SECURITIES AND EXCHANGE COMMISSION

100 F Street NE

Washington, D.C. 20549

FORM 10-K

S	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended March 31, 2012

£	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _________________________to ___________________________

Commission File No. 001-51589

New England Bancshares, Inc.

(Exact name of registrant as specified in its charter)

Maryland		04-3693643
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

855 Enfield Street, Enfield, Connecticut		06082
(Address of Principal Executive Offices)		Zip Code

(860) 253-5200

(Registrant’s telephone number)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Stock, $0.01 par value		The NASDAQ Stock Market, LLC

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES £ NO S

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES £ NO S

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 preceding twelve months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days. YES S NO £.

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes S No £

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. as defined in Rule 12b-2 of the Exchange Act).

	Large accelerated filer £		Accelerated filer £
	Non-accelerated filer £		Smaller reporting company S
	(Do not check box if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES £ NO S

As of June 20, 2012, there were outstanding 5,806,263 shares of the Registrant’s Common Stock.

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sale price on September 30, 2011 is $49,423,656.

DOCUMENTS INCORPORATED BY REFERENCE

INDEX

PART I
ITEM 1.	BUSINESS	1
ITEM 1A.	RISK FACTORS	15
ITEM 1B.	UNRESOLVED STAFF COMMENTS	18
ITEM 2.	PROPERTIES	19
ITEM 3.	LEGAL PROCEEDINGS	20
ITEM 4.	MINE SAFETY DISCLOSURES	20

PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	20
ITEM 6.	SELECTED FINANCIAL DATA	21
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS	21
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	44
ITEM 8.	CONSOLIDATED FINANCIAL STATEMENTS	45
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	83
ITEM 9A.	CONTROLS AND PROCEDURES	83
ITEM 9B.	OTHER INFORMATION	83

PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	84
ITEM 11.	EXECUTIVE COMPENSATION	89
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	93
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	95
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	96

PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	97
SIGNATURES		98

This annual report on Form 10-K contains certain forward-looking statements which are based on certain assumptions and describe the Company’s future plans, strategies and expectations. These forward-looking statements may be identified by the use of such words as “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the Company’s operations include, but are not limited to, the items described in “Risk Factors” appearing in Part I, Item 1A of this annual report and changes in: interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of our loan and investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake — and, except as may be required by applicable law, 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.

PART I

ITEM 1.

BUSINESS

General

New England Bancshares, Inc. 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.

New England Bank. 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 commercial real estate loans, residential real estate loans, and commercial loans, and to a lesser extent, construction and consumer loans.

The Bank, formerly named Valley Bank, was acquired by New England Bancshares in July 2007. Prior to acquiring the Bank, the Company was the savings and loan holding company for Enfield Federal Savings and Loan Association (“Enfield Federal”), a federal savings association. The Company operated Valley Bank and Enfield Federal as separate subsidiaries until May 2009, when Enfield Federal was merged with and into Valley Bank, and the combined bank was renamed New England Bank. On June 8, 2009 the Company acquired Apple Valley Bank & Trust Company (“Apple Valley”) of Cheshire, Connecticut, through the merger of Apple Valley into New England Bank. References in the Form 10-K to the Bank shall mean New England Bank and its predecessors, where applicable.

New England Bancshares’ Website and Availability of Securities and Exchange Commission Filing

New England Bancshares’ internet website is www.nebankct.com. New England Bancshares makes available free of charge on or through its website its annual reports on Forms 10-K, quarterly reports on Forms 10-Q, current reports on Forms 8-K and any amendments to these reports filed or furnished pursuant to the Securities and Exchange act of 1934, as soon as reasonably practicable after New England Bancshares electronically files such material with, or furnishes it to, the Securities and Exchange Commission. Except as specifically incorporated by reference into this annual report, information on our website is not a part of this annual report.

Market Area

The Bank conducts its operations through its 15 full service banking offices, including its main office and one additional branch office in Enfield and its branch offices in Bristol, Broad Brook, Cheshire, East Windsor, Manchester, Ellington, Southington, Suffield, Terryville, Wallingford and Windsor Locks, Connecticut. Deposits are gathered from, and lending activities are concentrated primarily in the towns of, and the communities contiguous to, its branch offices.

