10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2011

or

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

For the transition period from __________________ to _________________

Commission File Number 0-51589

NEW ENGLAND BANCSHARES, INC.
(Exact name of small business issuer as specified in its charter)
Maryland	04-3693643
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
855 Enfield Street, Enfield, Connecticut	06082
(Address of principal executive offices)	(Zip Code)

(860) 253-5200

(Issuer’s telephone number)

Not Applicable

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

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

Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x  No o

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

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

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

Yes o  No x

The Issuer had 6,156,676 shares of common stock, par value $0.01 per share, outstanding as of August 10, 2011.

NEW ENGLAND BANCSHARES, INC.

FORM 10-Q

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at June 30, 2011 (Unaudited) and March 31, 2011	1
	Condensed Consolidated Statements of Income for the Three Months Ended June 30, 2011 and 2010 (Unaudited)	2
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2011 and 2010 (Unaudited)	3
	Notes to Condensed Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures.	22
PART II:	OTHER INFORMATION
Item 1.	Legal Proceedings	23
Item 1A	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	(Removed and Reserved)	23
Item 5.	Other Information	24
Item 6.	Exhibits	24
SIGNATURES		24

Part I. FINANCIAL INFORMATION

Item 1.      Financial Statements.

NEW ENGLAND BANCSHARES, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets

(Dollars in thousands)

	June 30, 2011			March 31, 2011
ASSETS	(Unaudited)
Cash and due from banks	$	8,405		$	8,738
Interest-bearing demand deposits with other banks		65,322			34,865
Money market mutual funds		0			9
Total cash and cash equivalents		73,727			43,612
Investments in available-for-sale securities, at fair value		56,994			59,268
Federal Home Loan Bank stock, at cost		4,396			4,396
Loans, net of allowance for loan losses of $5,597 as of June 30, 2011 and $5,686 as of March 31, 2011		528,073			526,595
Premises and equipment, net		6,273			6,245
Other real estate owned		1,296			1,496
Accrued interest receivable		2,404			2,451
Deferred income taxes, net		4,615			4,874
Cash surrender value of life insurance		10,112			10,023
Identifiable intangible assets		1,187			1,287
Goodwill		16,783			16,783
Other assets		3,294			5,014
Total assets	$	709,154		$	682,044
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	59,404		$	59,787
Interest-bearing		502,749			480,982
Total deposits		562,153			540,769
Advanced payments by borrowers for taxes and insurance		2,613			1,400
Federal Home Loan Bank advances		38,628			39,113
Subordinated debentures		3,920			3,918
Securities sold under agreements to repurchase		25,536			21,666
Other liabilities		4,540			4,487
Total liabilities		637,390			611,353
Stockholders’ Equity:
Preferred stock, par value $.01 per share: 1,000,000 shares authorized; none issued		0			0
Common stock, par value $.01 per share: 19,000,000 shares authorized; 6,938,087 shares issued at June 30, 2011 and March 31, 2011		69			69
Paid-in capital		59,909			59,876
Retained earnings		20,691			20,091
Unearned ESOP shares, 181,515 shares at June 30, 2011 and March 31, 2011		(1,714	)		(1,714	)
Treasury stock, 781,411 shares at June 30, 2011 and March 31, 2011, at cost		(7,431	)		(7,431	)
Unearned shares, stock-based plans, 35,984 shares at June 30, 2011 and March 31, 2011		(352	)		(386	)
Accumulated other comprehensive income		592			186
Total stockholders’ equity		71,764			70,691
Total liabilities and stockholders’ equity	$	709,154		$	682,044

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

1

NEW ENGLAND BANCSHARES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Income

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended
	June 30,
	2011		2010
Interest and dividend income:
Interest on loans	$	7,518	$	7,713
Interest and dividends on securities:
Taxable		360		545
Tax-exempt		170		151
Interest on federal funds sold, interest-bearing deposits and dividends on money market mutual funds		29		22
Total interest and dividend income		8,077		8,431
Interest expense:
Interest on deposits		2,123		2,211
Interest on advanced payments by borrowers for taxes and insurance		5		5
Interest on Federal Home Loan Bank advances		317		557
Interest on subordinated debentures		25		68
Interest on securities sold under agreements to repurchase		47		69
Total interest expense		2,517		2,910
Net interest and dividend income		5,560		5,521
Provision for loan losses		359		659
Net interest and dividend income after provision for loan losses		5,201		4,862
Noninterest income:
Service charges on deposit accounts		337		345
Gain on securities, net		62		48
Gain on sale of loans		22		0
Increase in cash surrender value of life insurance policies		88		89
Other income		71		78
Total noninterest income		580		560
Noninterest expense:
Salaries and employee benefits		2,268		2,109
Occupancy and equipment expense		833		821
Advertising and promotion		154		99
Professional fees		167		142
Data processing expense		169		161
FDIC insurance assessment		230		219
Stationery and supplies		42		74
Amortization of identifiable intangible assets		100		111
Write-down of other real estate owned		141		48
Other real estate owned		20		38
Other expense		467		524
Total noninterest expense		4,591		4,346
Income before income taxes		1,190		1,076
Income tax expense		411		395
Net income	$	779	$	681
Earnings per share:
Basic	$	0.13	$	0.11
Diluted		0.13		0.11
Dividends per share		0.03		0.02

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

2

NEW ENGLAND BANCSHARES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Three Months Ended June 30,
	2011			2010
Cash flows from operating activities:
Net income	$	779		$	681
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of fair value adjustments		(21	)		(129	)
Accretion of securities, net		16			(41	)
Gain on sales and calls of investments, net		(62	)		(48	)
Writedown of other real estate owned		141			48
Provision for loan losses		359			659
Gain on sale of loans, net		(22	)		0
Loss on sale of other real estate owned		15			0
Change in deferred loan origination costs, net		(59	)		(88	)
Depreciation and amortization		247			218
Decrease in accrued interest receivable		47			53
Deferred income tax (benefit) expense		0			(54	)
Increase in cash surrender value of life insurance policies		(88	)		(89	)
Decrease in prepaid expenses and other assets		1,716			2,085
Amortization of identifiable intangible assets		100			111
Increase (decrease) in accrued expenses and other liabilities		53			(25	)
Compensation cost for stock option plan		33			29
Compensation cost for stock-based incentive plan		34			34
Net cash provided by operating activities		3,288			3,444
Cash flows from investing activities:
Purchases of available-for-sale securities		(7,493	)		(11,813	)
Proceeds from sales of available-for-sale securities		6,179			6,388
Proceeds from maturities of available-for-sale securities		4,296			8,030
Proceeds from sales of other real estate owned		144			0
Loan originations and principal collections, net		(3,510	)		(835	)
Purchases of loans		0			(8,346	)
Proceeds from sale of loans		1,677			0
Capital expenditures - premises and equipment		(269	)		(18	)
Net cash provided by (used in)  investing activities		1,024			(6,594	)

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

3

NEW ENGLAND BANCSHARES, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

(continued)

	Three Months Ended June 30,
	2011			2010
Cash flows from financing activities:
Net increase in demand, NOW, MMDA and savings accounts		14,964			9,313
Net increase (decrease) in time deposits		6,420			(1,679	)
Net increase in advanced payments by borrowers for taxes and insurance…		1,213			1,001
Principal payments on Federal Home Loan Bank advances		(486	)		(2,794	)
Net increase in securities sold under agreement to repurchase		3,870			11,038
Purchase of treasury stock		0			(10	)
Payments of cash dividends on common stock		(178	)		(119	)
Net cash provided by financing activities		25,803			16,750
Net increase in cash and cash equivalents		30,115			13,600
Cash and cash equivalents at beginning of period		43,612			38,982
Cash and cash equivalents at end of period	$	73,727		$	52,582
Supplemental disclosures:
Interest paid	$	2,534		$	2,975
Income taxes paid (received)		156			(150	)
Loans transferred to other real estate owned		104			226

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

4

NEW ENGLAND BANCSHARES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 – Nature of Operations

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.  For additional information regarding the second-step conversion, see note 1 to the notes to consolidated financial statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K.  Reference is made to “New England Bancshares” or the “Company” for periods both before and after the second-step conversion.

