ASU 2011-05 that relate to the presentation of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. All other requirements in ASU 2011-05 are not affected by this update. The amendments are effective during interim and annual periods beginning after December 15, 2011. The Company does not anticipate that the adoption of this guidance will have a material impact on its financial position or results of operation.

NOTE 5 – Stock-Based Incentive Plan

At December 31, 2011, the Company maintained a stock-based incentive plan and an equity incentive plan. For the nine months ended December 31, 2011 and 2010, 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 nine months ended December 31, 2011 and 2010 for the granting of stock options under the plans was $74,000 and $86,000, respectively. During the nine months ended December 31, 2011 and 2010, the Company granted 20,000 and 8,000 stock options, respectively.

The compensation cost that has been charged against income for the granting of restricted stock awards under the plan for the nine months ended December 31, 2011 and 2010 was $57,000 and $102,000, respectively.

The ungranted Stock-Based Incentive Plan shares were retired and transferred to Treasury Stock on December 29, 2011. There had been no grants from this plan in the last five years leading to the decision to retire the shares. Future grants of incentive stock under the plan, if any, will come from Treasury Stock and will be accounted for accordingly.

9

NOTE 6 – Loans

A summary of the balances of loans follows:

	December 31, 2011			March 31, 2011
	(In thousands)
Residential real estate:
1-4 family	$	130,231		$	149,740
Home equity loans		38,716			40,364
Commercial real estate		280,945			251,743
Consumer loans		9,652			8,581
Commercial loans		93,076			80,967
Total loans		552,620			531,395
Allowance for loan losses		(5,578	)		(5,686	)
Net deferred loan fees		1,090			886
Loans, net	$	548,132		$	526,595

The Company has transferred a portion of its originated commercial real estate loans and commercial loans to participating lenders. The amounts transferred have been accounted for as sales and therefore not included in the Company’s accompanying consolidated balance sheets. The Company and participating lenders share ratably in any gains and losses that may result from a borrower’s lack of compliance with contractual terms of the loan. The Company continues to service the loans on behalf of the participating lenders and, as such, collects cash payments from the borrowers, remits payments (net of servicing fees) to participating lenders and disburses required escrow funds to relevant parties. At December 31, 2011 and March 31, 2011, the Company was servicing loans for participants aggregating $13.5 million and $13.1 million, respectively.

NOTE 7 – Allowance for Loan Losses, Impaired Assets and Troubled Debt Restructuring

Analysis and Determination of the Allowance for Loan Losses. We maintain an allowance for loan losses to absorb probable losses inherent in the existing portfolio. When a loan, or portion thereof, is considered uncollectible, it is charged against the allowance. Recoveries of amounts previously charged-off are added to the allowance when collected. The adequacy of the allowance for loan losses is evaluated on a regular basis by management. Based on management’s judgment, the allowance for loan losses covers all known losses and inherent losses in the loan portfolio.

Our 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.

Specific Allowances for Identified Problem Loans. We establish an allowance on identified problem loans based on factors including, but not limited to: (1) the borrower’s ability to repay the loan; (2) the type and value of the collateral; (3) the strength of our collateral position; and (4) the borrower’s repayment history.

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General Valuation Allowance on the Remainder of the Portfolio. We also establish a general allowance by applying loss factors to the remainder of the loan portfolio to capture the inherent losses associated with the lending activity. This general valuation allowance is determined by segregating the loans by loan category and assigning loss factors to each category. The loss factors are determined based on our historical loss experience, delinquency trends and management’s evaluation of the collectability of the loan portfolio. Based on management’s judgment, we may adjust the loss factors due to: (1) changes in lending policies and procedures; (2) changes in existing general economic and business conditions affecting our primary market area; (3) credit quality trends; (4) collateral value; (5) loan volumes and concentrations; (6) seasoning of the loan portfolio; (7) recent loss experience in particular segments of the portfolio; (8) duration of the current business cycle; and (9) bank regulatory examination results. Loss factors are re-evaluated quarterly to ensure their relevance in the current real estate environment.

Activity in the allowance for loan losses is summarized below:

	1 – 4 Family Residential			Home Equity Loans			Commercial Real Estate			Consumer Loans			Commercial Loans			Total
	(In thousands)
Balance March 31, 2011	$	738		$	154		$	1,981		$	99		$	2,714		$	5,686
Provision		106			(33	)		1,022			(19	)		161			1,237
Charge Offs		(269	)		—			(337	)		(32	)		(796	)		(1,434	)
Recoveries		55			—			3			15			16			89
Balance December 31, 2011	$	630		$	121		$	2,669		$	63		$	2,095		$	5,578

The following table presents the balance in the allowance for loan losses by portfolio segment and based on impairment evaluation method as of December 31, 2011:

	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
	(In thousands)
Allowance for loan losses:
1-4 Family Residential	$	217	$	413	$	630
Home equity loans		—		121		121
Commercial real estate		932		1,737		2,669
Consumer loans		—		63		63
Commercial loans		631		1,464		2,095
Total allowance for loan losses	$	1,780	$	3,798	$	5,578
Loan balances:
1-4 Family Residential	$	3,139	$	127,092	$	130,231
Home equity loans		271		38,445		38,716
Commercial real estate		10,106		270,839		280,945
Consumer loans		—		9,652		9,652
Commercial loans		4,838		88,238		93,076
Total loan balances	$	18,354	$	534,266	$	552,620

There have been no significant changes in the Company’s methodology for evaluating the allowance for loan losses.

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Risk Characteristics by Portfolio Segment. Loans secured by one- to four-family residential real estate have historically been the least risky loan type. However they are affected by declines in the general residential housing market, unemployment and under-employment, and the tightening of lending requirements and standards. Loans secured by commercial real estate, including multi-family loans, generally have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans. Of primary concern in commercial real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject to a greater extent than residential real estate loans to adverse conditions in the real estate market or the economy. Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the estimated cost (including interest) of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, we may be required to advance funds beyond the amount originally committed to permit completion of the building. If the estimate of value proves to be inaccurate, we may be confronted, at or before the maturity of the loan, with a building having a value which is insufficient to assure full repayment. Commercial loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial loans may depend substantially on the success of the business itself. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value. Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, consumer loan collections depend on the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

Credit Risk Management. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is due. Our strategy for credit risk management focuses on having well-defined credit policies and uniform underwriting criteria and providing prompt attention to potential problem loans.

When a borrower fails to make a required loan payment, we take a number of steps to have the borrower cure the delinquency and restore the loan to current status. We make initial contact with the borrower when the loan becomes 15 days past due. If payment is not received by the 30^th day of delinquency, additional letters and phone calls generally are made. Typically, when the loan becomes 60 days past due, we send a letter notifying the borrower that we may commence legal proceedings if the loan is not paid in full within 30 days. Generally, loan workout arrangements are made with the borrower at this time; however, if an arrangement cannot be structured before the loan becomes 90 days past due, we will send a formal demand letter and, once the time period specified in that letter expires, commence legal proceedings against any real property that secures the loan or attempt to repossess any business assets or personal property that secures the loan. If a foreclosure action is instituted and the loan is not brought current, paid in full or refinanced before the foreclosure sale, the real property securing the loan generally is sold at foreclosure.

We consider repossessed assets and loans that are 90 days or more past due to be non-performing assets. Past due status is based on contractual terms of the loan. When a loan becomes 90 days delinquent, the loan is placed on non-accrual status at which time the accrual of interest ceases and an allowance for any uncollectible accrued interest is established and charged against operations. Typically, payments received on a non-accrual loan are applied to the outstanding principal and interest as determined at the time of collection of the loan. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

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Management informs the Boards of Directors monthly of the amount of loans delinquent more than 90 days, all loans in foreclosure and all foreclosed and repossessed property that we own.

Banking regulations require us to review and classify our assets on a regular basis. In addition, the Connecticut Department of Banking and FDIC have the authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. “Substandard assets” must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. “Doubtful assets” have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable and there is a high possibility of loss. An asset classified “loss” is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. The regulations also provide for a “special mention” category, described as assets that do not currently expose us to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving our close attention. When we classify an asset as substandard or doubtful, we establish a specific allowance for loan losses. If we classify an asset as loss, we charge off an amount equal to 100% of the portion of the asset classified as loss.

The following table shows the risk rating grade of the loan portfolio broken-out by type as of December 31, 2011.

	Real Estate Loans
	Residential		Home Equity		Commercial		Consumer		Commercial		Total
	(In thousands)
Grade:
Not formally rated	$	126,821	$	38,445	$	—	$	9,576	$	—	$	174,842
Pass		—		—		266,258		—		88,068		354,326
Special mention		—		—		5,408		—		1,390		6,798
Substandard		3,410		271		9,279		76		3,618		16,654
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	130,231	$	38,716	$	280,945	$	9,652	$	93,076	$	552,620

Impaired Loans. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

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The following table shows the Company’s impaired loans at December 31, 2011 and the interest income recognized on them for the three months ended December 31, 2011.