According to statistics published by the U.S. Census Bureau, Connecticut’s 2011 population was approximately 3,580,709, an increase of approximately 5.1% from 2000. In 2010, there were approximately 1,487,891 housing units in Connecticut, an increase of 14.3% from 2000. Median household income for Connecticut in 2010 was $67,740.

Competition

We face intense competition both in making loans and attracting deposits. As of June 30, 2011, the most recent date for which data is available from the FDIC, we held approximately 1.3% of the deposits in Hartford County, where the Bank has 11 out of its 15 branches, which was the 11^th largest share of deposits out of 25 financial institutions in the county. Central Connecticut has a high concentration of financial institutions and financial services providers, many of which are branches of large money centers, super-regional and regional banks which have resulted from the consolidation of the banking industry in New England. Many of these competitors have greater resources than we do and may offer products and services that we do not provide.

Our competition for loans comes from commercial banks, savings institutions, mortgage banking firms, credit unions, finance companies, insurance companies and brokerage and investment banking firms. Our most direct competition for deposits has historically come from commercial banks, savings banks, savings and loan associations, credit unions and mutual funds. We face additional competition for deposits from short-term money market funds and other corporate and government securities funds and from brokerage firms and insurance companies.

We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Technological advances, for example, have lowered the barriers to market entry, allowed banks to expand their geographic reach by providing services over the Internet and made it possible for non-depository institutions to offer products and services that traditionally have been provided by banks. Changes in federal law permit affiliation among banks, securities firms and insurance companies, which promotes a competitive environment in the financial services industry. Competition for deposits and the origination of loans could limit our future growth.

Lending Activities

General. The largest segments of our loan portfolio are commercial real estate loans and residential real estate loans. The other significant segments of our loan portfolio are commercial loans, home equity loans and lines of credit, and other consumer loans. We originate loans for investment purposes.

Commercial Real Estate Loans. We originate commercial real estate loans that are generally secured by properties used for business purposes such as small office buildings, industrial facilities or retail facilities primarily located in our primary market area, and to a much lesser extent multi-family residential properties. At March 31, 2012, commercial real estate loans totaled $289.1 million, or 51.9% of total loans, compared to 47.4% of total loans at March 31, 2011. Our commercial real estate loans are generally made with terms of up to 25 years. These loans are offered with interest rates that are fixed or adjust periodically and are generally indexed to the prime rate as reported in The Wall Street Journal plus a margin of 50 to 200 basis points or the five-year Federal Home Loan Bank (the “FHLB”) Classic Advance Rate plus a margin of 225 to 325 basis points. We generally do not make these loans with loan-to-value ratios exceeding 80%. At March 31, 2012, the largest commercial real estate loan was a $4.7 million loan, which was secured by owner-occupied commercial real estate. This loan was performing according to its terms at March 31, 2012.

One-to-Four-Family Residential Loans. At March 31, 2012, residential loans totaled $125.6 million or 22.6% of total loans. At March 31, 2012, 80.3% of our residential loans were fixed-rate and 19.7% were adjustable-rate.

We originate fixed-rate fully amortizing loans with maturities ranging between 10 and 30 years. Management establishes the loan interest rates based on market conditions. We offer mortgage loans that conform to Fannie Mae and Freddie Mac guidelines, as well as jumbo loans, which presently are loans in amounts over $417,000.

We also currently offer adjustable-rate mortgage loans, with an interest rate based on the one-year Constant Maturity Treasury Bill index. Our adjustable rate mortgage loans have terms up to 30 years and adjust annually either from the outset of the loan or after a three-, five- or ten-year initial fixed period, with the majority of adjustable rate loans adjusting after a five-year period. Interest rate adjustments on such loans are generally limited to no more than 2% during any adjustment period and 6% over the life of the loan.

We underwrite fixed-rate and variable-rate one- to four-family residential mortgage loans with loan-to-value ratios of up to 100% and 95%, respectively, provided that a borrower obtains private mortgage insurance on loans that exceed 80% of the appraised value or sales price, whichever is less, of the secured property. We also require that fire, casualty, title, hazard insurance and, if appropriate, flood insurance be maintained on all properties securing real estate loans made by us. An independent licensed appraiser generally appraises all properties.

