New England Bancshares 10-Q 2012 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2012

or

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

For the transition period from __________________ to _________________

Commission File Number 0-51589

NEW ENGLAND BANCSHARES, INC.
(Exact name of small business issuer as specified in its charter)
Maryland	04-3693643
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
855 Enfield Street, Enfield, Connecticut	06082
(Address of principal executive offices)	(Zip Code)
(860) 253-5200
(Issuer’s telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesý     Noo

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).

Yesý     Noo

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 filero     Accelerated filero     Non-accelerated filero     Smaller Reporting Company     ý

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

The Issuer had 5,807,684 shares of common stock, par value $0.01 per share, outstanding as of November 9, 2012.

NEW ENGLAND BANCSHARES, INC.

FORM 10-Q

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at September 30, 2012 (Unaudited) and March 31, 2012	1
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended September 30, 2012 and 2011 (Unaudited)	2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity at September 30, 2012 and 2011 (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2012 and 2011 (Unaudited)	4
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	33
PART II:	OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	34
SIGNATURES		35
CERTIFICATIONS		36-39

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements.

NEW ENGLAND BANCSHARES, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets

(Dollars in thousands)

	September 30, 2012			March 31, 2012
ASSETS		(Unaudited)
Cash and due from banks	$	8,897		$	9,666
Interest-bearing demand deposits with other banks		62,133			52,398
Total cash and cash equivalents		71,030			62,064
Investments in available-for-sale securities, at fair value		53,190			61,587
Federal Home Loan Bank stock, at cost		4,100			4,100
Loans, net of allowance for loan losses of $5,593 as of September 30, 2012              and $5,697 as of March 31, 2012		555,564			552,246
Premises and equipment, net		5,871			6,161
Other real estate owned		1,049			1,491
Accrued interest receivable		2,350			2,392
Deferred income taxes, net		4,770			4,741
Cash surrender value of life insurance		10,541			10,371
Identifiable intangible assets		744			915
Goodwill		16,783			16,783
Other assets		3,027			3,651
Total assets	$	729,019		$	726,502
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	69,471		$	69,412
Interest-bearing		514,797			511,856
Total deposits		584,268			581,268
Advanced payments by borrowers for taxes and insurance		1,207			1,504
Federal Home Loan Bank advances		31,970			33,044
Subordinated debentures		3,931			3,927
Securities sold under agreements to repurchase		29,849			27,752
Other liabilities		4,337			5,637
Total liabilities		655,562			653,132
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;              6,947,012 shares issued at September 30, 2012 and 6,945,591 shares              issued at March 31, 2012		69			69
Paid-in capital		60,026			60,001
Retained earnings		25,350			23,942
Unearned ESOP shares, 147,641 shares at September 30, 2012 and              March 31, 2012		(1,476	)		(1,476	)
Treasury stock, 1,139,328 shares at September 30, 2012 and 998,967              shares at March 31, 2012, at cost		(11,121	)		(9,625	)
Accumulated other comprehensive income		609			459
Total stockholders’ equity		73,457			73,370
Total liabilities and stockholders’ equity	$	729,019		$	726,502

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

1

NEW ENGLAND BANCSHARES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended					Six Months Ended
	September 30,					September 30,
	2012			2011		2012		2011
Interest and dividend income:
Interest on loans	$	7,408		$	7,579	$	14,868	$	15,097
Interest and dividends on securities:
Taxable		241			333		472		693
Tax-exempt		131			157		300		327
Interest on federal funds sold, interest-bearing deposits and          dividends on money market mutual funds		42			47		88		76
Total interest and dividend income		7,822			8,116		15,728		16,193
Interest expense:
Interest on deposits		1,769			2,078		3,605		4,201
Interest on advanced payments by borrowers for               taxes and insurance		3			3		8		8
Interest on Federal Home Loan Bank advances		271			318		544		635
Interest on subordinated debentures		27			25		54		50
Interest on securities sold under agreements to repurchase		58			49		114		96
Total interest expense		2,128			2,473		4,325		4,990
Net interest and dividend income		5,694			5,643		11,403		11,203
Provision for loan losses		363			516		724		875
Net interest and dividend income after provision for loan losses		5,331			5,127		10,679		10,328
Noninterest income:
Service charges on deposit accounts		381			348		765		685
Gain on securities, net		195			85		392		147
Gain on sale of loans		151			107		270		129
Increase in cash surrender value of life insurance policies		85			88		170		176
Other income		127			121		245		192
Total noninterest income		939			749		1,842		1,329
Noninterest expense:
Salaries and employee benefits		2,342			2,250		4,457		4,518
Occupancy and equipment expense		763			791		1,519		1,624
Advertising and promotion		74			120		207		274
Professional fees		151			186		296		353
Data processing expense		189			179		362		348
FDIC insurance assessment		152			152		311		382
Stationery and supplies		53			54		80		96
Amortization of identifiable intangible assets		82			93		171		193
Write-down of other real estate owned		—			—		89		141
Other real estate owned		64			79		108		99
Merger related expenses		165			—		675		—
Other expense		646			496		1,127		963
Total noninterest expense		4,681			4,400		9,402		8,991
Income before income taxes		1,589			1,476		3,119		2,666
Income tax expense		642			544		1,371		955
Net income	$	947		$	932	$	1,748	$	1,711
Earnings per share:
Basic	$	0.17		$	0.16	$	0.31	$	0.29
Diluted		0.16			0.15	$	0.30	$	0.28
Dividends per share		0.03			0.03	$	0.06	$	0.06
Comprehensive income:
Net income	$	947		$	932	$	1,748	$	1,711
Other comprehensive income (loss), net of tax:
��      Unrealized (loss) gain on securities available for sale		(10	)		135		150		541
Comprehensive income	$	937		$	1,067	$	1,898	$	2,252

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

(Unaudited)