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.

NOTE 2 – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and the instructions to Form 10-Q, and accordingly do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments necessary, consisting of only normal recurring accruals, to present fairly the financial position, results of operations and cash flows of the Company for the periods presented.  In preparing the interim financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period.  Actual results could differ significantly from those estimates.  The interim results of operations presented are not necessarily indicative of the operating results to be expected for the year ending March 31, 2012 or any interim period.

While management believes that the disclosures presented are adequate so as not to make the information misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes included in the Company’s Form 10-K for the year ended March 31, 2011.

The condensed consolidated balance sheet as of March 31, 2011 was derived from the Company’s audited financial statements, but does not include all the disclosures required by accounting principles generally accepted in the United States of America.

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NOTE 3 – Earnings per Share (EPS)

Basic EPS is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period.  Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.  As of June 30, 2011, 148,563 shares were anti-dilutive for the three month period, compared to 150,644 anti-dilutive shares for the three month period ended June 30, 2010.  Anti-dilutive shares are stock options with exercise prices in excess of the weighted-average market value for the same period and are not included in the determination of diluted earnings per share.  Unallocated common shares held by the Bank’s employee stock ownership plan are not included in the weighted-average number of common shares outstanding for purposes of calculating both basic and diluted EPS.

	Income			Shares		Per-Share
	(Numerator)			(Denominator)		Amount
(In Thousands)
Three Months ended June 30, 2011
Basic EPS
Net income	$	779			---
Dividends and undistributed earnings allocated to unvested shares		(1	)		---
Net income and income available to common stockholders		778			5,939,177	$	0.13
Effect of dilutive securities options		---			66,270
Diluted EPS
Income available to common stockholders and assumed conversions	$	778			6,005,447	$	0.13
Three Months ended June 30, 2010
Basic EPS
Net income	$	681			---
Dividends and undistributed earnings allocated to unvested shares		(2	)		---
Net income and income available to common stockholders		679			5,911,330	$	0.11
Effect of dilutive securities options		---			36,888
Diluted EPS
Income available to common stockholders and assumed conversions	$	679			5,948,218	$	0.11

NOTE 4 – Recent Accounting Pronouncements

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

In March 2010, the FASB issued ASU 2010-11, “Scope Exception Related to Embedded Credit Derivatives.”  The ASU clarifies that certain embedded derivatives, such as those contained in certain securitizations, CDOs and structured notes, should be considered embedded credit derivatives subject to potential bifurcation and separate fair value accounting.  The ASU allows any

6

beneficial interest issued by a securitization vehicle to be accounted for under the fair value option at transition.  At transition, the Company may elect to reclassify various debt securities (on an instrument-by-instrument basis) from held-to-maturity (HTM) or available-for-sale (AFS) to trading.  The new rules are effective July 1, 2010.  The Company is currently analyzing the impact of the changes to determine the population of instruments that may be reclassified to trading upon adoption.

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

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

In December 2010, the FASB issued ASU 2010-28, “Intangibles - Goodwill and Other.”  This ASU is to addresses when to perform step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts.  For public entities, the amendments in this ASU are effective for fiscal years, and interim periods beginning after December 15, 2010.

In December 2010, the FASB issued ASU 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations.”  This ASU addresses diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations.  This ASU is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.

In April 2011, the FASB issued ASU 2011-02, “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” This ASU provides additional guidance or clarification to help creditors determine whether a restructuring constitutes a troubled debt restructuring. For public entities, the amendments in this ASU are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption.  As a result of applying these amendments, an entity may identify receivables that are newly considered impaired, and should measure impairment on those receivables prospectively for the first interim or annual period beginning on or after June 15, 2011.  Additional disclosures are also required under this ASU.  The Company is currently evaluating the impact of this ASU.  The ASU is expected to cause more loan modifications to be

7

classified as TDRs and the Company is evaluating its modification programs and practices in light of the new ASU.

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

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

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income.”  The objective of this ASU is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income.  Under this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  An entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income.  An entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented.  The amendments in this ASU should be applied retrospectively.  For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.

NOTE 5 – Stock-Based Incentive Plan

At June 30, 2011, the Company maintained a stock-based incentive plan and an equity incentive plan.  For the three months ended June 30, 2011 and 2010, compensation cost for the Company’s stock plans was measured at the grant date based on the value of the award and was recognized over the service period, which was the vesting period.  The compensation cost that has been charged against income in the three months ended June 30, 2011 and 2010 for the granting of stock options under the plans was $33,000 and $29,000, respectively.  During the three months ended June 30, 2011 and 2010, the Company granted 20,000 and 6,000 stock options, respectively.

The compensation cost that has been charged against income for the granting of restricted stock awards under the plan for the three months ended June 30, 2011 and 2010 was $34,000 and $34,000, respectively.

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NOTE 6 – Loans

A summary of the balances of loans follows:

	June 30, 2011			March 31, 2011
	(In thousands)
Residential real estate:
1-4 family	$	146,765		$	149,740
Home equity loans		40,106			40,364
Commercial real estate		255,137			251,743
Consumer loans		8,785			8,581
Commercial loans		81,932			80,967
Total loans		532,725			531,395
Allowance for loan losses		(5,597	)		(5,686	)
Net deferred loan fees		945			886
Loans, net	$	528,073		$	526,595

The Company has transferred a portion of its originated commercial real estate loans and commercial loans to participating lenders.  The amounts transferred have been accounted for as sales and therefore not included in the Company’s accompanying consolidated balance sheets.  The Company and participating lenders share ratably in any gains and losses that may result from a borrower’s lack of compliance with contractual terms of the loan.  The Company continues to service the loans on behalf of the participating lenders and, as such, collects cash payments from the borrowers, remits payments (net of servicing fees) to participating lenders and disburses required escrow funds to relevant parties.  At June 30, 2011 and March 31, 2011, the Company was servicing loans for participants aggregating $12.0 million and $13.1 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, 2011	$	738		$	154	$	1,981		$	99		$	2,714		$	5,686
Provision		7			4		179			(3	)		172			359
Charge Offs		(170	)		0		(191	)		(9	)		(87	)		(457	)
Recoveries		0			0		0			6			3			9
Balance June 30, 2011	$	575		$	158	$	1,969		$	93		$	2,802		$	5,597

The following table presents the balance in the allowance for loan losses by portfolio segment and based on impairment evaluation method as of June 30, 2011:

	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
	(In thousands)
Allowance for loan losses:
1-4 Family Residential	$	133	$	442	$	575
Home equity loans		0		158		158
Commercial real estate		453		1,516		1,969
Consumer loans		31		62		93
Commercial loans		663		2,139		2,802
Total allowance for loan losses	$	1,280	$	4,317	$	5,597
Loan balances:
1-4 Family Residential	$	4,099	$	142,666	$	146,765
Home equity loans		180		39,926		40,106
Commercial real estate		13,443		241,694		255,137
Consumer loans		161		8,624		8,785
Commercial loans		4,204		77,728		81,932
Total loan balances	$	22,087	$	510,638	$	532,725

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

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

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

When a borrower fails to make a required loan payment, we take a number of steps to have the borrower cure the delinquency and restore the loan to current status.  We make initial contact with the borrower when the loan becomes 15 days past due.  If payment is not received by the 30th 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

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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.