The Bank previously offered its full-time employees who satisfied certain criteria and our general underwriting standards fixed- and adjustable-rate residential mortgage loans with interest rates 50 basis points below the rates offered to our other customers. The employee mortgage rate normally ceases upon termination of employment. Upon termination of the employee mortgage rate, the interest rate reverts to the contract rate in effect at the time that the loan was extended. All other terms and conditions contained in the original mortgage and note continued to remain in effect. Currently, the Bank does not offer this type of program. As of March 31, 2012, we had $2.2 million of employee residential mortgage loans, or 0.40% of net loans.

Commercial Loans. At March 31, 2012, we had $94.7 million in commercial loans, which amounted to 17.0% of total loans. In addition, at such date, we had $25.1 million of unadvanced commercial lines of credit. We make commercial business loans primarily in our market area to a variety of professionals, sole proprietorships and small businesses. Commercial lending products include term loans, revolving lines of credit and Small Business Administration guaranteed loans. Commercial loans and lines of credit are made with either variable or fixed rates of interest. Variable rates are generally based on the prime rate as published in The Wall Street Journal, plus a margin. Fixed-rate business loans are generally indexed to the two-, five- or ten-year FHLB Amortizing Advance Rate, as corresponds to the term of the loan, plus a margin. The Company generally does not make unsecured commercial loans.

When making commercial loans, we consider the financial statements of the borrower, our lending history with the borrower, the debt service capabilities of the borrower, the projected cash flows of the business and the value of the collateral, primarily accounts receivable, inventory and equipment. Our commercial loans are also supported by personal guarantees. Depending on the collateral used to secure the loans, commercial loans are made typically in amounts of up to 80% of the value of the collateral securing the loan. At March 31, 2012, our largest commercial loan was a $3.8 million commercial term loan secured by business asset. The loan was performing according to its terms at March 31, 2012.

Home Equity Loans and Lines of Credit. We offer home equity loans and home equity lines of credit, both of which are secured by owner-occupied one- to four-family residences. At March 31, 2012, home equity loans and lines of credit totaled $37.7 million, or 6.8% of total loans. Additionally, at March 31, 2012, the unadvanced amounts of home equity lines of credit totaled $12.8 million. Home equity loans are offered with fixed rates of interest and with terms up to 15 years. Home equity lines of credit are offered with adjustable rates of interest that are indexed to the prime rate as reported in The Wall Street Journal. Interest rate adjustments on home equity lines of credit are limited to a maximum of 18% or 6% above the initial interest rate, whichever is lower.

The procedures for underwriting home equity loans and lines of credit include an assessment of the applicant’s payment history on other debts and ability to meet existing obligations and payments on the proposed loans. We will offer home equity loans with maximum combined loan-to-value ratios of up to 90%, provided that loans in excess of 80% will generally be charged a higher rate of interest. A home equity line of credit may be drawn down by the borrower for an initial period of 10 years from the date of the loan agreement. During this period, the borrower has the option of paying, on a monthly basis, either principal and interest or only interest. If not renewed, the Bank requires the borrower to pay back the amount outstanding under the line of credit over a term not to exceed 10 years, beginning at the end of the 10-year period. After the initial 10-year period, the Bank requires the borrower to pay back the amount outstanding in full.

Consumer Loans. We offer fixed rate loans secured by mobile homes. These loans have terms up to 25 years and loan-to-value ratios up to 90% of the mobile home’s value and require that the borrower obtain hazard insurance. At March 31, 2012, mobile home loans totaled $7.7 million or 1.4% of total loans and 78.6% of consumer loans. For the fiscal year ended March 31, 2012, the Company originated $1.7 million of mobile home loans.

We also offer fixed-rate automobile loans for new or used vehicles with terms of up to 66 months and loan-to-value ratios of up to 90% of the lesser of the purchase price or the retail value shown in the NADA Car Guide. At March 31, 2012, automobile loans totaled $413,000 or 0.1% of total loans and 4.2% of consumer loans.