(Dollars in thousands, except per 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, 2011		6,968,087	$	69	$	59,876	$	20,091		$	(1,714	)	$	(386	)	$	(7,431	)	$	186	$	70,691
Compensation cost for stock-based incentive plans		—		—		66		—			—			57			—			—		123
Dividends paid ($0.06 per share)		—		—		—		(358	)		—			—			—			—		(358	)
Treasury stock purchases (6,900 shares)		—		—		—		—			—			—			(50	)		—		(50	)
Net income		—		—		—		1,711			—			—			—			—		1,711
Other comprehensive income, net of tax effect		—		—		—		—			—			—			—			541		541
Balance, September 30, 2011		6,968,087	$	69	$	59,942	$	21,444		$	(1,714	)	$	(329	)	$	(7,481	)	$	727	$	72,658
Balance, March 31, 2012		6,945,591	$	69	$	60,001	$	23,942		$	(1,476	)	$	—		$	(9,625	)	$	459	$	73,370
Proceeds from exercise of stock options		1,421		—		13		—			—			—			—			—		13
Compensation cost for stock-based incentive plans		—		—		12		—			—			—			—			—		12
Dividends paid ($0.06 per share)		—		—		—		(340	)		—			—			—			—		(340	)
Treasury stock purchases (140,361 shares)		—		—		—		—			—			—			(1,496	)		—		(1,496	)
Net income		—		—		—		1,748			—			—			—			—		1,748
Other comprehensive income, net of tax effect		—		—		—		—			—			—			—			150		150
Balance, September 30, 2012		6,947,012	$	69	$	60,026	$	25,350		$	(1,476	)	$	—		$	(11,121	)	$	609	$	73,457

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)

	Six Months Ended September 30,
	2012			2011
Cash flows from operating activities:
Net income	$	1,748		$	1,711
Adjustments to reconcile net income to net cash provided by      operating activities:
Net amortization (accretion) of fair value adjustments		60			(42	)
Amortization (accretion) of securities, net		125			37
Gain on sales and calls of investments, net		(392	)		(147	)
Writedown of other real estate owned		89			141
Provision for loan losses		724			875
Gain on sale of loans, net		(270	)		(129	)
Loans originated for sale		(8,108	)		(4,142	)
Proceeds from sale of loans for sale		8,378			3,939
(Gain) loss on sale of other real estate owned		(17	)		15
Change in deferred loan origination costs, net		19			(136	)
Depreciation and amortization		341			370
Decrease in accrued interest receivable		42			61
Deferred income tax benefit		(124	)		(293	)
Increase in cash surrender value of life insurance policies		(170	)		(176	)
Decrease in prepaid expenses and other assets		618			1,252
Amortization of identifiable intangible assets		171			193
Decrease in accrued expenses and other liabilities		(181	)		(143	)
Compensation cost for stock option plan		12			66
Compensation cost for stock-based incentive plan		—			57
Net cash provided by operating activities		3,065			3,509
Cash flows from investing activities:
Purchases of available-for-sale securities		(21,220	)		(15,434	)
Proceeds from sales of available-for-sale securities		15,237			10,012
Proceeds from maturities of available-for-sale securities		13,773			7,857
Proceeds from sales of other real estate owned		549			304
Loan originations and principal collections, net		(4,296	)		(16,633	)
Purchases of loans		—			—
Proceeds from sale of loans		—			4,080
Non-refundable deposit on other real estate owned		—			6
Investment in cash surrender value of life insurance		—			—
Capital expenditures - premises and equipment		(43	)		(429	)
Net cash provided by (used in) investing activities		4,000			(10,237	)

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)

	Six Months Ended September 30,
	2012			2011
Cash flows from financing activities:
Net increase in demand, NOW, MMDA and savings accounts		7,850			22,248
Net (decrease) increase in time deposits		(4,850	)		4,538
Net decrease in advanced payments by borrowers for taxes and insurance		(297	)		(143	)
Principal payments on Federal Home Loan Bank advances		(1,076	)		(1,006	)
Net increase in securities sold under agreement to repurchase		2,097			4,072
Purchase of treasury stock		(1,496	)		(50	)
Payments of cash dividends on common stock		(340	)		(358	)
Proceeds from exercise of stock options		13			—
Net cash provided by financing activities		1,901			29,301
Net increase in cash and cash equivalents		8,966			22,573
Cash and cash equivalents at beginning of period		62,064			43,612
Cash and cash equivalents at end of period	$	71,030		$	66,185
Supplemental disclosures:
Interest paid	$	4,318		$	5,028
Income taxes paid		1,242			845
Decrease in due from broker		(1,119	)		—
Loans transferred to other real estate owned		179			165
Other real estate owned transferred to other assets		—			—

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. The Company was organized in 2005 in connection with the “second-step” mutual-to-stock conversion of Enfield Mutual Holding Company.

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, construction and consumer loans.

On May 30, 2012, the Company executed a definitive merger agreement with United Financial Bancorp, Inc. (“United Financial”) under which United Financial will acquire the Company in a transaction valued then at $91 million based on United Financial’s 20 day volume weighted average stock price of $15.89 as of May 30, 2012.

Under the terms of the definitive merger agreement, at the effective time of the merger, each share of the Company’s common stock will be converted to 0.9575 of a share of United Financial common stock. The consideration received by the Company’s stockholders is intended to qualify as a tax-free transaction. The transaction has been approved by the boards of directors of both the Company and United Financial.

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, 2013 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, 2012.

6

The condensed consolidated balance sheet as of March 31, 2012 was derived from the Company’s audited financial statements, but does not include all the disclosures required by accounting principles generally accepted in the United States of America.

NOTE 3 – Earnings per Share (EPS)

Basic EPS is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. There were zero and 108,563 shares that were anti-dilutive for the three and six month periods ended September 30, 2012, respectively. There were 152,763 and 152,763 shares that were anti-dilutive for the three and six month periods ended September 30, 2011, respectively. Anti-dilutive shares are stock options with exercise prices in excess of the weighted-average market value for the same period and are not included in the determination of diluted earnings per share. Unallocated common shares held by the Bank’s employee stock ownership plan are not included in the weighted-average number of common shares outstanding for purposes of calculating both basic and diluted EPS.