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 June 30, 2011.

	Real Estate Loans
	Residential		Home Equity		Commercial		Consumer		Commercial		Total
	(In thousands)
Grade
Pass	$	142,662	$	39,926	$	234,372	$	8,623	$	73,842	$	499,425
Special mention		---		---		7,287		---		3,850		11,137
Substandard		3,702		180		13,478		162		3,619		21,141
Doubtful		401		---		---		---		621		1,022
Loss		---		---		---		---		---		---
Total	$	146,765	$	40,106	$	255,137	$	8,785	$	81,932	$	532,725

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

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table shows the Company’s impaired loans at June 30, 2011 and for the three months ended June 30, 2011.

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(In thousands)
With no related allowance recorded:
Residential real estate:
1-4 family	$	1,786	$	1,950	$	---	$	1,899	$	23
Home equity loans		181		180		---		182		7
Commercial real estate		2,784		2,865		---		2,626		43
Consumer loans		52		48		---		48		---
Commercial loans		1,877		2,118		---		1,827		11
Total impaired with no related allowance recorded	$	6,680	$	7,161	$	---	$	6,582	$	84
With an allowance recorded:
Residential real estate:
1-4 family	$	1,741	$	1,789	$	133	$	2,359	$	16
Home equity loans		0		0		0		0		0
Commercial real estate		5,393		5,466		453		5,489		92
Consumer loans		125		114		31		116		2
Commercial loans		2,095		2,122		663		2,011		19
Total impaired with an allowance recorded	$	9,354	$	9,491	$	1,280	$	9,975	$	129
Total:
Residential real estate:
1-4 family	$	3,527	$	3,739	$	133	$	4,258	$	39
Home equity loans		181		180		0		182		7
Commercial real estate		8,177		8,331		453		8,115		135
Consumer loans		177		162		31		164		2
Commercial loans		3,972		4,240		663		3,838		30
Total impaired loans	$	16,034	$	16,652	$	1,280	$	16,557	$	213

Delinquencies.  The following table provides information about delinquencies in our loan portfolio as of June 30, 2011.

	30-59 Days		Greater Than 60-89 Days		Greater Than 90 Days		Total Past Due		Greater Than  90 Days and  Accruing		Non Accrual
	(In thousands)
Residential real estate:
1-4 family	$	302	$	1,054	$	2,515	$	3,871	$	---	$	3,772
Home equity loans		153		---		167		320		---		204
Commercial real estate		1,141		366		4,567		6,074		---		7,038
Consumer loans		20		13		144		177		---		189
Commercial loans		796		801		2,695		4,292		---		3,950
Total	$	2,412	$	2,234	$	10,088	$	14,734	$	---	$	15,153

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 June 30, 2011:

	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(In thousands)
Debt securities issued by states of the United States and political subdivisions of the states	$	5,852	$	135	$	3,719	$	214	$	9,571	$	349
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies		1,702		14		362		14		2,064		28
Mortgage-backed securities		0		0		1,081		209		1,081		209
Total temporarily impaired securities	$	7,554	$	149	$	5,162	$	437	$	12,716	$	586

Management has assessed the securities which are classified as available-for-sale and in an unrealized loss position at June 30, 2011 and determined the decline in fair value below amortized cost to be temporary, except for those securities described below.  In making this determination

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management considered the period of time the securities were in a loss position, the percentage decline in comparison to the securities’ amortized cost, the financial condition of the issuer and the Company’s ability and intent to hold these securities until their fair value recovers to their amortized cost.  Management believes the decline in fair value is primarily related to the current interest rate environment and not to the credit deterioration of the individual issuer, except for those securities described below.

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

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

Activity related to the credit component recognized in earnings on debt securities held by the Company for which a portion of other-than-temporary impairment was recognized in other comprehensive income for the three months ended June 30, 2011 is as follows:

	Non-Agency
	Mortgage-Backed
	(In thousands)
Balance, April 1, 2011	$	63
Additions for the credit component on debt securities in which other-than-temporary impairment was not previously recognized		---
Balance, June 30, 2011	$	63

In accordance with ASC 320-10, the Company estimated the portion of loss attributable to credit using a discounted cash flow model.  Significant inputs for the non-agency mortgage-backed securities included the estimated cash flows of the underlying collateral based on key assumptions, such as default rate, loss severity and prepayment rate. Assumptions used can vary widely from loan to loan, and are influenced by such factors as loan interest rate, geographical location of the borrower, borrower characteristics and collateral type.  The present value of the expected cash flows was compared to the Company’s holdings to determine the credit-related impairment loss.  Based on the expected cash flows derived from the model, the Company expects to recover the remaining unrealized losses on non-agency mortgage-backed securities.  Significant assumptions used in the valuation of non-agency mortgage-backed securities were as follows as of June 30, 2011.

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	Weighted			Range
	Average			Minimum			Maximum
Prepayment rates		14.8	%		8.5	%		18.7	%
Default rates		10.4			3.0			15.1
Loss severity		46.8			31.5			62.8

NOTE 9 – Fair Value Measurement Disclosures

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

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

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

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

The following summarizes assets measured at fair value on a recurring basis for the period ending June 30, 2011:

	Fair Value Measurements at Reporting Date Using:
	Total		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
(In thousands)
Securities available-for-sale	$	56,994	$	2,293	$	54,701	$	---

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 June 30, 2011, for which a nonrecurring change in fair value has been recorded.

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	Fair Value Measurements at Reporting Date Using:
	Total		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
	(In thousands)
Impaired loans	$	8,074	$	---	$	---	$	8,074
Other real estate owned		931		---		---		931
Total	$	9,005	$	---	$	---	$	9,005

	Fair Value Measurements Using Significant Unobservable Inputs Level 3
	Other Real		Impaired
	Estate Owned		Loans			Totals
			(In thousands)
Beginning balance March 31, 2011	$	522	$	8,776		$	9,298
Net transfers into (out of) Level 3		409		(702	)		(293	)
Ending balance, June 30, 2011	$	931	$	8,074		$	9,005

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

	June 30, 2011				March 31, 2011
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
	(In thousands)
Financial assets:
Cash and cash equivalents	$	73,727	$	73,727	$	43,612	$	43,612
Available-for-sale securities		56,994		56,994		59,268		59,268
Federal Home Loan Bank stock		4,396		4,396		4,396		4,396
Loans, net		528,073		535,309		526,595		529,609
Accrued interest receivable		2,404		2,404		2,451		2,451
Financial liabilities:
Deposits		562,153		566,691		540,769		545,607
Advanced payments by borrowers for taxes and insurance		2,613		2,613		1,400		1,400
FHLB advances		38,628		40,351		39,113		40,554
Securities sold under agreements to repurchase		25,536		25,537		21,666		21,668
Subordinated debentures		3,920		1,367		3,918		1,371
Due to Broker		500		500		500		500

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

The following analysis discusses changes in the financial condition and results of operations at and for the three months ended June 30, 2011 and 2010, and should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and the notes thereto, appearing in Part I, Item 1 of this document.