Other consumer loans at March 31, 2012 amounted to $1.7 million, or 0.3% of total loans and 17.3% of consumer loans. These loans include secured and unsecured personal loans. Personal loans generally have a fixed-rate, a maximum borrowing limitation of $10,000 and a maximum term of four years. Collateral loans are generally secured by a passbook account or a certificate of deposit.

Loan Underwriting Risks. While we anticipate that adjustable-rate loans will better offset the adverse effects of an increase in interest rates as compared to fixed-rate mortgages, the increased mortgage payments required of adjustable-rate loan borrowers in a rising interest rate environment could cause an increase in delinquencies and defaults. The marketability of the underlying property also may be adversely affected in a high interest rate environment. In addition, although adjustable-rate mortgage loans help make our asset base more responsive to changes in interest rates, the extent of this interest sensitivity is limited by the annual and lifetime interest rate adjustment limits.

Loans secured by multi-family and commercial real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans. Of primary concern in multi-family and 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. To monitor cash flows on income properties, we require borrowers and loan guarantors, if any, to provide annual financial statements on multi-family and commercial real estate loans. In reaching a decision on whether to make a multi-family and commercial real estate

loan, we consider the net operating income of the property, the borrower’s expertise, credit history, and profitability and the value of the underlying property. In addition, with respect to commercial real estate rental properties, we will also consider the term of the lease and the quality of the tenants. We have generally required that the properties securing these real estate loans have debt service coverage ratios (the ratio of earnings before debt service divided by debt service) of at least 1.20x. Independent appraisals and environmental surveys are generally required for commercial real estate loans of $250,000 or more.

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 or project. 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. If we are forced to foreclose on a building or project before or at completion due to a default, there can be no assurance that we will be able to recover all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and holding costs.

Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income, and which are secured by real property whose value has historically tended to be more easily ascertainable, 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. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

Loan Originations, Purchases and Sales. Our consumer mortgage lending activities are conducted by our salaried loan representatives. We underwrite all loans that we originate under our loan policies and procedures, which model those of Fannie Mae and Freddie Mac. We originate both adjustable-rate and fixed-rate mortgage loans. Our ability to originate fixed- or adjustable-rate loans is dependent upon the relative customer demand for such loans, which is affected by the current and expected future level of interest rates.

We generally retain most of the loans that we originate for our portfolio; however, we will sell participation interests to local financial institutions, primarily on the portion of loans that exceed our borrowing limits. The sales occur at time of origination; therefore none of these loans have been classified as held-for-sale. We sold $3.0 million and $2.5 million of participation interests in fiscal 2012 and 2011, respectively. In fiscal 2007, the Bank commenced selling long-term, fixed-rate residential loans to the Federal Home Loan Bank (the “FHLB”) under its Mortgage Partnership Finance Program to assist with managing our interest rate risk and increasing our net interest margin. Loans are sold with servicing retained and the loans have recourse to the Company on a formula basis. The Bank sold $8.6 million and $8.8 million of these loans in fiscal 2012 and 2011, respectively.

We purchase participation interests from other community-based financial institutions, primarily commercial real estate loans, commercial construction loans, commercial loans and residential loans. Such loans totaled $42.3 million and $58.9 million at March 31, 2012 and 2011, respectively. We perform our own underwriting analysis on each of our participation interests before purchasing such loans and therefore believe there is no greater risk of default on these obligations. However, in a purchased participation loan, we do not service the

loan and thus are subject to the policies and practices of the lead lender with regard to monitoring delinquencies, pursuing collections and instituting foreclosure proceedings. We are permitted to review all of the documentation relating to any loan in which we participate, including any annual financial statements provided by a borrower. Additionally, we receive periodic updates on the loan from the lead lender. We have not historically purchased any whole loans. However, we would entertain doing so if a loan was presented to us that met our underwriting criteria and fit within our interest rate risk management strategy.