	Income (Numerator)		Shares (Denominator)		Per-Share Amount
	(In thousands)
Three Months ended September 30, 2012
Basic EPS
Net Income	$	947		—
Dividends and undistributed earnings allocated
to unvested shares		—		—
Net income and income available to common stockholders	$	947		5,660,042	$	0.17
Effect of dilutive securities options		—		117,915
Diluted EPS
Income available to common stockholders and
assumed conversions	$	947		5,777,957	$	0.16
Six Months ended September 30, 2012
Basic EPS
Net Income	$	1,748		—
Dividends and undistributed earnings allocated
to unvested shares		—		—
Net income and income available to common stockholders	$	1,748		5,673,473	$	0.31
Effect of dilutive securities options		—		102,949
Diluted EPS
Income available to common stockholders and
assumed conversions	$	1,748		5,776,422	$	0.30

7

	Income (Numerator)			Shares (Denominator)		Per-Share Amount
	(In thousands)
Three Months ended September 30, 2011
Basic EPS
Net Income	$	932			—
Dividends and undistributed earnings allocated
to unvested shares		(1	)		—
Net income and income available to common stockholders	$	931			5,938,526	$	0.16
Effect of dilutive securities options		—			64,876
Diluted EPS
Income available to common stockholders and
assumed conversions	$	931			6,003,402	$	0.15
Six Months ended September 30, 2011
Basic EPS
Net Income	$	1,711			—
Dividends and undistributed earnings allocated
to unvested shares		(3	)		—
Net income and income available to common stockholders	$	1,708			5,938,850	$	0.29
Effect of dilutive securities options		—			65,679
Diluted EPS
Income available to common stockholders and
assumed conversions	$	1,708			6,004,529	$	0.28

NOTE 4 – Recent Accounting Pronouncements

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. The amendments are effective during interim and annual periods beginning after December 15, 2011. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

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. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

8

In September 2011, the FASB issued ASU 2011-08, “Intangibles – Goodwill and Other”, an update to ASC 350, “Intangibles – Goodwill and Other.” ASU 2011-08 simplifies how entities, both public and nonpublic, test goodwill for impairment. The amendments in this update permit an entity to first assess qualitative factors to determine whether it is more likely than not the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. For public and nonpublic entities, the amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The adoption of this guidance did not have an impact on the Company’s results of operations or financial position.

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 consolidated financial statements.

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 adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

NOTE 5 – Stock-Based Incentive Plan

At September 30, 2012, the Company maintained a stock-based incentive plan and an equity incentive plan. For the six months ended September 30, 2012 and 2011, compensation cost for the Company’s stock plans was measured at the grant date based on the value of the award and was recognized over the service period, which was the vesting period. The compensation cost that has been charged against income in the six months ended September 30, 2012 and 2011 for the granting of stock options under the plans was $12,000 and $66,000, respectively. The Company did not grant any stock options during the six months ended September 30, 2012. During the six months ended September 30, 2011, the Company granted 20,000 stock options.

There was no compensation cost charged against income for the granting of restricted stock awards during the six months ended September 30, 2012. The compensation cost charged against income for the granting of restricted stock awards under the plan during the six months ended September 30, 2011 was $57,000. The Company did not grant any restricted stock during the six months ended September 30, 2012 or 2011.

9

NOTE 6 – Loans

A summary of the balances of loans follows:

	September 30, 2012			March 31, 2012
	(In thousands)
Residential real estate:
1-4 family	$	114,817		$	125,636
Home equity loans		35,504			37,724
Commercial real estate		301,766			289,057
Consumer loans		9,279			9,772
Commercial loans		98,724			94,668
Total loans		560,090			556,857
Allowance for loan losses		(5,593	)		(5,697	)
Net deferred loan fees		1,067			1,086
Loans, net	$	555,564		$	552,246

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 September 30, 2012 and March 31, 2012, the Company was servicing loans for participants aggregating $13.3 million and $13.3 million, respectively.

NOTE 7 – Allowance for Loan Losses and Impaired Assets

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, 2012	$	789		$	127		$	2,794		$	64		$	1,923		$	5,697
Provision		109			67			255			(18	)		311			724
Charge Offs		(235	)		(71	)		(188	)		—			(410	)		(904	)
Recoveries		42			5			19			1			9			76
Balance September 30, 2012	$	705		$	128		$	2,880		$	47		$	1,833		$	5,593
Balance March 31, 2011	$	738		$	154		$	1,981		$	99		$	2,714		$	5,686
Provision		(77	)		(30	)		731			(32	)		283			875
Charge Offs		(214	)		—			(191	)		(14	)		(87	)		(506	)
Recoveries		8			—			—			8			13			29
Balance September 30, 2011	$	455		$	124		$	2,521		$	61		$	2,923		$	6,084

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The following table presents the balance in the allowance for loan losses by portfolio segment based on impairment evaluation method as of September 30, 2012:

		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
	(In thousands)
Allowance for loan losses:
1-4 Family Residential		$	272	$	433	$	705
Home equity loans			—		128		128
Commercial real estate			1,285		1,595		2,880
Consumer loans			—		47		47
Commercial loans			424		1,409		1,833
Total allowance for loan losses		$	1,981	$	3,612	$	5,593
Loan balances:
1-4 Family Residential		$	3,776	$	111,041	$	114,817
Home equity loans			262		35,242		35,504
Commercial real estate			7,378		294,388		301,766
Consumer loans			124		9,155		9,279
Commercial loans			5,134		93,590		98,724
Total loan balances		$	16,674	$	543,416	$	560,090

The following table presents the balance in the allowance for loan losses by portfolio segment based on impairment evaluation method as of March 31, 2012:

		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
	(In thousands)
Allowance for loan losses:
1-4 Family Residential		$	15	$	774	$	789
Home equity loans			—		127		127
Commercial real estate			207		2,587		2,794
Consumer loans			—		64		64
Commercial loans			372		1,551		1,923
Total allowance for loan losses		$	594	$	5,103	$	5,697
Loan balances:
1-4 Family Residential		$	1,247	$	124,389	$	125,636
Home equity loans			—		37,724		37,724
Commercial real estate			9,961		279,096		289,057
Consumer loans			—		9,772		9,772
Commercial loans			4,103		90,565		94,668
Total loan balances		$	15,311	$	541,546	$	556,857

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

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.

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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 September 30, 2012.

	Real Estate Loans
	Residential		Home Equity		Commercial		Consumer		Commercial		Total
	(In thousands)
Grade:
Pass	$	—	$	—	$	289,110	$	—	$	90,436	$	379,546
Special mention		—		—		5,278		—		3,154		8,432
Substandard		3,776		262		7,378		124		5,134		16,674
Not formally rated		111,041		35,242		—		9,155		—		155,438
Total	$	114,817	$	35,504	$	301,766	$	9,279	$	98,724	$	560,090

The following table shows the risk rating grade of the loan portfolio broken-out by type as of March 31, 2012.

	Real Estate Loans
	Residential		Home Equity		Commercial		Consumer		Commercial		Total
	(In thousands)
Grade:
Pass	$	—	$	—	$	266,757	$	—	$	86,360	$	353,117
Special mention		—		—		7,896		—		1,356		9,252
Substandard		4,285		310		14,404		32		6,952		25,983
Not formally rated		121,351		37,414		—		9,740		—		168,505
Total	$	125,636	$	37,724	$	289,057	$	9,772	$	94,668	$	556,857

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. The following table shows the Company’s impaired loans at September 30, 2012.