Forward-Looking Statements

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of these safe harbor provisions.  Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions.  By identifying these forward-looking statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include, among others, those discussed under “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K and Part II, Item 1A of this Report on Form 10-Q, as well as the following factors:  interest rates, general economic conditions, legislation and regulations, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area, accounting principles and guidelines, and our ability to recognize enhancements related to our acquisition within expected time frames.  These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

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

Comparison of Financial Condition at June 30, 2011 and March 31, 2011

Assets

Total assets were $709.2 million at June 30, 2011, an increase of $27.2 million compared to $682.0 million at March 31, 2011. The increase in total assets was primarily due to a $30.1 million increase in cash and cash equivalents and a $1.5 million increase in net loans, partially offset by a $2.3 million decrease in investments and a $1.7 million decrease in other assets.

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Liabilities

Total liabilities were $637.4 million at June 30, 2011, an increase of $26.0 million compared to $611.4 million at March 31, 2011.  The increase in total liabilities was caused primarily by a $21.4 million increase in total deposits, a $3.9 million increase in repurchase agreements and a $1.2 million increase in advance payments by borrowers for taxes and insurance, partially offset by the $485,000 decrease in FHLB advances.  At June 30, 2011, deposits are comprised of savings accounts totaling $77.5 million, money market deposit accounts totaling $114.2 million, demand and NOW accounts totaling $77.7 million, and certificates of deposits totaling $292.8 million.  The Company’s core deposits, which the Company considers to be all deposits except for certificates of deposits, increased to 47.9% of total deposits at June 30, 2011 from 47.0% at March 31, 2011.

Stockholders’ Equity

Total stockholders’ equity increased $1.1 million to $71.8 million at June 30, 2011 from $70.7 million at March 31, 2011.  The increase was primarily caused by net income of $779,000 and an increase in other comprehensive income of $406,000 partially offset by dividends paid of $178,000.

Comparison of Operating Results for the Three Months Ended June 30, 2011 and 2010

General

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

Net Income

For the three months ended June 30, 2011, the Company reported net income of $779,000, compared to $681,000 for the year ago period.  Basic and diluted income per share for the quarter ended June 30, 2011 were $0.13 each, compared to $0.11 each for the quarter ended June 30, 2010.

Net Interest and Dividend Income

Net interest and dividend income for the three months ended June 30, 2011 and 2010 totaled $5.6 million and $5.5 million, respectively.  The Company’s net interest margin was 3.53% for the three months ended June 30, 2011 and 3.60% for the three months ended June 30, 2010.  The decrease in the net interest margin for the quarter was primarily due to a 37 basis point decrease in the rate earned on interest-earning assets and an increase in average interest-earning assets of $18.2 million, partially offset by a $1.6 million decrease in average interest-bearing liabilities and 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

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liabilities caused the Company’s interest rate spread to decrease from 3.38% for the quarter ended June 30, 2010 to 3.28% for the quarter ended June 30, 2011.

Interest and dividend income amounted to $8.1 million and $8.4 million for the three months ended June 30, 2011 and 2010, respectively.  Average interest-earning assets were $642.2 million for the quarter ended June 30, 2011 compared to $624.1 million for the quarter ended June 30, 2010.  The increase in average interest-earning assets was caused primarily by a $13.4 million increase in average interest bearing demand deposits with other banks and an $8.3 million increase in net loans, partially offset by a $3.8 million decrease in average investment securities.  The yield earned on average interest-earning assets decreased 37 basis points to 5.10% for the three months ended June 30, 2011 from 5.47% for the three months ended June 30, 2010.

Interest expense for the quarters ended June 30, 2011 and 2010 was $2.5 million and $2.9 million, respectively.  Average interest-bearing liabilities decreased $1.6 million during the quarter ended June 30, 2011 from $557.5 million to $555.9 million primarily due to an $11.8 million decrease in average repurchase agreements and a $15.8 million decrease in average FHLB advances offset by a $25.6 million increase in average interest-bearing deposits.  The average rate paid on interest-bearing liabilities decreased to 1.82% for the quarter ended June 30, 2011 from 2.09% for the year ago period, due primarily to the decrease in rates paid on certificates of deposit, money market deposit accounts and securities sold under agreements to repurchase, and a decrease in FHLB advances which generally have higher rates.  The average rate paid on certificates of deposit decreased from 2.53% for the quarter ended June 30, 2010 to 2.40% for the current year quarter as market rates have decreased for this type of deposit.

Provision for Loan Losses

The provision for loan losses for the quarters ended June 30, 2011 and 2010 were $359,000 and $659,000, respectively.  The additions to the allowance for loan losses reflected continued growth in the commercial loan portfolio and the challenging economic climate.

Noninterest Income

For the quarter ended June 30, 2011, noninterest income was $580,000 compared to $560,000 for the quarter ended June 30, 2010.  Affecting noninterest income for the three months ended June 30, 2011 was a $22,000 gain on sale of loans.

Noninterest Expense

Noninterest expense for the quarter ended June 30, 2011 was $4.6 million compared to $4.3 million for the quarter ended June 30, 2010.  The increase was due largely to a $159,000 increase in salaries and benefits and a $93,000 increase in the write-down of other real estate owned.  The Company’s efficiency ratio slightly deteriorated from 71.5% for the quarter ended June 30, 2010 to 74.8% for the current year quarter.

Provision for Income Taxes

The Company recorded income tax expense of $411,000 and $395,000 for the quarters ended June 30, 2011 and 2010, respectively, with effective tax rates of 34.5% and 36.7%, respectively.

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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 June 30, 2011 of $38.6 million, with unused borrowing capacity of $34.3 million.

The Company’s primary investing activities are the origination of loans and the purchase of mortgage and investment securities.  During the three months ended June 30, 2011 and 2010 the Company originated loans, net of principal paydowns, of approximately $3.5 million and $835,000, respectively. Purchases of investment securities totaled $7.5 million and $11.8 million for the three months ended June 30, 2011 and 2010, respectively.

Loan repayment and maturing investment securities are a relatively predictable source of funds.  However, deposit flows, calls of investment securities and prepayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and local economic conditions and competition in the marketplace.  These factors reduce the predictability of the timing of these sources of funds.  Total deposits were $562.2 million at June 30, 2011, a $21.4 million increase from the $540.8 million balance at March 31, 2011.

At June 30, 2011, the Company had outstanding commitments to originate $25.5 million of loans, and available home equity and unadvanced lines of credit and construction loans of approximately $47.4 million.  In addition, the Company had $3.3 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 $144.0 million, or 25.6% of total deposits at June 30, 2011.  The Company relies on competitive rates, customer service and long-standing relationships with customers to retain deposits.  Based on the Company’s experience with deposit retention and current retention strategies, management believes that, although it is not possible to predict future terms and conditions upon renewal, a significant portion of such deposits will remain with the Company.

As of June 30, 2011, the Company and the Bank met all capital adequacy requirements to which they were subject.  The Company’s capital amounts and ratios as of June 30, 2011 are presented in the following table.