Loan Approval Procedures and Authority. Our lending policies and loan approval limits are recommended by senior management, reviewed by the Executive Credit Committee of the Board of Directors and approved by the Bank’s Board of Directors. The Executive Credit Committee consists of 5 independent directors of the Bank’s Board of Directors and the Chief Executive Officer and President of the Company. One of the independent directors serves as the Chairman of the Committee. The Chief Loan Officer and the Market President of the Bank and the Senior Risk Officer of the Company also serve as non-voting members of the committee. Each individual’s lending authority limit is based on his or her experience and capability and reviewed annually by the Bank’s board. Loan approvals consist of at least 2 management signatures with the higher lending authority determining the level of approval. Any extension of credit that exceeds management’s authority requires the approval of the Bank’s Credit Committee. The Bank’s Credit Committee can approve extensions of credit in amounts up to $1.5 million. Extensions of credit greater than $1.5 million must be approved by the Executive Credit Committee. Any extensions of credit which would exceed $4.5 million also require the approval of the Bank’s Board of Directors. Notwithstanding individual and joint lending authority, board approval is required for any request involving any compromise of indebtedness, such as the forgiveness of unpaid principal, accrued interest, accumulated fees, or acceptance of collateral or other assets in lieu of payment.

Loan Commitments. We issue commitments for fixed-rate and adjustable-rate mortgage loans, and commercial loans conditioned upon the occurrence of certain events. Commitments to originate mortgage loans are legally binding agreements to lend to our customers.

Investment Activities

The Board of Directors of the Bank reviews and approves the investment policy annually. The Board of Directors is responsible for establishing policies for conducting investment activities, including the establishment of risk limits. The Board of Directors reviews the investment portfolio and reviews investment transactions on a monthly basis and is responsible for ensuring that the day-to-day management of the investment portfolio is conducted by qualified individuals. The Board of the Bank has directed the Bank to implement investment policies based on the Board’s established guidelines as reflected in the respective written investment policies, and other established guidelines, including those set periodically by the Asset/Liability Management Committees. The Bank’s management presents the Asset/Liability Management Committee with potential investment strategies and investment portfolio performance reports, on a quarterly basis.

The investment portfolio is primarily viewed as a source of liquidity. Our policy is to invest funds in assets with varying maturities that will result in the best possible yield while maintaining the safety of the principal invested and assists in managing interest rate risk. The investment portfolio management policy is designed to:

	1.	enhance profitability by maintaining an acceptable spread over the cost of funds;

	2.	absorb funds when loan demand is low and infuse funds into loans when loan demand is high;

	3.	provide both the regulatory and the operational liquidity necessary to conduct our daily business activities;

	4.	provide a degree of low-risk, quality assets to the balance sheet;

	5.	provide a medium for the implementation of certain interest rate risk management measures intended to establish and maintain an appropriate balance between the sensitivity to changes in interest rates of: (i) interest income from loans and investments, and (ii) interest expense from deposits and borrowings;

	6.	have collateral available for pledging requirements;

	7.	generate a favorable return on investments without undue compromise of other objectives; and

	8.	evaluate and take advantage of opportunities to generate tax-exempt income when appropriate.

In determining our investment strategies, we consider the interest rate sensitivity, yield, credit risk factors, maturity and amortization schedules, collateral value and other characteristics of the securities to be held. We also consider the secondary market for the sale of assets and the ratings of debt instruments in which it invests and the financial condition of the obligors issuing such instruments.

We have authority to invest in various types of assets, including U.S. Treasury obligations, securities of various federal agencies, mortgage-backed securities, certain certificates of deposit of insured financial institutions, overnight and short-term loans to other banks, and corporate debt instruments. We primarily invest in: U.S. agency obligations; and mortgage-backed securities; and municipal obligations. With respect to municipal obligations, our investment policy provides that all municipal issues must be rated investment grade or higher to qualify for our portfolio. If any such municipal issues in our investment portfolio are subsequently downgraded below the minimum requirements, it is our general policy to liquidate the investment.

Deposit Activities and Other Sources of Funds

General. Deposits and loan repayments are the major sources of our funds for lending and other investment purposes. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and money market conditions.

Deposit Accounts. Substantially all of our depositors are residents of the State of Connecticut. Deposits are attracted from within our market area through the offering of a broad selection of deposit instruments, including non interest-bearing demand accounts (such as checking accounts), interest-bearing demand accounts (such as NOW and money market accounts), passbook and savings accounts, and certificates of deposit. At March 31, 2012, core deposits, which consist of savings, demand, NOW and money market accounts, comprised 50.4% of our deposits. We do not currently utilize brokered funds. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. In determining the terms of our deposit accounts, we consider the rates offered by our competition, our liquidity needs, profitability to us, matching deposit and loan products and customer preferences and concerns. We generally review our deposit mix and pricing weekly. Our current strategy is to offer competitive rates, but not to be the market leader.