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(In thousands)
With no related allowance recorded:
Residential real estate:
1-4 family	$	2,062	$	2,113	$	—	$	2,160	$	35
Home equity loans		271		271		—		279		4
Commercial real estate		7,601		7,749		—		6,726		82
Commercial loans		2,378		2,637		—		2,668		22
Total impaired with no related allowance recorded	$	12,312	$	12,770	$	—	$	11,833	$	143
With an allowance recorded:
Residential real estate:
1-4 family	$	1,065	$	1,123	$	217	$	1,141	$	34
Home equity loans		—		—		—		—		—
Commercial real estate		2,459		2,469		806		3,251		31
Commercial loans		2,419		2,940		632		2,921		45
Total impaired with an allowance recorded	$	5,943	$	6,532	$	1,655	$	7,313	$	110
Total:
Residential real estate:
1-4 family	$	3,127	$	3,236	$	217	$	3,301	$	69
Home equity loans		271		271		—		279		4
Commercial real estate		10,060		10,218		806		9,977		113
Commercial loans		4,797		5,577		632		5,589		67
Total impaired loans	$	18,255	$	19,302	$	1,655	$	19,146	$	253

Delinquencies. The following table provides information about delinquencies in our loan portfolio as of December 31, 2011.

	30-59 Days		Greater Than 60- 89 Days		Greater Than 90 Days		Total Past Due		Non Accrual
	(In thousands)
Residential real estate:
1-4 family	$	467	$	—	$	1,831	$	2,298	$	3,061
Home equity loans		39		—		71		110		172
Commercial real estate		4,119		1,772		2,827		8,718		7,211
Consumer loans		63		26		3		92		104
Commercial loans		1,096		120		2,660		3,876		4,055
Total	$	5,784	$	1,918	$	7,392	$	15,094	$	14,603

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Troubled Debt Restructuring.The following table provides information about troubled debt restructurings as of December 31, 2011.

	For the Nine Months Ended
	December 31, 2011
	Number of Contracts		Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
Troubled debt restructurings
Residential real estate:
1-4 family		3	$	501	$	501
Home equity loans		—		—		—
Commercial real estate		2		1,215		1,215
Consumer loans		—		—		—
Commercial loans		4		706		706
Total		9	$	2,422	$	2,422

The loans that are included in this table have all been reviewed for individual impairment under FAS 114. Collateral values have been taken into consideration and adjustments to the allowance for loan and lease losses have been calculated accordingly. None of the loans noted above have defaulted.

NOTE 8 – Investments in Available-for-Sale Securities

Debt securities have been classified in the consolidated balance sheets according to management’s intent. The amortized cost of securities and their approximate fair values are as follows as of December 31 and March 31, 2011:

	Amortized Cost Basis			Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
December 31, 2011:
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies	$	7,754		$	28	$	6	$	7,776
Debt securities issued by states of the United States and political subdivisions of the states		20,718			337		135		20,920
Mortgage-backed securities		29,836			1,210		261		30,785
Marketable equity securities		—			—		—		—
		58,308			1,575		402		59,481
Money market mutual funds included in cash and cash equivalents		—			—		—		—
	$	58,308		$	1,575	$	402	$	59,481
March 31, 2011:
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies	$	7,355		$	25	$	48	$	7,332
Debt securities issued by states of the United States and political subdivisions of the states		19,372			83		688		18,767
Mortgage-backed securities		32,236			1,169		236		33,169
Marketable equity securities		9			—		—		9
		58,972			1,277		972		59,277
Money market mutual funds included in cash and cash equivalents		(9	)		—		—		(9	)
	$	58,963		$	1,277	$	972	$	59,268

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At December 31, 2011 and March 31, 2011, the majority of our mortgage-backed securities were issued by Ginnie Mae, Fannie Mae or Freddie Mac.

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 December 31, 2011:

	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 the U.S. Treasury and other U.S. government corporations and agencies	$	994	$	6	$	—	$	—	$	994	$	6
Debt securities issued by states of United States and political subdivisions of the states		4,065		27		2,127		108		6,192		135
Mortgage-backed securities		5,231		96		1,402		57		6,633		153
Total temporarily impaired securities		10,290		129		3,529		165		13,819		294
Other-than-temporarily impaired securities
Mortgage-backed securities		—		—		390		108		390		108
Total temporarily impaired securities	$	10,290	$	129	$	3,919	$	273	$	14,209	$	402

Management has assessed the securities which are classified as available-for-sale and in an unrealized loss position at December 31, 2011 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 described 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.

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 income for the three months ended December 31, 2011 is as follows:

16

	Non-Agency Mortgage-Backed
	(In thousands)
Balance, April 1, 2011	$	63
Additions for the credit component on debt securities in which other-than-temporary impairment was not previously recognized		—
Balance December 31, 2011	$	63

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 December 31, 2011.

	Weighsted			Range
	Average			Minimum			Maximum
Prepayment rates		14.3	%		6.5	%		24.3	%
Default rates		8.9			3.0			16.9
Loss severity		54.3			48.6			60.1

NOTE 9 – 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.

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.