(Dollar amounts in thousands)

				New England Bancshares, Inc.
	Required			Amount		Ratio
Tier 1 Capital		4	%	$	52,830		7.84	%
Total Risk-Based Capital		8	%	$	58,426		12.05	%
Tier 1 Risk-Based Capital		4	%	$	52,830		10.90	%

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The Bank’s actual capital amounts and ratios as of June 30, 2011 are presented in the following table.

	Actual					For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio		Amount		Ratio
	(Dollar amounts in thousands)
Total Capital (to Risk Weighted Assets)	$	59,045		12.18	%	$	38,781	> 8.0	%	$	48,477	> 10.0	%
Tier 1 Capital (to Risk Weighted Assets)		53,488		11.03			19,391	> 4.0			29,086	> 6.0
Tier 1 Capital (to Average Assets)		53,488		7.93			26,948	> 4.0			33,685	> 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 three months ended June 30, 2011, the Bank did not engage in off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

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

21

originated long-term, fixed-rate one- to four-family residential loans in the secondary market.  The Bank currently does not participate in hedging programs, interest rate swaps or other activities involving the use of off-balance sheet derivative financial instruments.

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

Net Interest Income Simulation Analysis

The Bank analyzes its interest rate sensitivity position to manage the risk associated with interest rate movements through the use of interest income simulation.  The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest sensitive.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period.

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

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

Item 4.  Controls and Procedures.

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

22

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.

The following risk factor represents a material update and addition to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2011 (“Form 10-K”).  The risk factor below should be read in conjunction with the risk factors and other information disclosed in our Form 10-K.  The risks described below and in our Form 10-K are not the only risks facing the Company.  Additional risks not presently known to the Company, or that we currently deem immaterial, may also adversely affect the Company’s business, financial condition or results of operations.

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

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

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 June 30, 2011. The Company’s stock repurchase program was authorized May 12, 2009 to repurchase 304,924 shares of 5% of the Company’s then outstanding shares. There are 24,424 shares remaining in the repurchase program.

Item 3.    Defaults Upon Senior Securities.

None.

Item 4.    (Removed and Reserved)

23

Item 5.    Other Information.

None.

Item 6.    Exhibits.

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

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

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

31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (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 June 30, 2011 and March 31, 2011, (ii) the Condensed Consolidated Statements of Income for the three months ended June 30, 2011 and 2010, (iii) the Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2011 and 2010, and (iv) the notes to the Condensed Consolidated Financial Statements. (3)

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

(2) Incorporated by reference into this document from Exhibit 3.1 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.

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:	August 11, 2011	By:	/s/ Scott D. Nogles
			Scott D. Nogles
			Chief Financial Officer
			(principal financial officer)
Dated:	August 11, 2011	By:	/s/ David J. O’Connor
			David J. O’Connor
			Chief Executive Officer

24

EX-31.1

Exhibit 31.1

CERTIFICATION

I, David J. O'Connor, certify that:

1. I have reviewed this Form 10-Q of New England Bancshares, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4. The small business issuer's other certifying officer[s] and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and

5. The small business issuer's other certifying officer[s] and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

Date:	August 11, 2011	/s/ David J. O’Connor
		David J. O'Connor
		Chief Executive Officer and Director

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Scott D. Nogles, certify that:

1. I have reviewed this Form 10-Q of New England Bancshares, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4. The small business issuer's other certifying officer[s] and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and

5. The small business issuer's other certifying officer[s] and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

Date:	August 11, 2011	/s/ Scott D. Nogles
		Scott D. Nogles
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of New England Bancshares, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2011 as filed with the Securities and Exchange Commission (the "Report"), I, David J. O'Connor, President, Chief Executive Officer and chief financial officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

/s/ David J. O’Connor

David J. O'Connor

Chief Executive Officer and Director

August 11, 2011

EX-32.2

 Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of New England Bancshares, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2011 as filed with the Securities and Exchange Commission (the "Report"), I, Scott D. Nogles, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

/s/ Scott D. Nogles

Scott D. Nogles

Chief Financial Officer

August 11, 2011

XML



Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data	Jun. 30, 2011	Mar. 31, 2011
Condensed Consolidated Balance Sheets
Allowance for loan losses	$ 5,597	$ 5,686
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock,shares authorized	1,000,000	1,000,000
Preferred stock,shares issued	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock,shares authorized	19,000,000	19,000,000
Common stock,shares issued	6,938,087	6,938,087
Unearned ESOP shares	181,515	181,515
Treasury stock,shares	781,411	781,411
Unearned shares, stock-based plans,shares	35,984	35,984

XML



Condensed Consolidated Statements Of Income (USD $) In Thousands, except Per Share data	3 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Interest and dividend income:
Interest on loans	$ 7,518	$ 7,713
Interest and dividends on securities:
Taxable	360	545
Tax-exempt	170	151
Interest on federal funds sold, interest-bearing deposits and dividends on money market mutual funds	29	22
Total interest and dividend income	8,077	8,431
Interest expense:
Interest on deposits	2,123	2,211
Interest on advanced payments by borrowers for taxes and insurance	5	5
Interest on Federal Home Loan Bank advances	317	557
Interest on subordinated debentures	25	68
Interest on securities sold under agreements to repurchase	47	69
Total interest expense	2,517	2,910
Net interest and dividend income	5,560	5,521
Provision for loan losses	359	659
Net interest and dividend income after provision for loan losses	5,201	4,862
Noninterest income:
Service charges on deposit accounts	337	345
Gain on securities, net	62	48
Gain on sale of loans	22	0
Increase in cash surrender value of life insurance policies	88	89
Other income	71	78
Total noninterest income	580	560
Noninterest expense:
Salaries and employee benefits	2,268	2,109
Occupancy and equipment expense	833	821
Advertising and promotion	154	99
Professional fees	167	142
Data processing expense	169	161
FDIC insurance assessment	230	219
Stationery and supplies	42	74
Amortization of identifiable intangible assets	100	111
Write-down of other real estate owned	141	48
Other real estate owned	20	38
Other expense	467	524
Total noninterest expense	4,591	4,346
Income before income taxes	1,190	1,076
Income tax expense	411	395
Net income	$ 779	$ 681
Earnings per share:
Basic	$ 0.13	$ 0.11
Diluted	$ 0.13	$ 0.11
Dividends per share	$ 0.03	$ 0.02

XML



Document And Entity Information	3 Months Ended
	Jun. 30, 2011	Aug. 10, 2011
Document And Entity Information
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2011
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2012
Entity Registrant Name	New England Bancshares, Inc.
Entity Central Index Key	0001338248
Current Fiscal Year End Date	--03-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		6,156,676

XML



Allowance For Loan Losses And Impaired Assets

3 Months Ended

Jun. 30, 2011

Allowance For Loan Losses And Impaired Assets

Allowance For Loan Losses And Impaired Assets

 

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.