In addition to accounts for individuals, we also offer deposit accounts designed for the businesses operating in our market area. Our business banking deposit products and services include a non-interest-bearing commercial checking account, a NOW account for sole proprietors and a commercial cash management account for larger businesses. We have sought to increase our commercial deposits through the offering of these products, particularly to our commercial borrowers.

Borrowings. We utilize advances from the Federal Home Loan Bank of Boston and securities sold under agreements to repurchase to supplement our supply of investable funds and to meet deposit withdrawal requirements. The Federal Home Loan Bank functions as a central reserve bank providing credit for member financial institutions. As a member, the Bank is required to own capital stock in the Federal Home Loan Bank and is authorized to apply for advances on the security of such stock and certain of our mortgage loans, provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. Depending on the program, limitations on the amount of

advances are based either on a fixed percentage of an institution’s net worth or on the Federal Home Loan Bank’s assessment of the institution’s creditworthiness. Under its current credit policies, the Federal Home Loan Bank generally limits advances to 25% of a member’s assets, and short-term borrowings of less than one year may not exceed 10% of the institution’s assets. The Federal Home Loan Bank determines specific lines of credit for each member institution.

Securities sold under agreements to repurchase are customer deposits that are invested overnight in U.S. government or U.S. government agency securities. The customers, predominantly commercial customers, set a predetermined balance and deposits in excess of that amount are transferred into the repurchase account from each customer’s checking account. The next banking day, the funds are recredited to their individual checking account along with interest earned at market rates. These types of accounts are often referred to as sweep accounts.

Subsidiaries

New England Bancshares is the bank holding company for New England Bank, its wholly owned subsidiary. The Company also owns all of the common stock of a Delaware statutory business trust, FVB Capital Trust I. The capital trust was organized under Delaware law to facilitate the issuance of trust preferred securities and is not consolidated into the Company’s financial results. Its only activity has been the issuance of the $4.1 million trust preferred security related to the junior subordinated debentures reported in the Company’s consolidated financial statements.

New England Bank has one wholly owned subsidiary, VB Reo, Inc. VB Reo, Inc. was formed to hold real estate owned acquired by the Bank through foreclosure or deed-in-lieu of foreclosure.

Personnel

As of March 31, 2012, we had 119 full-time employees and 23 part-time employees, none of whom is represented by a collective bargaining unit. We believe our relationship with our employees is good.

REGULATION AND SUPERVISION

General

As a bank holding company, New England Bancshares is required by federal law to file reports with and otherwise comply with, the rules and regulations, of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). New England Bank, as a state commercial bank, is subject to extensive regulation, examination and supervision by the Connecticut Department of Banking, as its primary state regulator, and the Federal Deposit Insurance Corporation (the “FDIC”), as its deposit insurer. New England Bank is a member of the Federal Home Loan Bank System. New England Bank must file reports with the Connecticut Department of Banking and the FDIC concerning its activities and financial condition in addition to obtaining regulatory approvals before entering into certain transactions such as mergers with, or acquisitions of, other savings institutions. The Connecticut Department of Banking and the FDIC conduct periodic examinations to test the Bank’s safety and soundness and compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulatory requirements and policies, whether by the Connecticut Department of Banking, the FDIC, the Federal Reserve Board or the United States Congress, could have a material adverse impact on New England Bancshares, New England Bank and their operations. As further described below under “The Dodd-Frank Act”, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), is significantly changing the bank regulatory structure and affecting the lending, investing, trading and operating activities of financial institutions and their holding companies.

Certain of the regulatory requirements applicable to New England Bancshares and New England Bank are referred to below. This description of statutory provisions and regulations applicable to savings institutions and their holding companies does not purport to be a complete description of such statutes and regulations and their effect on New England Bancshares and New England Bank.