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The following summarizes assets measured at fair value on a recurring basis for the period ending December 31, 2011:

	Fair Value Measurement at Reporting Date Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		Level 1		Level 2		Level 3
	(In thousands)
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies	$	7,776		—	$	7,776	$	—
Debt securities issued by states of the United States and political subdivisions of the states		20,920		2,805		18,115		—
Mortgage-backed securities		30,785		697		30,088		—
Total securities available for sale	$	59,481	$	3,502	$	55,979	$	—

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 December 31, 2011, for which a nonrecurring change in fair value has been recorded.

	Fair Value Measurement at Reporting Date Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		Level 1		Level 2		Level 3
	(In thousands)
Impaired Loans	$	4,288	$	—	$	—	$	4,288
Other real estate owned		1,559		—		—		1,559
Total	$	5,847	$	—	$	—	$	5,847

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

	December 31, 2011				March 31, 2011
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	65,862	$	65,862	$	43,612	$	43,612
Available for sale securities		59,481		59,481		59,268		59,268
Federal Home Loan Bank stock		4,396		4,396		4,396		4,396
Loans held for sale		308		320		—		—
Loans, net		548,132		563,439		526,595		529,609
Accrued interest receivable		2,357		2,357		2,451		2,451
Financial liabilities:
Deposits		575,461		580,394		540,769		545,607
Advanced payments by borrowers for taxes and insurance		2,539		2,539		1,400		1,400
FHLB advances		37,577		39,348		39,113		40,554
Securities sold under agreement to repurchase		27,494		27,496		21,666		21,668
Subordinated debentures		3,925		1,453		3,918		1,371
Due to broker		165		165		500		500

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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 nine months ended December 31, 2011 and 2010, 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. 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 for the fiscal year ended March 31, 2011 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 services 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 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 December 31, 2011 and March 31, 2011

Assets

Total assets were $724.6 million at December 31, 2011, an increase of $42.6 million compared to $682.0 million at March 31, 2011. The increase in total assets was primarily due to a $22.3 million increase in cash and cash equivalents and a $21.5 million increase in net loans, partially offset by a $1.6 million decrease in other assets.

19

Liabilities

Total liabilities were $651.3 million at December 31, 2011, an increase of $39.9 million compared to $611.4 million at March 31, 2011. The increase in total liabilities was caused primarily by a $34.7 million increase in total deposits and a $5.8 million increase in repurchase agreements offset by a $1.5 million decrease in FHLB advances. At December 31, 2011, deposits are comprised of savings accounts totaling $78.3 million, money market deposit accounts totaling $123.6 million, demand and NOW accounts totaling $84.1 million, and certificates of deposits totaling $289.5 million. The Company’s core deposits, which the Company considers to be all deposits except for certificates of deposits, increased to 49.7% of total deposits at December 31, 2011 from 47.1% at March 31, 2011.

Stockholders’ Equity

Total stockholders’ equity increased $2.6 million to $73.3 million at December 31, 2011 from $70.7 million at March 31, 2011. The increase was primarily caused by net income of $3.4 million and an increase in other comprehensive income of $530,000 partially offset by dividends paid of $534,000 and shares repurchased under the Company’s stock repurchase plan of $1.3 million.

Comparison of Operating Results for the Three Months Ended December 31, 2011 and 2010

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, FDIC insurance assessments, advertising and promotion, data processing, professional fees and other operating expense.

Net Income

For the three months ended December 31, 2011, the Company reported net income of $1,681,000, compared to $910,000 for the year ago period. Basic and diluted income per share for the quarter ended December 31, 2011 were $0.29 and $0.28, respectively, compared to $0.15 each for the quarter ended December 31, 2010.

Net Interest and Dividend Income

Net interest and dividend income for the three months ended December 31, 2011 and 2010 totaled $5.7 million and $5.4 million, respectively. The Company’s net interest margin was 3.42% for the three months ended December 31, 2011 and 3.47% for the three months ended December 31, 2010. The decrease in the net interest margin for the quarter was primarily due to a 32 basis point decrease in the rate earned on interest-earning assets partially offset by a decrease of 26 basis points in the yield paid on 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 decrease from 3.25% for the quarter ended December 31, 2010 to 3.19% for the quarter ended December 31, 2011.

20

Interest and dividend income amounted to $8.3 million and $8.2 million for the three months ended December 31, 2011 and 2010, respectively. Average interest-earning assets were $674.0 million for the quarter ended December 31, 2011 compared to $630.0 million for the quarter ended December 31, 2010. The increase in average interest-earning assets was caused primarily by a $12.7 million increase in average interest bearing demand deposits with other banks and a $29.9 million increase in net loans. The yield earned on average interest-earning assets decreased 32 basis points to 4.87% for the three months ended December 31, 2011 from 5.19% for the three months ended December 30, 2010 due to the current low interest rate environment.