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:

					Home
		1 – 4 Family			Equity		Commercial			Consumer			Commercial
		Residential			Loans		Real Estate			Loans			Loans			Total
							(In thousands)
Balance March 31, 2011	$	738		$	154	$	1,981		$	99		$	2,714		$	5,686
Provision		7			4		179			(3	)		172			359
Charge Offs		(170	)		0		(191	)		(9	)		(87	)		(457	)
Recoveries		0			0		0			6			3			9
Balance June 30, 2011	$	575		$	158	$	1,969		$	93		$	2,802		$	5,597

The following table presents the balance in the allowance for loan losses by portfolio
segment and based on impairment evaluation method as of June 30, 2011:

Individually	Collectively
Evaluated for	Evaluated for
Impairment	Impairment	Total

				(In thousands)
Allowance for loan losses:
1-4 Family Residential	$	133	$	442	$	575
Home equity loans		0		158		158
Commercial real estate		453		1,516		1,969
Consumer loans		31		62		93
Commercial loans		663		2,139		2,802
Total allowance for loan losses	$	1,280	$	4,317	$	5,597
Loan balances:
1-4 Family Residential	$	4,099	$	142,666	$	146,765
Home equity loans		180		39,926		40,106
Commercial real estate		13,443		241,694		255,137
Consumer loans		161		8,624		8,785
Commercial loans		4,204		77,728		81,932
Total loan balances	$	22,087	$	510,638	$	532,725

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.
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.

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 June 30, 2011.

				Real Estate Loans
		Residential		Home Equity		Commercial		Consumer		Commercial		Total
						(In thousands)
Grade:
Pass	$	142,662	$	39,926	$	234,372	$	8,623	$	73,842	$	499,425
Special mention	-	--	-	--		7,287	-	--		3,850		11,137
Substandard		3,702		180		13,478		162		3,619		21,141
Doubtful		401	-	--	-	--	-	--		621		1,022
Loss	-	--	-	--	-	--	-	--	-	--	-	--
Total	$	146,765	$	40,106	$	255,137	$	8,785	$	81,932	$	532,725

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 June 30, 2011 and for the three months ended June
30, 2011.

					Unpaid				Average		Interest
		Recorded			Principal		Related Allowance		Recorded		Income
		Investment			Balance				Investment		Recognized
							(In thousands)
With no related allowance recorded:
Residential real estate:
1-4 family	$	1,786	$		1,950	$	---	$	1,899	$	23
Home equity loans		181			180	-	--		182		7
Commercial real estate		2,784			2,865	-	--		2,626		43
Consumer loans		52			48	-	--		48	-	--
Commercial loans		1,877			2,118	-	--		1,827		11
Total impaired with no related
allowance recorded	$	6,680		$	7,161	$	---	$	6,582	$	84
With an allowance recorded:
Residential real estate:
1-4 family	$	1,741		$	1,789	$	133	$	2,359	$	16
Home equity loans		0			0		0		0		0
Commercial real estate		5,393			5,466		453		5,489		92
Consumer loans		125			114		31		116		2
Commercial loans		2,095			2,122		663		2,011		19
Total impaired with an
allowance recorded	$	9,354		$	9,491	$	1,280	$	9,975	$	129
Total:
Residential real estate:
1-4 family	$	3,527	$		3,739	$	133	$	4,258	$	39
Home equity loans		181			180		0		182		7
Commercial real estate		8,177			8,331		453		8,115		135
Consumer loans		177			162		31		164		2
Commercial loans		3,972			4,240		663		3,838		30
Total impaired loans	$	16,034	$		16,652	$	1,280	$	16,557	$	213

Delinquencies. The following table provides information about delinquencies in our loan
portfolio as of June 30, 2011.

				Greater		Greater				Greater Than
		30-59		Than 60-89		Than			Total	90 Days and		Non
		Days		Days		90	Days		Past Due	Accruing		Accrual
						(In thousands)
Residential real estate:
1-4 family	$	302	$	1,054	$	2,515		$	3,871	$ ---	$	3,772
Home equity loans		153	-	--		167			320	---		204
Commercial real estate		1,141		366		4,567			6,074	---		7,038
Consumer loans		20		13		144			177	---		189
Commercial loans		796		801		2,695			4,292	---		3,950
Total	$	2,412	$	2,234	$	10,088		$	14,734	$---	$	15,153

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Earnings Per Share (EPS)

3 Months Ended

Jun. 30, 2011

Earnings Per Share (EPS)

Earnings Per Share (EPS)

NOTE 3 – Earnings per Share (EPS)

Basic EPS is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common stock that then
shared in the earnings of the entity. As of June 30, 2011, 148,563 shares were anti-dilutive for the
three month period, compared to 150,644 anti-dilutive shares for the three month period ended
June 30, 2010. Anti-dilutive shares are stock options with exercise prices in excess of the
weighted-average market value for the same period and are not included in the determination of
diluted earnings per share. Unallocated common shares held by the Bank's employee stock
ownership plan are not included in the weighted-average number of common shares outstanding
for purposes of calculating both basic and diluted EPS.

		Income			Shares		Per-Share
		(Numerator)			(Denominator)		Amount
		(In Thousands)
Three Months ended June 30, 2011
Basic EPS
Net income	$	779		-	--
Dividends and undistributed earnings allocated
to unvested shares		(1	)	-	--
Net income and income available to common stockholders		778			5,939,177	$	0.13
Effect of dilutive securities options	-	--			66,270
Diluted EPS
Income available to common stockholders and
assumed conversions	$	778			6,005,447	$	0.13
Three Months ended June 30, 2010
Basic EPS
Net income	$	681		-	--
Dividends and undistributed earnings allocated
to unvested shares		(2	)	-	--
Net income and income available to common stockholders		679			5,911,330	$	0.11
Effect of dilutive securities options	-	--			36,888
Diluted EPS
Income available to common stockholders and
assumed conversions	$	679			5,948,218	$	0.11

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Fair Value Measurement Disclosures

3 Months Ended

Jun. 30, 2011

Fair Value Measurement Disclosures

Fair Value Measurement Disclosures

NOTE 9 – Fair Value Measurement Disclosures

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

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

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

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

The following summarizes assets measured at fair value on a recurring basis for the period
ending June 30, 2011:

		Fair Value Measurements at Reporting Date Using:
				Quoted Prices in		Significant	Significant
				Active Markets for		Other Observable Unobservable
				Identical Assets		Inputs	Inputs
		Total		Level 1		Level 2	Level 3
				(In thousands)
Securities available-for-sale	$	56,994	$	2,293	$	54,701	$ ---

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 June 30, 2011, for which a nonrecurring change in fair value has been recorded.

		Fair Value Measurements at Reporting Date Using:
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable Unobservable
			Identical Assets		Inputs		Inputs
		Total	Level 1		Level 2		Level 3
				(In thousands)
Impaired loans	$	8,074	$	---	$ ---	$	8,074
Other real estate owned		931		---	---		931
Total	$	9,005	$	---	$ ---	$	9,005

				Fair Value Measurements
		Using Significant Unobservable Inputs
				Level 3
Other Real
		Estate Owned		Impaired Loans			Totals
				(In thousands)
Beginning balance March 31, 2011	$	522	$	8,776		$	9,298
Net transfers into (out of) Level 3		409		(702	)		(293	)
Ending balance, June 30, 2011	$	931	$	8,074		$	9,005