The Dodd-Frank Act

The Dodd-Frank Act required the Federal Reserve Board to set minimum capital levels for both bank and savings and loan holding companies that are as stringent as those required for the insured depository subsidiaries, and the components of Tier 1 capital for holding companies were restricted to capital instruments that were then currently considered to be Tier 1 capital for insured depository institutions. Proceeds of trust preferred securities are excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by bank or savings and loan holding companies with less than $15 billion of assets. The legislation also established a floor for capital of insured depository institutions that cannot be lower than the standards in effect upon passage, and directed the federal banking regulators to implement new leverage and capital requirements that take into account off-balance sheet activities and other risks, including risks relating to securitized products and derivatives.

On June 12, 2012, the Federal Reserve Board, the FDIC and other federal bank regulatory agencies issued a proposed rule that would revise the agencies’ current capital rules as required by the Dodd-Frank Act. The proposed rule would revise the agencies’ risk-based and leverage capital requirements consistent with the Basel Committee on Banking Supervision (“Basel III”). Provisions of the proposed rule include implementation of a new common equity tier 1 minimum capital requirement and a higher minimum tier 1 capital requirement. The rule would also apply limits on a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a specified “buffer” of common equity tier 1 capital in addition to the minimum risk-based capital requirements. The proposed rule would also revise the agencies’ prompt corrective action framework by incorporating the new regulatory capital minimums and updating the definition of tangible common equity. On June 12, 2012, the bank regulatory agencies also issued a proposed rule that would revise the agencies’ rules for calculating risk-weighted assets to enhance risk sensitivity. These revisions include methods for determining risk-weighted assets for residential mortgages, securitization exposures, and counterparty credit risk.

The Dodd-Frank Act created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets are still examined for compliance by their applicable bank regulators. The Dodd-Frank Act also gave state attorneys general the ability to enforce applicable federal consumer protection laws.

The Dodd-Frank Act broadened the base for FDIC insurance assessments. Assessments are now based on the average consolidated total assets less tangible equity capital of a financial institution. The legislation also permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008, and noninterest bearing transaction accounts have unlimited deposit insurance through December 31, 2012.

The Dodd-Frank Act increased stockholder influence over boards of directors by requiring companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments. The legislation also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded or not.

The Dodd Frank Act also repealed the federal prohibition on the payment of interest on business transaction and other demand accounts, requires that originators of securitized loans retain a percentage of the risk for transferred loans, directs the Federal Reserve Board to regulate pricing of certain debit card interchange fees and contains a number of reforms related to mortgage origination.

Many provisions of the Dodd-Frank Act involve delayed effective dates and/or require implementing regulations. Their impact on operations cannot yet fully be assessed. However, there is a significant possibility that the Dodd-Frank Act will result in an increased regulatory burden and compliance, operating and interest expense for banks and their holding companies.

Federal and State Banking Regulation

Business Activities. The activities of New England Bank, a state commercial bank, are governed by the Connecticut Department of Banking and the FDIC, which regulate, among other things, the scope of the business of a bank, the investments a bank must or may maintain, the nature and amount of collateral for certain loans a bank makes, the establishment of branches and the activities of a bank with respect to mergers and acquisitions.

Loans-to-One-Borrower Limitations. As a Connecticut chartered commercial bank, New England Bank is generally subject to the same limits on loans to one borrower as a national bank. With specified exceptions, the Bank’s total loans or extensions of credit to a single borrower cannot exceed 15% of its unimpaired capital and surplus. The Bank may lend additional amounts up to 10% of its unimpaired capital and surplus, if the loans or extensions of credit are fully-secured by readily-marketable collateral. At March 31, 2012, the Bank’s loans-to-one borrower limitation was $8.9 million and the largest aggregate outstanding balance of loans to one borrower was $7.4 million.