Interest expense for the quarters ended December 31, 2011 and 2010 was $2.5 million and $2.7 million, respectively. Average interest-bearing liabilities increased $23.7 million during the quarter ended December 31, 2011 from $556.3 million to $580.0 million primarily due to a $29.3 million increase in average interest-bearing deposits partially offset by a $3.6 million decrease in average FHLB advances and a $2.4 million decrease in average repurchase agreements. The average rate paid on interest-bearing liabilities decreased to 1.68% for the quarter ended December 31, 2011 from 1.94% 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, and a decrease in FHLB advances which generally have higher rates than deposits and repurchase agreements. The average rate paid on certificates of deposit decreased from 2.53% for the quarter ended December 31, 2010 to 2.28% for the current year quarter as market rates have decreased for this type of deposit.

21

Average Balance Sheet

The following table presents information regarding average balances of assets and liabilities, as well as the total dollar amounts of interest income and dividends from average interest-earning assets and interest expense on average interest-bearing liabilities and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented.

	For the Quarters Ended December 31,
	2011								2010
	Average Balance			Interest		Average Yield/ Rate			Average Balance			Interest		Average Yield/ Rate
(Dollars in thousands)
Assets:
Federal funds sold, interest-bearing deposits and marketable equity securities	$	66,049		$	44		0.26	%	$	53,335		$	39		0.29	%
Investments in available-for-sale securities, other than mortgage-backed and mortgage-related securities(1)		27,331			311		4.51			25,101			335		5.29
Mortgage-backed and mortgage-related securities		31,465			241		3.04			32,262			308		3.79
Federal Home Loan Bank and Bankers’ Bank stock		4,711			4		0.34			4,711			1		0.08
Loans, net		544,446			7,666		5.59			514,588			7,553		5.82
Total interest-earning assets		674,002			8,266		4.87			629,997			8,236		5.19
Noninterest-earning assets		39,012								47,617
Cash surrender value of life insurance		10,239								9,884
Total assets	$	723,253							$	687,498
Liabilities and Stockholders’ Equity:
Deposits:
Savings accounts	$	77,694		$	152		0.78	%	$	72,494		$	136		0.74	%
NOW accounts		17,317			13		0.30			16,833			13		0.31
Money market accounts		123,660			224		0.72			103,724			235		0.90
Certificate accounts		290,492			1,668		2.28			286,893			1,827		2.53
Total deposits		509,163			2,057		1.60			479,944			2,211		1.83
Federal Home Loan Bank advances and subordinated debentures		41,681			337		3.21			45,255			438		3.84
Advanced payments by borrowers for taxes and insurance		1,926			4		0.82			1,560			4		1.02
Securities sold under agreements to repurchase		27,236			60		0.87			29,575			68		0.91
Total interest-bearing liabilities		580,006			2,458		1.68			556,334			2,721		1.94
Demand deposits		63,190								53,064
Other liabilities		3,355								8,387
Total liabilities		646,551								617,785
Stockholders’ Equity		76,702								69,713
Total liabilities and stockholders’ equity	$	723,253							$	687,498
Net interest and dividend income/net  interest rate spread				$	5,808		3.19	%				$	5,515		3.25	%
Net interest margin							3.42	%							3.47	%
Ratio of interest-earning assets to interest-bearing liabilities		116.21	%							113.24	%

⁽¹⁾ Reported on a tax equivalent basis, using a 34% tax rate.

22

Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on our net interest and dividend income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.

	Quarter Ended December 31, 2011 Compared to Quarter Ended December 31, 2010
	Increase (Decrease) Due to
	Rate			Volume			Net
	(In thousands)
Interest-earning assets:
Federal funds sold, interest-bearing deposits and marketable equity securities	$	(3	)	$	8		$	5
Investments in available-for-sale securities, other than mortgage-backed and mortgage-related securities		(57	)		33			(24	)
Mortgage-backed and mortgage-related securities		(59	)		(8	)		(67	)
Federal Home Loan Bank and Bankers’ Bank stock		3			—			3
Loans, net		(265	)		378			113
Total interest-earning assets		(381	)		411			30
Interest-bearing liabilities:
Savings accounts		6			10			16
NOW accounts		(1	)		1			—
Money market accounts		(274	)		264			(10	)
Certificate accounts		(181	)		23			(158	)
Federal Home Loan Bank advances and subordinated debentures		(67	)		(34	)		(101	)
Advanced payments by borrowers for taxes and insurance		—			—			—
Securities sold under agreements to repurchase		(4	)		(5	)		(9	)
Total interest-bearing liabilities		(521	)		259			(262	)
Increase in net interest and dividend income	$	140		$	152		$	292

Provision for Loan Losses

The provision for loan losses for the quarters ended December 31, 2011 and 2010 were $362,000 and $359,000, respectively. The additions to and resulting increase in the allowance for loan losses at December 30, 2011 reflected continued growth in the commercial loan portfolio and the challenging economic climate.