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

		June 30, 2011				March 31, 2011
		Carrying		Estimated		Carrying		Estimated
		Amount		Fair Value		Amount		Fair Value
				(In thousands)
Financial assets:
Cash and cash equivalents	$	73,727	$	73,727	$	43,612	$	43,612
Available-for-sale securities		56,994		56,994		59,268		59,268
Federal Home Loan Bank stock		4,396		4,396		4,396		4,396
Loans, net		528,073		535,309		526,595		529,609
Accrued interest receivable		2,404		2,404		2,451		2,451
Financial liabilities:
Deposits		562,153		566,691		540,769		545,607
Advanced payments by borrowers for taxes and insurance		2,613		2,613		1,400		1,400
FHLB advances		38,628		40,351		39,113		40,554
Securities sold under agreements to repurchase		25,536		25,537		21,666		21,668
Subordinated debentures		3,920		1,367		3,918		1,371
Due to Broker		500		500		500		500

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Other-Than-Temporary Impairment Losses

3 Months Ended

Jun. 30, 2011

Other-Than-Temporary Impairment Losses

Other-Than-Temporary Impairment Losses

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 June 30, 2011:

		Less than 12 Months				12 Months or Longer				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses
						(In thousands)
Debt securities issued by states of the
United States and political subdivisions
of the states	$	5,852	$	135	$	3,719	$	214	$	9,571	$	349
Debt securities issued by the U.S. Treasury
and other U.S. government corporations
and agencies		1,702		14		362		14		2,064		28
Mortgage-backed securities		0		0		1,081		209		1,081		209
Total temporarily impaired securities	$	7,554	$	149	$	5,162	$	437	$	12,716	$	586

Management has assessed the securities which are classified as available-for-sale and in an
unrealized loss position at June 30, 2011 and determined the decline in fair value below amortized
cost to be temporary, except for those securities described below. In making this determination
management considered the period of time the securities were in a loss position, the percentage
decline in comparison to the securities' amortized cost, the financial condition of the issuer and the
Company's ability and intent to hold these securities until their fair value recovers to their
amortized cost. Management believes the decline in fair value is primarily related to the current
interest rate environment and not to the credit deterioration of the individual issuer, except for those
securities described below.

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

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

Activity related to the credit component recognized in earnings on debt securities held by
the Company for which a portion of other-than-temporary impairment was recognized in other
comprehensive income for the three months ended June 30, 2011 is as follows:

		Non-Agency
		Mortgage-Backed
		(In thousands)
Balance, April 1, 2011	$	63
Additions for the credit component on debt securities
in which other-than-temporary impairment was
not previously recognized	-	--
Balance, June 30, 2011	$	63

In accordance with ASC 320-10, the Company estimated the portion of loss attributable to
credit using a discounted cash flow model. Significant inputs for the non-agency mortgage-backed
securities included the estimated cash flows of the underlying collateral based on key assumptions,
such as default rate, loss severity and prepayment rate. Assumptions used can vary widely from
loan to loan, and are influenced by such factors as loan interest rate, geographical location of the
borrower, borrower characteristics and collateral type. The present value of the expected cash
flows was compared to the Company's holdings to determine the credit-related impairment loss.
Based on the expected cash flows derived from the model, the Company expects to recover the
remaining unrealized losses on non-agency mortgage-backed securities. Significant assumptions
used in the valuation of non-agency mortgage-backed securities were as follows as of June 30,
2011.

	Weighted		Range
	Average		Minimum		Maximum
Prepayment rates	14.8	%	8.5	%	18.7	%
Default rates	10.4		3.0		15.1
Loss severity	46.8		31.5		62.8

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Nature Of Operations

3 Months Ended

Jun. 30, 2011

Nature Of Operations

Nature Of Operations

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. For additional information regarding the second-step conversion, see note 1 to the
notes to consolidated financial statements included in Part II, Item 8 of the Company's Annual
Report on Form 10-K. Reference is made to "New England Bancshares" or the "Company" for
periods both before and after the second-step conversion.

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.

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Recent Accounting Pronouncements

3 Months Ended

Jun. 30, 2011

Recent Accounting Pronouncements

Recent Accounting Pronouncements

NOTE 4 – Recent Accounting Pronouncements

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

In March 2010, the FASB issued ASU 2010-11, "Scope Exception Related to Embedded
Credit Derivatives." The ASU clarifies that certain embedded derivatives, such as those contained in
certain securitizations, CDOs and structured notes, should be considered embedded credit
derivatives subject to potential bifurcation and separate fair value accounting. The ASU allows any

beneficial interest issued by a securitization vehicle to be accounted for under the fair value option at
transition. At transition, the Company may elect to reclassify various debt securities (on an
instrument-by-instrument basis) from held-to-maturity (HTM) or available-for-sale (AFS) to trading.
The new rules are effective July 1, 2010. The Company is currently analyzing the impact of the
changes to determine the population of instruments that may be reclassified to trading upon
adoption.

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

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

In December 2010, the FASB issued ASU 2010-28, "Intangibles - Goodwill and Other."
This ASU is to addresses when to perform step 2 of the goodwill impairment test for reporting
units with zero or negative carrying amounts. For public entities, the amendments in this ASU are
effective for fiscal years, and interim periods beginning after December 15, 2010.

In December 2010, the FASB issued ASU 2010-29, "Disclosure of Supplementary Pro
Forma Information for Business Combinations." This ASU addresses diversity in practice about
the interpretation of the pro forma revenue and earnings disclosure requirements for business
combinations. This ASU is effective prospectively for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period beginning on or
after December 15, 2010.

In April 2011, the FASB issued ASU 2011-02, "A Creditor's Determination of Whether a
Restructuring Is a Troubled Debt Restructuring." This ASU provides additional guidance or
clarification to help creditors determine whether a restructuring constitutes a troubled debt
restructuring. For public entities, the amendments in this ASU are effective for the first interim or
annual period beginning on or after June 15, 2011, and should be applied retrospectively to the
beginning of the annual period of adoption. As a result of applying these amendments, an entity
may identify receivables that are newly considered impaired, and should measure impairment on
those receivables prospectively for the first interim or annual period beginning on or after June 15,
2011. Additional disclosures are also required under this ASU. The Company is currently
evaluating the impact of this ASU. The ASU is expected to cause more loan modifications to be

classified as TDRs and the Company is evaluating its modification programs and practices in light
of the new ASU.

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

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

In June 2011, the FASB issued ASU 2011-05, "Presentation of Comprehensive Income."
The objective of this ASU is to improve the comparability, consistency, and transparency of
financial reporting and to increase the prominence of items reported in other comprehensive
income. Under this ASU, an entity has the option to present the total of comprehensive income,
the components of net income, and the components of other comprehensive income either in a
single continuous statement of comprehensive income or in two separate but consecutive
statements. An entity is required to present each component of net income along with total net
income, each component of other comprehensive income along with a total for other
comprehensive income, and a total amount for comprehensive income. An entity is required to
present on the face of the financial statements reclassification adjustments for items that are
reclassified from other comprehensive income to net income in the statement(s) where the
components of net income and the components of other comprehensive income are presented. The
amendments in this ASU should be applied retrospectively. For public entities, the amendments
are effective for fiscal years, and interim periods within those years, beginning after December 15,
2011.

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Stock-Based Incentive Plan

3 Months Ended

Jun. 30, 2011

Stock-Based Incentive Plan

Stock-Based Incentive Plan

NOTE 5 – Stock-Based Incentive Plan

At June 30, 2011, the Company maintained a stock-based incentive plan and an equity
incentive plan. For the three months ended June 30, 2011 and 2010, compensation cost for the
Company's stock plans was measured at the grant date based on the value of the award and was
recognized over the service period, which was the vesting period. The compensation cost that has
been charged against income in the three months ended June 30, 2011 and 2010 for the granting of
stock options under the plans was $33,000 and $29,000, respectively. During the three months
ended June 30, 2011 and 2010, the Company granted 20,000 and 6,000 stock options, respectively.