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	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	$	1,985	$	2,188	$	—	$	2,320	$	13
Home equity loans		262		262		—		240		1
Commercial real estate		2,214		2,291		—		4,227		12
Consumer loans		123		123		—		86		1
Commercial loans		3,498		4,502		—		3,464		44
Total impaired with no related allowance recorded	$	8,082	$	9,366	$	—	$	10,337	$	71
With an allowance recorded:
Residential real estate:
1-4 family	$	1,792	$	1,854	$	272	$	1,972	$	17
Home equity loans		—		—		—		—		—
Commercial real estate		5,164		5,201		1,285		4,415		28
Consumer loans		—		—		—		—		—
Commercial loans		1,636		1,636		424		2,083		22
Total impaired with an allowance recorded	$	8,592	$	8,691	$	1,981	$	8,470	$	67
Total:
Residential real estate:
1-4 family	$	3,777	$	4,042	$	272	$	4,292	$	30
Home equity loans		262		262		—		240		1
Commercial real estate		7,378		7,492		1,285		8,642		40
Consumer loans		123		123		—		86		1
Commercial loans		5,134		6,138		424		5,547		66
Total impaired loans	$	16,674	$	18,057	$	1,981	$	18,807	$	138

The following table shows the Company’s impaired loans at March 31, 2012.

	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	$	936	$	973	$	—	$	1,843	$	44
Home equity loans		—		—		—		184		—
Commercial real estate		8,510		8,590		—		5,458		501
Consumer loans		—		—		—		44		—
Commercial loans		3,214		3,967		—		2,482		162
Total impaired with no related allowance recorded	$	12,660	$	13,530	$	—	$	10,011	$	707
With an allowance recorded:
Residential real estate:
1-4 family	$	311	$	389	$	15	$	1,470	$	20
Home equity loans		—		—		—		—		—
Commercial real estate		1,451		1,482		207		3,792		72
Consumer loans		—		—		—		50		—
Commercial loans		889		913		372		2,156		45
Total impaired with an allowance recorded	$	2,651	$	2,784	$	594	$	7,468	$	137
Total:
Residential real estate:
1-4 family	$	1,247	$	1,362	$	15	$	3,313	$	64
Home equity loans		—		—		—		184		—
Commercial real estate		9,961		10,072		207		9,250		573
Consumer loans		—		—		—		94		—
Commercial loans		4,103		4,880		372		4,638		207
Total impaired loans	$	15,311	$	16,314	$	594	$	17,479	$	844

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Delinquencies. The following table provides information about delinquencies in our loan portfolio as of September 30, 2012.

	30-59 Days		60-89 Days		90 Days or more		Total Past Due		Nonaccrual loans
	(In thousands)
Residential real estate:
1-4 family	$	46	$	1,332	$	1,113	$	2,491	$	2,514
Home equity loans		81		—		211		292		295
Commercial real estate		3,579		849		4,417		8,845		5,639
Consumer loans		147		33		95		275		146
Commercial loans		1,466		319		1,431		3,216		4,012
Total	$	5,319	$	2,533	$	7,267	$	15,119	$	12,606

The following table provides information about delinquencies in our loan portfolio as of March 31, 2012.

	30-59 Days		60-89 Days		90 Days or more		Total Past Due		Nonaccrual loans
	(In thousands)
Residential real estate:
1-4 family	$	2,771	$	—	$	2,217	$	4,988	$	3,734
Home equity loans		112		154		84		350		170
Commercial real estate		1,702		1,152		4,976		7,830		7,141
Consumer loans		100		49		47		196		56
Commercial loans		1,641		154		3,545		5,340		4,072
Total	$	6,326	$	1,509	$	10,869	$	18,704	$	15,173

Troubled Debt Restructuring.The Bank did not restructure any troubled debt during the six months or quarter ended September 30, 2012.

The following table summarizes loans that were modified under a troubled debt restructuring during the year ended March 31, 2012 (Dollars in Thousands).

	For the Year Ended March 31, 2012
	Number of Contracts		Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
Troubled debt restructurings
Residential real estate:
1-4 family		—	$	—	$	—
Home equity loans		—		—		—
Commercial real estate		2		803		803
Consumer loans		—		—		—
Commercial loans		4		702		702
Total		6	$	1,505	$	1,505

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NOTE 8 – Other-Than-Temporary Impairment Losses

The following table summarizes gross unrealized losses and fair value, aggregated by investment category and length of time the investments have been in a continuous unrealized loss position, at September 30, 2012 and March 31, 2012:

	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized  Losses
	(In thousands)
September 30, 2012
Debt securities issued by states of the
United States and political subdivisions
of the states	$	9,103	$	130	$	231	$	15	$	9,334	$	145
Debt securities issued by the U.S.
Treasury and other U.S. government
corporations and agencies		499		1		—		—		499		1
Mortgage-backed securities		5,947		21		1,436		31		7,383		52
Total temporarily impaired securities		15,549		152		1,667		46		17,216		198
Other-than-temporarily impaired securities
Mortgage-backed securities		—		—		75		6		75		6
Total temporarily impaired securities and
other than temporarily impaired
securities	$	15,549	$	152	$	1,742	$	52	$	17,291	$	204
March 31, 2012:
Debt securities issued by states of
United States and political subdivisions
of the states	$	3,212	$	37	$	—	$	—	$	3,212	$	37
Debt securities issued by the U.S.
Treasury and other U.S. government
corporations and agencies		11,219		240		1,502		51		12,721		291
Mortgage-backed securities		6,469		98		1,231		73		7,700		171
Total temporarily impaired securities		20,900		375		2,733		124		23,633		499
Other-than-temporarily impaired securities
Mortgage-backed securities		—		—		372		82		372		82
Total temporarily impaired securities and
other than temporarily impaired
securities	$	20,900	$	375	$	3,105	$	206	$	24,005	$	581

Management has assessed the securities which are classified as available-for-sale and in an unrealized loss position at September 30, 2012 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.”