Noninterest Income

For the quarter ended December 31, 2011, noninterest income was $1,897,000 compared to $546,000 for the quarter ended December 31, 2010. Affecting noninterest income for the three months ended December 30, 2011 was a gain on a legal settlement related to the Bank’s investment portfolio as well as increases of $14,000 in gains on securities and $77,000 in other income partially offset by a decrease of $45,000 in gains on sale of loans.

23

Noninterest Expense

Noninterest expense for the quarter ended December 31, 2011 was $4.6 million compared to $4.2 million for the quarter ended December 31, 2010. The increase was due largely to a $301,000 increase in professional services, primarily those related to the legal settlement related to our investment portfolio discussed under Noninterest Income above, a $65,000 increase in salaries and employee benefits and a $64,000 increase in advertising partially offset by a $71,000 decrease in FDIC insurance assessments caused by a change in the way these assessments are calculated by the FDIC. The FDIC is now using a capital-based calculation for their deposit insurance assessments instead of the deposit-based calculation that they had been using. The Company’s efficiency ratio improved from 70.4% for the quarter ended December 31, 2010 to 60.2% for the current year quarter. Taking out the effects of the previously mentioned legal settlement, the ratio would have improved from 70.4% for the quarter ended December 31, 2010 to 66.8% for the current quarter.

Provision for Income Taxes

The Company recorded income tax expense of $982,000 and $496,000 for the quarters ended December 31, 2011 and 2010, respectively, with effective tax rates of 36.9% and 35.3%, respectively.

Comparison of Operating Results for the Nine Months Ended December 31, 2011 and 2010

Net Income

For the nine months ended December 31, 2011, the Company reported net income of $3.4 million, compared to $2.4 million for the year ago period. Basic and diluted income per share for the nine months ended December 31, 2011 were $0.57 each compared to $0.41 each for the nine months ended December 31, 2010.

Net Interest and Dividend Income

Net interest and dividend income for the nine months ended December 31, 2011 and 2010 totaled $16.9 million and $16.5 million, respectively. The Company’s net interest margin decreased to 3.47% for the nine months ended December 31, 2011 from 3.52% for the nine months ended December 31, 2010. The decrease for the period was primarily due to an increase of $12.8 million in average federal funds sold and interest bearing deposits partially offset by increases in average net loans of $16.7 million and average deposits of $26.4 million. A 34 basis point decrease in the yield on average interest-earning assets and a 28 basis point decrease in the rate paid on average interest-bearing liabilities caused the Company’s interest rate spread to decrease from 3.29% for the nine months ended December 31, 2010 to 3.23% for the nine months ended December 31, 2011.

Interest and dividend income amounted to $24.4 million and $25.0 million for the nine months ended December 31, 2011 and 2010, respectively. Average interest-earning assets were $657.6 million for the nine months ended December 31, 2011; an increase of $27.2 million, or 4.3%, compared to $630.4 million for the nine months ended December 31, 2010. The increase in average interest-earning assets was caused primarily by a $16.7 million increase in average net loans and a $12.8 million increase in federal funds sold partially offset by a $2.3 million decrease in investment securities. The yield earned on average interest-earning assets decreased to 4.97% for the nine months ended December 31, 2011 from 5.31% for the nine months ended December 31, 2010.

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Interest expense for the nine months ended December 31, 2011 and 2010 was $7.4 million and $8.5 million, respectively. Average interest-bearing liabilities grew $8.1 million during the nine months ended December 31, 2011 from $560.1 million to $568.2 million primarily due to a $26.4 million increase in average interest-bearing deposits, partially offset by an $11.3 million decrease in FHLB advances and a $7.3 million decrease in repurchase agreements. The average rate paid on interest-bearing liabilities decreased to 1.74% for the nine months ended December 31, 2011 from 2.02% 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 in the current low interest rate environment. The average rate paid on certificates of deposit decreased from 2.52% for the nine months ended December 31, 2010 to 2.33% for the current year period as market rates have decreased for this type of deposit.

Average Balance Sheet

The following table presents information regarding average balances of assets and liabilities, as well as the total dollar amounts of interest income and dividends from average interest-earning assets and interest expense on average interest-bearing liabilities and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented.