The compensation cost that has been charged against income for the granting of restricted
stock awards under the plan for the three months ended June 30, 2011 and 2010 was $34,000 and
$34,000, respectively.

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Loans

3 Months Ended

Jun. 30, 2011

Loans

Loans

NOTE 6 – Loans

A summary of the balances of loans follows:

		June 30, 2011			March 31, 2011
		(In thousands)
Residential real estate:
1-4 family	$	146,765		$	149,740
Home equity loans		40,106			40,364
Commercial real estate		255,137			251,743
Consumer loans		8,785			8,581
Commercial loans		81,932			80,967
Total loans		532,725			531,395
Allowance for loan losses		(5,597	)		(5,686	)
Net deferred loan fees		945			886
Loans, net	$	528,073		$	526,595

The Company has transferred a portion of its originated commercial real estate loans and
commercial loans to participating lenders. The amounts transferred have been accounted for as
sales and therefore not included in the Company's accompanying consolidated balance sheets. The
Company and participating lenders share ratably in any gains and losses that may result from a
borrower's lack of compliance with contractual terms of the loan. The Company continues to
service the loans on behalf of the participating lenders and, as such, collects cash payments from the
borrowers, remits payments (net of servicing fees) to participating lenders and disburses required
escrow funds to relevant parties. At June 30, 2011 and March 31, 2011, the Company was
servicing loans for participants aggregating $12.0 million and $13.1 million, respectively.

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Condensed Consolidated Statements Of Cash Flows (USD $) In Thousands	3 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Cash flows from operating activities:
Net income	$ 779	$ 681
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of fair value adjustments	(21)	(129)
Accretion of securities, net	16	(41)
Gain on sales and calls of investments, net	(62)	(48)
Writedown of other real estate owned	141	48
Provision for loan losses	359	659
Gain on sale of loans, net	(22)	0
Loss on sale of other real estate owned	15	0
Change in deferred loan origination costs, net	(59)	(88)
Depreciation and amortization	247	218
Decrease in accrued interest receivable	47	53
Deferred income tax (benefit) expense	0	(54)
Increase in cash surrender value of life insurance policies	(88)	(89)
Decrease in prepaid expenses and other assets	1,716	2,085
Amortization of identifiable intangible assets	100	111
Increase (decrease) in accrued expenses and other liabilities	53	(25)
Compensation cost for stock option plan	33	29
Compensation cost for stock-based incentive plan	34	34
Net cash provided by operating activities	3,288	3,444
Cash flows from investing activities:
Purchases of available-for-sale securities	(7,493)	(11,813)
Proceeds from sales of available-for-sale securities	6,179	6,388
Proceeds from maturities of available-for-sale securities	4,296	8,030
Proceeds from sales of other real estate owned	144	0
Loan originations and principal collections, net	(3,510)	(835)
Purchases of loans	0	(8,346)
Proceeds from sale of loans	1,677	0
Capital expenditures - premises and equipment	(269)	(18)
Net cash provided by (used in) investing activities	1,024	(6,594)
Cash flows from financing activities:
Net increase in demand, NOW, MMDA and savings accounts	14,964	9,313
Net increase (decrease) in time deposits	6,420	(1,679)
Net increase in advanced payments by borrowers for taxes and insurance	1,213	1,001
Principal payments on Federal Home Loan Bank advances	(486)	(2,794)
Net increase in securities sold under agreement to repurchase	3,870	11,038
Purchase of treasury stock	0	(10)
Payments of cash dividends on common stock	(178)	(119)
Net cash provided by financing activities	25,803	16,750
Net increase in cash and cash equivalents	30,115	13,600
Cash and cash equivalents at beginning of period	43,612	38,982
Cash and cash equivalents at end of period	73,727	52,582
Supplemental disclosures:
Interest paid	2,534	2,975
Income taxes paid (received)	156	(150)
Loans transferred to other real estate owned	$ 104	$ 226

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Basis Of Presentation

3 Months Ended

Jun. 30, 2011

Basis Of Presentation

Basis Of Presentation

NOTE 2 – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of
America for interim financial statements and the instructions to Form 10-Q, and accordingly do not
include all of the information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. In the opinion of management,
the accompanying unaudited consolidated financial statements reflect all adjustments necessary,
consisting of only normal recurring accruals, to present fairly the financial position, results of
operations and cash flows of the Company for the periods presented. In preparing the interim
financial statements, management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ significantly from those estimates. The interim
results of operations presented are not necessarily indicative of the operating results to be expected
for the year ending March 31, 2012 or any interim period.

While management believes that the disclosures presented are adequate so as not to make
the information misleading, it is suggested that these condensed consolidated financial statements
be read in conjunction with the financial statements and notes included in the Company's Form 10-
K for the year ended March 31, 2011.

The condensed consolidated balance sheet as of March 31, 2011 was derived from the
Company's audited financial statements, but does not include all the disclosures required by
accounting principles generally accepted in the United States of America.

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Condensed Consolidated Balance Sheets (USD $) In Thousands	Jun. 30, 2011	Mar. 31, 2011
ASSETS
Cash and due from banks	$ 8,405	$ 8,738
Interest-bearing demand deposits with other banks	65,322	34,865
Money market mutual funds	0	9
Total cash and cash equivalents	73,727	43,612
Investments in available-for-sale securities, at fair value	56,994	59,268
Federal Home Loan Bank stock, at cost	4,396	4,396
Loans, net of allowance for loan losses of $5,597 as of June 30, 2011and $5,686 as of March 31, 2011	528,073	526,595
Premises and equipment, net	6,273	6,245
Other real estate owned	1,296	1,496
Accrued interest receivable	2,404	2,451
Deferred income taxes, net	4,615	4,874
Cash surrender value of life insurance	10,112	10,023
Identifiable intangible assets	1,187	1,287
Goodwill	16,783	16,783
Other assets	3,294	5,014
Total assets	709,154	682,044
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing	59,404	59,787
Interest-bearing	502,749	480,982
Total deposits	562,153	540,769
Advanced payments by borrowers for taxes and insurance	2,613	1,400
Federal Home Loan Bank advances	38,628	39,113
Subordinated Debentures	3,920	3,918
Securities sold under agreements to repurchase	25,536	21,666
Other liabilities	4,540	4,487
Total liabilities	637,390	611,353
Stockholders' Equity:
Preferred stock, par value $.01 per share: 1,000,000 shares authorized; none issued	0	0
Common stock, par value $.01 per share: 19,000,000 shares authorized; 6,938,087 shares issued at June 30, 2011 and March 31, 2011	69	69
Paid-in capital	59,909	59,876
Retained earnings	20,691	20,091
Unearned ESOP shares, 181,515 shares at June 30, 2011 and March 31, 2011	(1,714)	(1,714)
Treasury stock, 781,411 shares at June 30, 2011 and March 31, 2011, at cost	(7,431)	(7,431)
Unearned shares, stock-based plans, 35,984 shares at June 30,2011 and March 31, 2011	(352)	(386)
Accumulated other comprehensive income	592	186
Total stockholders' equity	71,764	70,691
Total liabilities and stockholders' equity	$ 709,154	$ 682,044