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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 six months ended September 30, 2012 is as follows:

	Non-Agency Mortgage-Backed
	(In thousands)
Balance, April 1, 2012	$	96
Additions for the credit component on debt securities
in which other-than-temporary impairment was
not previously recognized		17
Balance September 30, 2012	$	113

In accordance with ASC 320-10, the Company estimated the portion of loss attributable to credit using a discounted cash flow model. Significant inputs for the non-agency mortgage-backed securities included the estimated cash flows of the underlying collateral based on key assumptions, such as default rate, loss severity and prepayment rate. Assumptions used can vary widely from loan to loan, and are influenced by such factors as loan interest rate, geographical location of the borrower, borrower characteristics and collateral type. The present value of the expected cash flows was compared to the Company’s holdings to determine the credit-related impairment loss. Based on the expected cash flows derived from the model, the Company expects to recover the remaining unrealized losses on non-agency mortgage-backed securities. Significant assumptions used in the valuation of non-agency mortgage-backed securities were as follows as of September 30, 2012.

	Weighted			Range
	Average			Minimum			Maximum
Prepayment rates		17.1	%		3.5	%		21.8	%
Default rates		11.9			3.7			17.9
Loss severity		38.7			28.6			56.5

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:

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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.

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

	Fair Value Measurements at Reporting date Using:
	Total		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
September 30, 2012:
Debt securities issued by the U.S.     Treasury and other U.S.     government corporations and     agencies	$	3,858	$	—	$	3,858	$	—
Debt securities issued by states of     the United States and political     subdivisions of the states		23,293		—		23,293		—
Mortgage-backed securities		26,039		—		26,039		—
Total	$	53,190	$	—	$	53,190	$	—
March 31, 2012
Debt securities issued by the U.S.     Treasury and other U.S.     government corporations and     agencies	$	6,470	$	1,369	$	5,101	$	—
Debt securities issued by states of     the United States and political     subdivisions of the states		25,361		1,941		23,420		—
Mortgage-backed securities		29,756		10		29,746		—
Total	$	61,587	$	3,320	$	58,267	$	—

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Under certain circumstances we make adjustments to fair value for our assets and liabilities although they are not measured at fair value on an ongoing basis. The following table presents the financial instruments carried on the consolidated balance sheet by caption and by level in the fair value hierarchy at September 30 and March 31, 2012, 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)
September 30, 2012:
Impaired Loans	$	6,611	$	—	$	—	$	6,611
Other real estate owned		1,049		—		—		1,049
Total	$	7,660	$	—	$	—	$	7,660
March 31, 2012:
Impaired Loans	$	2,057	$	—	$	—	$	2,057
Other real estate owned		1,000		—		—		1,000
Total	$	3,057	$	—	$	—	$	3,057

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

The following are the carrying amounts and estimated fair values of the Company’s financial assets and liabilities at September 30, 2012:

	September 30, 2012
	Carrying Amount		Fair Value
			Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	71,030	$	71,030	$	—	$	—	$	71,030
Available-for-sale securities		53,190		—		53,190		—		53,190
Federal Home Loan Bank stock		4,100		4,100		—		—		4,100
Loans, net		555,564		—		—		569,030		569,030
Accrued interest receivable		2,350		2,350		—		—		2,350
Financial liabilities:
Deposits	$	584,268	$	—	$	587,909	$	—	$	587,909
Advanced payments by borrowers for taxes   and insurance		1,207		1,207		—		—		1,207
FHLB advances		31,970		—		34,014		—		34,014
Securities sold under agreements   to repurchase		29,849		—		29,850		—		29,850
Subordinated debentures		3,931		—		1,440		—		1,440

20

The following are the carrying amounts and estimated fair values of the Company’s financial assets and liabilities at March 31, 2012:

	March 31, 2012
	Carrying Amount		Fair Value
			Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	62,064	$	62,064	$	—	$	—	$	62,064
Available-for-sale securities		61,587		3,320		58,267		—		61,587
Federal Home Loan Bank stock		4,100		4,100		—		—		4,100
Loans, net		552,246		—		—		564,037		564,037
Loans held for sale		—		—		—		—		—
Accrued interest receivable		2,392		2,392		—		—		2,392
Financial liabilities:
Deposits	$	581,268	$	—	$	585,961	$	—	$	585,961
Advanced payments by borrowers for taxes   and insurance		1,504		1,504		—		—		1,504
FHLB advances		33,044		—		35,314		—		35,314
Securities sold under agreements   to repurchase		27,752		—		27,753		—		27,753
Subordinated debentures		3,927		—		1,441		—		1,441
Due to Broker		1,119		1,119		—		—		1,119

NOTE 10 – OTHER COMPREHENSIVE INCOME

Other comprehensive income for the six months ended September 30, 2012 and 2011 are as follows:

	September 30, 2012
	Before Tax Amount			Tax Effects			Net of Tax Amount
	(In Thousands)
Net unrealized holding gains on available-for-sale securities	$	620		$	(212	)	$	408
Reclassification adjustment for realized gains in net income		(392	)		134			(258	)
Other comprehensive benefit – director fee continuation plan		—			—			—
Total	$	228		$	(78	)	$	150

	September 30, 2011
	Before Tax Amount			Tax Effects			Net of Tax Amount
	(In Thousands)
Net unrealized holding gains on available-for-sale securities	$	888		$	(240	)	$	648
Reclassification adjustment for realized gains in net income		(147	)		40			(107	)
Other comprehensive benefit – director fee continuation plan		—			—			—
Total	$	741		$	(200	)	$	541

Accumulated other comprehensive income consists of the following as of:

	September 30, 2012		March 31, 2012
	(In Thousands)
Net unrealized holding gains on available-for-sale securities, net of taxes(1)	$	608	$	458
Unrecognized director fee plan benefits, net of tax		1		1
Total	$	609	$	459

⁽¹⁾ The September 30, 2012 and March 31, 2012 ending balance includes $113,000 and $82,000, respectively of unrealized losses in which other-than-temporary impairment has been recognized.

21

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

The following analysis discusses changes in the financial condition and results of operations at and for the three and six months ended September 30, 2012 and 2011, 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, 2012 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.

Merger Agreement With United Financial Bancorp, Inc.

On May 31, 2012, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with United Financial Bancorp, Inc. (“United Financial”), the holding company of United Bank, pursuant to which the Company will merge with and into United Financial, with United Financial as the surviving entity (the “Merger”). In addition, the Bank will merge with and into United Bank, with United Bank as the surviving entity.  The transaction has been approved by the boards of directors and stockholders of both the Company and United Financial. The merger is expected to close on or about November 16, 2012 subject to the receipt of regulatory approval and the satisfaction of other customary closing conditions. Additional information regarding the Merger is provided in the Company’s Annual Report on Form 10-K for the year ended March 31, 2012 under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations— Merger Agreement With United Financial Bancorp, Inc.” and the Company’s other filings with the Securities and Exchange Commission.