	For the Nine Months Ended December 31,
	2011								2010
	Average Balance			Interest		Average Yield/ Rate			Average Balance			Interest		Average Yield/ Rate
(Dollars in thousands)
Assets:
Federal funds sold, interest-bearing deposits and marketable equity securities	$	58,803		$	111		0.25	%	$	46,047		$	96		0.28	%
Investments in available-for-sale securities, other than mortgage-backed and mortgage-related securities(1)		26,098			970		4.93			26,020			1,094		5.58
Mortgage-backed and mortgage-related securities		32,022			786		3.26			34,403			1,052		4.06
Federal Home Loan Bank and Bankers’ Bank stock		4,711			14		0.39			4,711			4		0.11
Loans, net		536,014			22,744		5.63			519,267			22,993		5.88
Total interest-earning assets		657,648			24,625		4.97			630,448			25,239		5.31
Noninterest-earning assets		39,491								48,408
Cash surrender value of life insurance		10,151								9,750
Total assets	$	707,290							$	688,606
Liabilities and Stockholders’ Equity:
Deposits:
Savings accounts	$	77,513		$	445		0.76	%	$	72,612		$	468		0.86	%
NOW accounts		16,868			38		0.30			17,063			42		0.33
Money market accounts		116,702			680		0.77			98,896			713		0.96
Certificate accounts		290,126			5,095		2.33			286,250			5,427		2.52
Total deposits		501,209			6,258		1.66			474,821			6,650		1.86
Federal Home Loan Bank advances and subordinated debentures		42,202			1,022		3.21			53,544			1,658		4.11
Advanced payments by borrowers for taxes and insurance		1,693			12		0.94			1,416			11		1.03
Securities sold under agreements to repurchase		23,057			156		0.90			30,336			205		0.90
Total interest-bearing liabilities		568,161			7,448		1.74			560,117			8,524		2.02
Demand deposits		59,622								51,037
Other liabilities		6,243								8,350
Total liabilities		634,026								619,504
Stockholders’ Equity		73,264								69,102
Total liabilities and stockholders’ equity	$	707,290							$	688,606
Net interest and dividend income/net interest rate spread				$	17,177		3.23	%				$	16,715		3.29	%
Net interest margin							3.47	%							3.52	%
Ratio of interest-earning assets to interest-bearing liabilities		115.75	%							112.56	%

⁽¹⁾ Reported on a tax equivalent basis, using a 34% tax rate.

25

Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on our net interest and dividend income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.

	Nine Months Ended December 31, 2011 Compared to Nine Months Ended December 31, 2010
	Increase (Decrease) Due to
	Rate			Volume			Net
	(In thousands)
Interest-earning assets:
Federal funds sold, interest-bearing deposits and marketable equity securities	$	(8	)	$	23		$	15
Investments in available-for-sale securities, other than mortgage-backed and mortgage-related securities		(130	)		6			(124	)
Mortgage-backed and mortgage-related securities		(197	)		(69	)		(266	)
Federal Home Loan Bank stock		10			—			10
Loans, net(1)		(1,064	)		879			(185	)
Total interest-earning assets		(1,389	)		839			(550	)
Interest-bearing liabilities:
Savings accounts		(60	)		37			(23	)
NOW accounts		(3	)		(1	)		(4	)
Money market accounts		(540	)		507			(33	)
Certificate accounts		(407	)		75			(332	)
Federal Home Loan Bank advances and subordinated debentures		(322	)		(314	)		(636	)
Advanced payments by borrowers for taxes and insurance		(1	)		2			1
Securities sold under agreements to repurchase		—			(49	)		(49	)
Total interest-bearing liabilities		(1,333	)		257			(1,076	)
Increase in net interest and dividend income	$	(56	)	$	582		$	526

Provision for Loan Losses

The provision for loan losses for the nine months ended December 31, 2011 and 2010 were $1.2 million and $1.7 million, respectively. The additions to and resulting increase in the allowance for loan losses at December 31, 2011 reflected continued growth in the commercial loan portfolio and the challenging economic climate.

26

Noninterest Income

For the nine months ended December 31, 2011, noninterest income was $3.2 million compared to $2.1 million for the nine months ended December 31, 2010. The increase was primarily due to the previously mentioned gain on a legal settlement related to the Bank’s investment portfolio. Also affecting noninterest income for the nine months ended December 31, 2011 were decreases of $48,000 and $133,000 on gain on sale of securities and sale of loans, respectively.

Noninterest Expense

Noninterest expense for the nine months ended December 31, 2011 and 2010 was $13.6 million and $13.1 million, respectively. Besides the previously mentioned professional fees from the legal settlement, during the nine months ended December 31, 2011 the Company recorded increases of $386,000 in salaries and employee benefits and $171,000 in advertising and promotion, partially offset by decreases of $154,000 in write downs of other real estate owned and other real estate owned expenses and $135,000 in FDIC insurance.

Provision for Income Taxes

The Company recorded income tax expense of $1.9 million and $1.4 million for the nine months ended December 31, 2011 and 2010, respectively, with effective tax rates of 36.4% and 36.0%, respectively.

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 securities. The Bank had Federal Home Loan Bank borrowings as of December 31, 2011 of $37.6 million, with unused borrowing capacity of $32.5 million.

