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[NEW ENGLAND BANCSHARES, INC. LETTERHEAD]
May 2, 2006
VIA EDGAR
- ---------
Mr. Todd Schiffman
Assistant Director
U.S. Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, DC 20549
RE: NEBS Bancshares, Inc.
Registration Statement on Form SB-2
File No. 333-128277
Dear Mr. Schiffman:
In connection with our filing of the registration statement referenced
above, the Staff requested clarification on our determination that New England
Bancshares, Inc.'s (formerly NEBS Bancshares, Inc.) (the "Company") investment
in the Ultra Short Mortgage Fund and the Ultra Short Fund (collectively, the
"Funds") was "temporarily impaired." Our response dated November 10, 2005,
advised the Staff how we determined that these investments should be accounted
for as temporarily impaired (a copy of this response is attached.) This letter
updates the Staff as to its current determination of the investments in question
and provides information that was discussed during a conference call with Donald
Walker and Nancy Maloney on April 28, 2006.
In its November response letter the Company mentioned "(1) if interest
rates do not perform as predicted in the report prepared by Global Insight;
namely if interest rates do not begin to stabilize or decline from current rates
at some point during the first quarter of 2006; or (2) if the fund does not
perform as the registrant has predicted in such rate environment, the registrant
will determine such investments to be other than temporarily impaired and take
the appropriate charges required of such a determination." Global Insight is one
of the leading economic and financial forecasting companies and the Company
relies on its projections in analyzing its investments that are interest rate
sensitive and assessing its overall interest rate risk management. At the time
of the November response, Global Insight predicted that the Federal Funds rate
would reach 4.75% in April 2006 and then stabilize. Global Insight now projects
that the Federal Funds rate will rise to 5.25% by July 2006 and then level off.
In making the determination of whether an investment is other than
temporarily impaired the Company looks at several factors, including those
specifically detailed in Staff Accounting Bulletin 59. A description of its
analysis of these factors follows:
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Mr. Todd Schiffman
U.S. Securities and Exchange Commission
May 2, 2006
Page 2
1. THE LENGTH OF THE TIME AND THE EXTENT TO WHICH THE MARKET VALUE HAS
BEEN LESS THAN COST. The two investments have been in loss positions since
October 31, 2002 and November 31, 2001, respectively. However they were within
0.13% and 0.14% of their cost basis on June 30, 2003. The June 30, 2003 date
coincides with the Federal Reserve's final Federal Funds Rate decrease to 1%. As
of March 31, 2006, the two mutual fund investments' cost basis was $6.6 million.
The total unrealized pre-tax loss totaled $196,000, which is less than 3% of the
cost basis. Since purchasing the Funds, the unrealized loss on the Funds has
never exceeded 3%. While the Company does not have a specific percentage or
dollar amount in its investment policy as to the level at which an investment
would need to be considered other than temporarily impaired, the Company has
determined that a 3% loss on this investment does not rise to a level that
warrants its determination as other than temporarily impaired. Further, due to
the composition of the assets underlying each of the funds (primarily government
and agency issued debt securities and short-term adjustable-rate mortgages
guaranteed by government sponsored agencies), the Funds' net asset value has
historically responded to market interest rates and have increased in periods
immediately following the cessation of a rise in the Federal Funds rate. Lastly,
the Company also considers return on its investment, which in the case of the
Funds is currently 4.79% and 4.49%.
2. THE FINANCIAL CONDITION AND NEAR-TERM PROSPECTS OF THE ISSUER. The
Company receives financial statements from the issuer of the mutual funds, Asset
Management Fund, and its manager Shay Asset Management on an annual basis. There
are nothing in the financial condition of the issuer or the management firm that
otherwise threatens the value of the investment or that would support a
determination of the investments to be considered other than temporarily
impaired.
3. THE INTENT AND ABILITY OF THE HOLDER TO RETAIN ITS INVESTMENT IN THE
ISSUER FOR A PERIOD OF TIME SUFFICIENT TO ALLOW FOR ANY ANTICIPATED RECOVERY IN
MARKET VALUE. This investment has low interest rate risk and provides monthly
cash flows. It is also small enough (these two investments aggregate $6.6
million, which represents approximately 2.6% of total assets and 11.6% of total
equity) that the Company is not dependent on the funds represented by the
investments for liquidity purposes. Accordingly, the Company intends to retain
the investments for a sufficient period of time to allow for any anticipated
recovery in market value, which, due to the slight lag of these funds to respond
to interest rate changes, is anticipated to be approximately six months after
the Federal Reserve ceases increasing the Federal Funds Rate.
Based on the above analysis the Company has determined that the investment
in the two bond mutual funds are not other than temporarily impaired at March
31, 2006. The Company has made such determination after consultation with
independent auditors, Shatswell, MacLeod & Company, P.C. The Company reviews
this determination quarterly along with all of its investments in an unrealized
loss position.