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Comparison of Financial Condition at September 30, 2012 and March 31, 2012

Assets

Total assets were $729.0 million at September 30, 2012, an increase of $2.5 million compared to $726.5 million at March 31, 2012. The increase in total assets was primarily due to an $8.9 million increase in cash and cash equivalents and a $3.3 million increase in net loans, partially offset by an $8.4 million decrease in investments.

Liabilities

Total liabilities were $655.6 million at September 30, 2012, an increase of $2.5 million compared to $653.1 million at March 31, 2012. The increase in total liabilities was caused primarily by a $3.0 million increase in total deposits and a $2.1 million increase in repurchase agreements offset by a $1.1 million decrease in FHLB advances and a $1.3 million decrease in other liabilities. At September 30, 2012, deposits are comprised of savings accounts totaling $83.0 million, money market deposit accounts totaling $128.4 million, demand and NOW accounts totaling $89.3 million, and certificates of deposits totaling $283.6 million. The Company’s core deposits, which the Company considers to be all deposits except for certificates of deposits, increased to 51.5% of total deposits at September 30, 2012 from 50.4% at March 31, 2012.

Stockholders’ Equity

Total stockholders’ equity increased $100,000 to $73.5 million at September 30, 2012 from $73.4 million at March 31, 2012. The increase was primarily caused by net income of $1.7 million and an increase in other comprehensive income of $150,000 partially offset by dividends paid of $340,000 and treasury stock purchases of $1.5 million.

Comparison of Operating Results for the Three Months Ended September 30, 2012 and 2011

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 September 30, 2012, the Company reported net income of $947,000, compared to $932,000 for the year ago period. Basic and diluted income per share for the quarter ended September 30, 2012 were $0.17 and $0.16, respectively, compared to $0.16 and $0.15, respectively, for the quarter ended September 30, 2011.

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Net Interest and Dividend Income

Net interest and dividend income for the three months ended September 30, 2012 and 2011 totaled $5.7 million and $5.6 million, respectively. The Company’s net interest margin was 3.44% for the three months ended September 30, 2012 and 3.54% for the three months ended September 30, 2011. The decrease in the net interest margin for the quarter was primarily due to a 36 basis point decrease in the rate earned on interest-earning assets partially offset by an increase in average interest-earning assets of $23.2 million and an $11.2 million increase in average interest-bearing liabilities offset by a 27 basis point decrease 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 3.30% for the quarter ended September 30, 2011 to 3.22% for the quarter ended September 30, 2012.

Interest and dividend income amounted to $7.8 million and $8.1 million for the three months ended September 30, 2012 and 2011, respectively. Average interest-earning assets were $680.0 million for the quarter ended September 30, 2012 compared to $656.8 million for the quarter ended September 30, 2011. The increase in average interest-earning assets was caused primarily by a $29.1 million increase in average net loans and a $2.2 million increase in average investments other than mortgage-backed securities, partially offset by a $5.4 million decrease in average investments in mortgage-backed securities and a $2.3 million decrease in average interest-bearing deposits with other banks. The yield earned on average interest-earning assets decreased 36 basis points to 4.69% for the three months ended September 30, 2012 from 5.05% for the three months ended September 30, 2011 due to the current low interest rate environment.

Interest expense for the quarters ended September 30, 2012 and 2011 was $2.1 million and $2.5 million, respectively. Average interest-bearing liabilities increased $11.2 million during the quarter ended September 30, 2012 from $568.6 million to $579.8 million primarily due to a $12.2 million increase in average interest-bearing deposits and a $5.1 million increase in average repurchase agreements offset by a $6.1 million decrease in average FHLB advances. The average rate paid on interest-bearing liabilities decreased to 1.47% for the quarter ended September 30, 2012 from 1.74% 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 the average balance of FHLB advances which generally have higher rates. The average rate paid on certificates of deposit decreased from 2.34% for the quarter ended September 30, 2011 to 2.00% for the current year quarter as market rates have decreased for this type of deposit.

24

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, and are presented on an annualized basis.

	For the Quarters Ended September 30,
	2012								2011
	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	$	60,678		$	36		0.24	%	$	63,015		$	43		0.27	%
Investments in available-for-sale      securities, other than mortgage-backed      and mortgage-related securities(1)		27,050			344		5.10			24,898			329		5.30
Mortgage-backed and mortgage-related      securities		26,585			153		2.31			32,011			262		3.28
Federal Home Loan Bank and Bankers’ Bank stock		4,415			6		0.59			4,741			4		0.36
Loans, net		561,223			7,416		5.30			532,110			7,626		5.75
Total interest-earning assets		679,951			7,955		4.69			656,775			8,264		5.05
Noninterest-earning assets		39,010								39,778
Cash surrender value of life insurance		10,492								10,151
Total assets	$	729,453							$	706,704
Liabilities and Stockholders’ Equity:
Deposits:
Savings accounts	$	83,395		$	128		0.62	%	$	77,103		$	149		0.77	%
NOW accounts11,444		19,676			15		0.30			16,684			13		0.30
Money market accounts		128,073			207		0.65			119,336			225		0.76
Certificate accounts		284,555			1,420		2.00			290,421			1,691		2.34
Total deposits		515,699			1,770		1.38			503,544			2,078		1.64
Federal Home Loan Bank advances and      subordinated debentures		36,088			297		3.31			42,202			343		3.23
Advanced payments by borrowers for taxes and      insurance		1,249			3		0.99			1,122			3		1.02
Securities sold under agreements to repurchase		26,781			58		0.87			21,687			49		0.92
Total interest-bearing liabilities		579,817			2,128		1.47			568,555			2,473		1.74
Demand deposits		68,553								58,198
Other liabilities		8,055								7,913
Total liabilities		656,425								634,666
Stockholders’ Equity		73,028								72,038
Total liabilities and stockholders’ equity	$	729,453							$	706,704
Net interest and dividend income/net      interest rate spread				$	5,827		3.22	%				$	5,791		3.30	%
Net interest margin							3.44	%							3.54	%
Ratio of interest-earning assets      to interest-bearing liabilities		117.27	%							115.52	%

⁽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. The both column represents changes attributable to changes in both rate and volume that cannot be segregated.