The Company’s primary investing activities are the origination of loans and the purchase of mortgage and investment securities. During the nine months ended December 31, 2011 and 2010 the Company originated loans, net of principal pay downs, of approximately $32.4 million and $5.7 million, respectively. Purchases of investment securities totaled $32.2 million and $32.1 million for the nine months ended December 31, 2011 and 2010, 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 $575.5 million at December 31, 2011, a $34.7 million increase from the $540.8 million balance at March 31, 2011.

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At December 31, 2011, the Company had outstanding commitments to originate $12.2 million of loans, and available home equity and unadvanced lines of credit and construction loans of approximately $56.8 million. In addition, the Company had $2.9 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 $152.4 million, or 26.5% of total deposits at December 31, 2011. 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.

As of December 31, 2011, the Company and the Bank met all capital adequacy requirements to which they were subject. The Company’s capital amounts and ratios as of December 31, 2011 are presented in the following table.

(Dollar amounts in thousands)

			New England Bancshares, Inc.
	Required			Amount	Ratio
Tier 1 Capital	4	%	$	58,760	8.33	%
Total Risk-Based Capital	8	%	$	64,338	12.42	%
Tier 1 Risk-Based Capital	4	%	$	58,760	11.34	%

The Bank’s actual capital amounts and ratios as of December 31, 2011 are presented in the following 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)	$	58,383		11.27	%	$	41,437		³8.0	%	$	51,796		³10.0	%
Tier 1 Capital (to Risk Weighted Assets)		52,805		10.19			20,719		³4.0			31,078		³6.0
Tier 1 Capital (to Average Assets)		52,805		7.49			28,217		³4.0			35,271		³5.0

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 nine months ended December 31, 2011, 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.

28

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 portfolio; 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 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 rates. The simulation analyses incorporate managements’ current assessment of the risk that pricing margins will change adversely over time due to competition or other factors.

29

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 Commission (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.

Item1A.  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, 2011 (“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.

The Standard & Poor’s downgrade in the U.S. government’s sovereign credit rating, and in the credit ratings of instruments issued, insured or guaranteed by certain related institutions, agencies and instrumentalities, could result in risks to the Company and general economic conditions that we are not able to predict.

30

On August 5, 2011, Standard & Poor’s downgraded the United States long-term debt rating from its AAA rating to AA+. On August 8, 2011, Standard & Poor’s downgraded the credit ratings of certain long-term debt instruments issued by Fannie Mae and Freddie Mac and other U.S. government agencies linked to long-term U.S. debt. Instruments of this nature are key assets on the balance sheets of financial institutions, including the Bank. These downgrades could adversely affect the market value of such instruments, and could adversely impact our ability to obtain funding that is collateralized by affected instruments, as well as affecting the pricing of that funding when it is available. We cannot predict if, when or how these changes to the credit ratings will affect economic conditions. These ratings downgrades could result in a significant adverse impact to the Company, and could exacerbate the other risks to which the Company is subject, including those described under Risk Factors in the Company’s Annual Report on Form 10-K for the year ended March 31, 2011.

Item2.  Unregistered Sales of Equity Securities and Use of Proceeds. 

The Company repurchased 119,705 shares of its common stock in the quarter ended December 31, 2011 as follows:

For the three months ended December 31, 2011	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
October		15,401	$	9.38		15,401		336,280
November		40,700		10.05		40,700		295,580
December		63,604		10.26		63,604		231,976
Total		119,705	$	10.07		119,705		231,976

The Company’s stock repurchase program was authorized August 29, 2011 to repurchase 332,257 shares of the Company’s outstanding shares. Stock repurchases will be made from time to time and may be effected through open market purchases, block trades and in privately negotiated transactions.

Item3.	Defaults Upon Senior Securities.
	None.
Item 4.	(Removed and Reserved)
Item 5.	Other Information.
	None.

31

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.(1)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer(3)
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer(3)
32.1	Section 1350 Certification of Chief Executive Officer(3)
32.2	Section 1350 Certification of Chief Financial Officer(3)
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of December 31, 2011 and March 31, 2011, (ii) the Condensed Consolidated Statements of Income for the three and nine months ended December 31, 2011 and 2010, (iii) the Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2011 and 2010, and (iv) the notes to the Condensed Consolidated Financial Statements.(3)

(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 3.2 to the Form 8-K filed with the Securities and Exchange Commission on December 15, 2011.
(3)	This information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

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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:February 14, 2012	By:	/s/ Jeffrey J. Levitsky
		Jeffrey J. Levitsky
		Interim Chief Financial Officer
		(principal financial officer)
Dated:February 14, 2012	By:	/s/ David J. O’Connor
		David J. O’Connor
		President, Chief Executive Officer and Director

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