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Mr. Todd Schiffman
U.S. Securities and Exchange Commission
May 2, 2006
Page 3
If you have any questions concerning this submission, please telephone the
undersigned at (860) 253-4021.
Very truly yours,
/s/ David J. O'Connor
David J. O'Connor
President and Chief Executive Officer
DJO/ng
Enclosures
cc: Donald Walker, Securities and Exchange Commission
Joyce Sweeney, Securities and Exchange Commission
Nancy Maloney, Securities and Exchange Commission
Scott D. Nogles, New England Bancshares, Inc.
Lawrence M.F. Spaccasi, Esq., Muldoon Murphy & Aguggia, LLP
Scott A. Brown, Esq., Muldoon Murphy & Aguggia, LLP
John D. Marsh, Shatswell, MacLeod & Company, P.C.
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[MULDOON MURPHY & AGUGGIA LLP LETTERHEAD]
November 10, 2005
VIA EDGAR
Mr. Todd Schiffman
Assistant Director
U.S. Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, DC 20549
RE: NEBS BANCSHARES, INC.
AMENDMENT NUMBER ONE TO REGISTRATION STATEMENT ON FORM SB-2
FILED OCTOBER 26, 2005
FILE NO. 333-128277
Dear Mr. Schiffman:
On behalf of NEBS Bancshares, Inc., we hereby provide the following
information in response to the Staff's further request for clarification on New
England Bancshares, Inc.'s investment in the Ultra Short Mortgage Fund and Ultra
Short Fund. The Staff is supplementally advised that in determining that the
investments in the Ultra Short Mortgage Fund and Ultra Short Fund as temporarily
impaired at June 30, 2005 and March 31, 2005, it relied heavily on interest rate
forecasts prepared by Global Insight, the leading economic and financial
forecasting company in the world, on continuing discussions with Shay Financial,
the manager of the funds, its review of the market and the funds' historical
performance relative to short-term interest rates (due to the 0.9 duration of
the funds), in particular, the United States Treasury six-month treasury bill
and the federal funds target rate. As stated in a prior response, while the
funds are equity securities, they consist of interest-rate sensitive assets and,
accordingly, the net asset value of each fund directly corresponds to changes in
short-term market interest rates. Based on its analysis, the registrant
determined that the net asset value of the funds will likely return to the
registrant's historical cost upon a stabilization or decline in market interest
rates.
In the most recent report issued by Global Insight, it provides that the
Federal Reserve Bank's tightening monetary policy will cease in the first
quarter of 2006 and that short-term rates will stabilize and remain flat for a
period of at least one year.
The registrant has reviewed the performance of the AMF Ultra Short
Mortgage Fund from its inception in September 1991 through September 2005 and
notes that in periods of stabilizing or
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Mr. Todd Schiffman
November 10, 2005
Page 2
declining interest rates, the net asset value of the fund has been near or above
the registrant's cost basis of $9.98, specifically during the following periods:
o the second and third quarters of 1992;
o almost all of 1993;
o first quarter of 1996;
o second quarter of 1997;
o first quarter of 1998; and
o fourth quarter of 2001 through the second quarter of 2003.
The registrant believes based on the aforementioned data that the funds
will begin to return to a net asset value that approximates or exceeds the
registrant's cost during the second half of 2006 based on the Federal Reserve
ceasing its increase in interest rates in the first quarter of 2006. This
expectation is based on the Global Insight report. Nevertheless, the registrant
hereby commits that: (1) if interest rates do not perform as predicted in the
report prepared by Global Insight; namely if interest rates do not begin to
stabilize or decline from current rates at some point during the first quarter
of 2006; or (2) if the fund does not perform as the registrant has predicted in
such interest rate environment, the registrant will determine such investments
to be other than temporarily impaired and take the appropriate charges required
of such a determination.
If you have any questions concerning this submission, please telephone the
undersigned at (202) 686-4930.
Very truly yours,
MULDOON MURPHY & AGUGGIA LLP
/s/ Scott A. Brown
Scott A. Brown
cc: Jessica Livingston, Securities and Exchange Commission
Nancy Maloney, Securities and Exchange Commission
Joyce Sweeney, Securities and Exchange Commission
Donald W. Dwyer, Office of Thrift Supervision - DC
John P. Harootunian, Office of Thrift Supervision - DC
Karen Marcotte, Office of Thrift Supervision - DC
Roger Smith, Office of Thrift Supervision - DC
Lauren S. Yablonsky, Office of Thrift Supervision - NE
David J. O'Connor, NEBS Bancshares, Inc.
Scott D. Nogles, NEBS Bancshares, Inc.
Lawrence M. F. Spaccasi, Esq., Muldoon Murphy & Aguggia LLP
Michael J. Brown, Esq., Muldoon Murphy & Aguggia LLP