	Quarter Ended September 30, 2012 Compared to Quarter Ended September 30, 2011
	Increase (Decrease) Due to
	Rate			Volume			Both			Net
	(In thousands)
Interest-earning assets:
Federal funds sold, interest-bearing    deposits and marketable equity securities	$	(25	)	$	(7	)	$	24		$	(8	)
Investments in available-for-sale securities,    other than mortgage-backed and    mortgage-related securities		30			37			(52	)		15
Mortgage-backed and mortgage-related    securities		(309	)		(178	)		379			(108	)
Federal Home Loan Bank and Bankers’ Bank stock		11			(1	)		(8	)		2
Loans, net		(2,387	)		1,674			503			(210	)
Total interest-earning assets		(2,680	)		1,525			846			(309	)
Interest-bearing liabilities:
Savings accounts		(117	)		48			48			(21	)
NOW accounts		(1	)		9			(6	)		2
Money market accounts		(134	)		66			50			(18	)
Certificate accounts		(991	)		(137	)		857			(271	)
Total Deposits		(1,243	)		(14	)		949			(308	)
Federal Home Loan Bank advances and    subordinated debentures		32			(197	)		119			(46	)
Advanced payments by borrowers for taxes    and insurance		—			1			(1	)		—
Securities sold under agreements to repurchase		(10	)		47			(28	)		9
Total interest-bearing liabilities		(1,221	)		(163	)		1,039			(345	)
Increase in net interest and dividend income	$	(1,459	)	$	1,688		$	(193	)	$	36

Provision for Loan Losses

The provision for loan losses for the quarters ended September 30, 2012 and 2011 were $363,000 and $516,000, respectively. The additions to and resulting increase in the allowance for loan losses at September 30, 2012 reflected continued growth in the commercial loan portfolio and the challenging economic climate.

Noninterest Income

For the quarter ended September 30, 2012, noninterest income was $939,000 compared to $749,000 for the quarter ended September 30, 2011. Affecting noninterest income for the three months ended September 30, 2012 were increases of $110,000 in gains on securities, $44,000 in gains on sale of loans and $33,000 in service charges on deposit accounts.

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Noninterest Expense

Noninterest expense for the quarter ended September 30, 2012 was $4.7 million compared to $4.4 million for the quarter ended September 30, 2011. The increase was due largely to $165,000 in merger related expenses and an increase of $150,000 in other expenses. The Company’s efficiency ratio improved from 71.6% for the quarter ended September 30, 2011 to 70.6% for the current year quarter.

Provision for Income Taxes

The Company recorded income tax expense of $642,000 and $544,000 for the quarters ended September 30, 2012 and 2011, respectively, with effective tax rates of 40.4% and 36.9%, respectively. The increase in the effective tax rate is primarily due to the merger related expenses that are not tax deductible.

Comparison of Operating Results for the Six Months Ended September 30, 2012 and 2011

Net Income

For the six months ended September 30, 2012, the Company reported net income of $1.748 million, compared to $1.711 million for the year ago period. Basic and diluted income per share for the six months ended September 30, 2012 were $0.31 and $0.30, respectively, compared to $0.29 and $0.28, respectively, for the six months ended September 30, 2011.

Net Interest and Dividend Income

Net interest and dividend income for the six months ended September 30, 2012 and 2011 totaled $11.4 million and $11.2 million, respectively. The Company’s net interest margin decreased to 3.41% for the six months ended September 30, 2012 from 3.51% for the six months ended September 30, 2011. The increase in net interest and dividend income for the period was primarily due to an increase in average net interest earning assets of approximately $11.9 million, including an increase in average net loans of $28.9 million. Partially offsetting the increase in net earning assets was a 36 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 which caused the Company’s interest rate spread to decrease from 3.27% for the six months ended September 30, 2011 to 3.19% for the six months ended September 30, 2012.

Interest and dividend income amounted to $15.7 million and $16.2 million for the six months ended September 30, 2012 and 2011, respectively. Average interest-earning assets were $678.4 million for the six months ended September 30, 2012; an increase of $28.9 million, or 4.5%, compared to $649.5 million for the six months ended September 30, 2011. The increase in average interest-earning assets was caused primarily by a $28.9 million increase in average net loans and a $2.6 million increase in federal funds sold partially offset by a $2.2 million decrease in investment securities. The yield earned on average interest-earning assets decreased to 4.68% for the six months ended September 30, 2012 from 5.04% for the six months ended September 30, 2011.

27

Interest expense for the six months ended September 30, 2012 and 2011 was $4.3 million and $5.0 million, respectively. Average interest-bearing liabilities grew $17.0 million during the six months ended September 30, 2012 from $562.2 million to $579.2 million primarily due to increases of $17.7 million in average interest-bearing deposits and $5.2 million in average repurchase agreements, partially offset by a $6.1 million decrease in FHLB advances. The average rate paid on interest-bearing liabilities decreased to 1.49% for the six months ended September 30, 2012 from 1.77% 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 2.36% for the six months ended September 30, 2011 to 2.03% 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, and are presented on an annualized basis.

	For the Six Months Ended September 30,
	2012								2011
	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	$	57,796		$	73		0.25	%	$	55,180		$	66		0.24	%
Investments in available-for-sale  securities, other than mortgage-backed  and mortgage-related securities(1)		28,470			620		4.34			25,481			643		5.03
Mortgage-backed and mortgage-related    securities		27,084			307		2.26			32,301			545		3.37
Federal Home Loan Bank and Bankers’ Bank stock		4,415			14		0.65			4,741			10		0.41
Loans, net		560,673			14,896		5.30			531,798			15,142		5.68
Total interest-earning assets		678,438			15,910		4.68			649,501			16,406		5.04
Noninterest-earning assets		39,300								39,700
Cash surrender value of life insurance		10,449								10,107
Total assets	$	728,187							$	699,308
Liabilities and Stockholders’ Equity:
Deposits:
Savings accounts	$	83,398		$	271		0.65	%	$	77,423		$	293		0.76	%
NOW accounts11,444		19,242			29		0.30			16,643			25		0.30
Money market accounts		126,439			401		0.63			113,222			456		0.80
Certificate accounts22		285,812			2,904		2.03			289,943			3,426		2.36
Total deposits		514,891			3,605		1.49			497,231			4,200		1.68
Federal Home Loan Bank advances and    subordinated debentures		36,352			598		3.28			42,462			686		3.22
Advanced payments by borrowers for taxes and    insurance		1,727			8		0.92			1,577			8		0.98
Securities sold under agreements to repurchase		26,181			114		0.87			20,968			96		0.91
Total interest-bearing liabilities		579,151			4,325		1.49			562,238			4,990		1.77
Demand deposits		68,343								57,839
Other liabilities		7,827								7,687
Total liabilities		655,321								627,764
Stockholders’ Equity		72,866								71,544
Total liabilities and stockholders’ equity	$	728,187							$	699,308
Net interest and dividend income/net    interest rate spread				$	11,585		3.19	%				$	11,416		3.27	%
Net interest margin							3.41	%							3.51	%
Ratio of interest-earning assets    to interest-bearing liabilities		117.14	%							115.52	%

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

28

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. The both column represents changes attributable to changes in both rate and volume that cannot be segregated.

	Six Months Ended September 30, 2012 Compared to Six Months Ended September 30, 2011
	Increase (Decrease) Due to
	Rate			Volume			Both			Net
	(In thousands)
Interest-earning assets:
Federal funds sold, interest-bearing    deposits and marketable equity securities	$	7		$	6		$	(6	)	$	7
Investments in available-for-sale securities,    other than mortgage-backed and    mortgage-related securities		(145	)		110			12			(23	)
Mortgage-backed and mortgage-related    securities		(356	)		(176	)		294			(238	)
Federal Home Loan Bank  and Bankers’ Bank stock		11			(1	)		(6	)		4
Loans, net		(2,021	)		1,640			135			(246	)
Total interest-earning assets		(2,504	)		1,579			429			(496	)
Interest-bearing liabilities:
Savings accounts		(84	)		45			16			(23	)
NOW accounts		(1	)		8			(4	)		3
Money market accounts		(192	)		106			32			(54	)
Certificate accounts		(956	)		(97	)		532			(521	)
Total Deposits		(1,233	)		62			576			(595	)
Federal Home Loan Bank advances and    subordinated debentures		27			(197	)		83			(87	)
Advanced payments by borrowers for taxes    and insurance		(1	)		1			—			—
Securities sold under agreements to repurchase		(11	)		48			(20	)		17
Total interest-bearing liabilities		(1,218	)		(86	)		639			(665	)
Increase in net interest and dividend income	$	(1,286	)	$	1,665			(210	)	$	169

Provision for Loan Losses

The provision for loan losses for the six months ended September 30, 2012 and 2011 were $724,000 and $875,000, respectively. The additions to and resulting increase in the allowance for loan losses at September 30, 2012 reflected continued growth in the commercial loan portfolio and the challenging economic climate.

Noninterest Income

For the six months ended September 30, 2012, noninterest income was $1.8 million compared to $1.3 million for the six months ended September 30, 2011. Affecting noninterest income for the six months ended September 30, 2012 were increases of $245,000 and $141,000 in gain on sale of securities and loans, respectively. Service charges on deposit accounts also increased $80,000 for the six months ended September 30, 2012.

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Noninterest Expense

Noninterest expense for the six months ended September 30, 2012 and 2011 was $9.4 million and $9.0 million, respectively. During the six months ended September 30, 2012 the Company recorded $675,000 in merger related expenses and a $164,000 increase in other expenses, partially offset by decreases of $105,000 in occupancy and equipment expense, $67,000 in advertising and promotion, $61,000 in salaries and employee benefits and $71,000 in FDIC insurance.

Provision for Income Taxes

The Company recorded income tax expense of $1.4 million and $955,000 for the six months ended September 30, 2012 and 2011, respectively, with effective tax rates of 44.0% and 35.8%, respectively. The increase in the effective tax rate is primarily due to the merger related expenses that are not tax deductible.

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 September 30, 2012 of $32.0 million, with unused borrowing capacity of $18.7 million.

The Company’s primary investing activities are the origination of loans and the purchase of mortgage and investment securities. During the six months ended September 30, 2012 and 2011 the Company originated loans, net of principal paydowns, of approximately $4.0 million and $16.6 million, respectively. Purchases of investment securities totaled $21.2 million and $15.4 million for the six months ended September 30, 2012 and 2011, 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 $584.3 million at September 30, 2012, a $3.0 million increase from the $581.3 million balance at March 31, 2012.

At September 30, 2012, the Company had outstanding commitments to originate $23.3 million of loans, and available home equity and unadvanced lines of credit and construction loans of approximately $39.9 million. In addition, the Company had $2.4 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 $131.9 million, or 22.6% of total deposits at September 30, 2012. 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.

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As of September 30, 2012, the Company and the Bank met all capital adequacy requirements to which they were subject. The Company’s capital amounts and ratios as of September 30, 2012 are presented in the following table.

(Dollar amounts in thousands)

				New England Bancshares, Inc.
	Required			Amount		Ratio
Tier 1 Capital		4	%	$	59,252		8.32	%
Total Risk-Based Capital		8	%	$	64,845		12.00	%
Tier 1 Risk-Based Capital		4	%	$	59,252		10.96	%

The Bank’s actual capital amounts and ratios as of September 30, 2012 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)	$	62,409		11.55	%	$	43,239		>8.0%	$	54,048		>10.0%
Tier 1 Capital (to Risk Weighted Assets)		56,816		10.51			21,619		>4.0		32,429		>6.0
Tier 1 Capital (to Average Assets)		56,816		7.98			28,477		>4.0		35,596		>5.0

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 six months ended September 30, 2012, 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.

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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 committee 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.

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.

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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.

Item 1A. Risk Factors.

There have been no material changes in the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2012. The risks described 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.

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

The Company did not repurchase any of its common stock in the quarter ended September 30, 2012.

Item 3. Defaults Upon Senior Securities.

None.

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Item 4. Mine Safety Disclosures

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

2.1 Agreement and Plan of Merger by and between New England Bancshares, Inc. and United Financial Bancorp, Inc.⁽⁴⁾

3.1 Articles of Incorporation of New England Bancshares, Inc.⁽¹⁾

3.2 Bylaws of New England Bancshares, Inc.⁽²⁾

4.1 Specimen stock certificate of New England Bancshares, Inc.⁽²⁾

31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer⁽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 September 30, 2012 and March 31, 2012, (ii) the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended September 30, 2012 and 2011,(iii) the Condensed Consolidated Statements of Changes in Stockholders’ Equity for the six months ended September 30, 2012 and 2011, (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2012 and 2011, and (v) 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 3.1 to the Form 8-K as filed with the Securities and Exchange Commission on October 11, 2007.

⁽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.

⁽⁴⁾ Incorporated by reference into this document from Exhibit 2.1 to the Form 8-K as filed by New England Bancshares, Inc. with the Securities and Exchange Commission on May 31, 2012.

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

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