Capital Requirements. The FDIC has issued regulations and adopted a statement of policy regarding the capital adequacy of state-chartered banks, such as New England Bank. Under the regulations, a bank generally is deemed to be (i) “well-capitalized” if it has a Total Risk-Based Capital Ratio of 10.0% or more, a Tier I Risk-Based Capital Ratio of 6.0% or more, a Leverage Ratio of 5.0% or more and is not subject to any written capital order or directive; (ii) “adequately capitalized” if it has a Total Risk-Based Capital Ratio of 8.0% or more, a Tier I Risk-Based Capital Ratio of 4.0% or more, and a Leverage Ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the definition of “well-capitalized;” (iii) “undercapitalized” if it has a Total Risk-Based Capital Ratio that is less than 8.0%, a Tier I Risk-Based Capital Ratio that is less than 4.0% or a Leverage Ratio that is less than 4.0% (3.0% under certain circumstances); (iv) “significantly undercapitalized” if it has a Total Risk-Based Capital Ratio that is less than 6.0%, a Tier I Risk-Based Capital Ratio that is less than 3.0% or a Leverage Ratio that is less than 3.0%; and (v) “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. If an institution becomes undercapitalized, it would become subject to significant additional oversight and regulation. The current requirements and actual capital levels for New England Bank and New England Bancshares are detailed in Note 15 of “Notes to Consolidated Financial Statements” filed in Part II, Item 8, “Financial Statements and Supplementary Data.”

As noted under “—The Dodd-Frank Act” above, the Federal Reserve Board, the FDIC and other federal bank regulatory agencies have recently issued a proposed rule that would revise the capital requirements applicable to New England Bank and New England Bancshares.

Prompt Corrective Action. Federal law requires each federal banking agency to take prompt corrective action to resolve the problems of insured depository institutions, including but not limited to those that fall below one or more prescribed minimum capital ratios. An institution that, based upon its capital levels, is classified as “well capitalized,” “adequately capitalized” or “undercapitalized” may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. The federal banking agencies, however, may not treat an institution as “critically undercapitalized” unless its capital ratio actually warrants such treatment.

In addition to restrictions and sanctions imposed under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, the issuance of a cease and desist order that can be judicially enforced, the termination of insurance of deposits (in the case of a depository institution), the imposition of civil money penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the issuance of removal and prohibition orders against institution-affiliated parties and the enforcement of such actions through injunctions or restraining orders based upon a judicial determination that the agency would be harmed if such equitable relief was not granted.

Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe for depository institutions under its jurisdiction standards relating to, among other things: internal controls; information systems and audit systems; loan documentation; credit underwriting; interest rate risk; asset growth; compensation; fees and benefits; and such other operational and managerial standards as the agency deems appropriate. The federal banking agencies have promulgated regulations and Interagency Guidelines Establishing Standards for Safety and Soundness (the “Guidelines”) to implement these safety and soundness standards. The Guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The Guidelines address internal controls and information systems; internal audit system; credit underwriting; loan documentation; interest rate risk exposure; asset quality; earnings and compensation; and fees and benefits. If the appropriate federal banking agency determines that an institution fails to meet any standards prescribed by the Guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard set by the FDIC.

Limitation on Capital Distributions. State and federal statutory and regulatory limitations apply to New England Bank’s payment of dividends to shareholders. The prior approval of the Connecticut Department of Banking is required if the total of all dividends declared by a bank in any calendar year exceeds the bank’s net profits, as defined, for that year combined with its retained net profits for the preceding two calendar years. The payment of dividends by New England Bank may also be affected by other factors, such as the requirement to maintain adequate capital above regulatory guidelines.

As noted under “—The Dodd-Frank Act” above, the Federal Reserve Board, the FDIC and other federal bank regulatory agencies have recently issued a proposed rule that would apply additional limits to the capital distributions that a banking organization may make.

Assessment for Examinations. The Bank’s operations are subject to examination by the FDIC and the State of Connecticut Department of Banking. The assessments paid by New England Bank for such examinations for the year ended March 31, 2012 totaled $34,000.

Enforcement. New England Bank is subject to the federal regulations promulgated pursuant to the Financial Institutions Supervisory Act to prevent banks from engaging in unsafe and unsound practices, as well as various other federal and state laws and consumer protection laws.

Federal Insurance of Deposit Accounts. The FDIC insures deposits at FDIC insured financial institutions such as New England Bank. Deposit accounts in New England Bank are insured by the FDIC generally up to a maximum of $250,000 per separately insured depositor and up to a maximum of $250,000 for self-directed retirement accounts. Pursuant to the Dodd-Frank Act, certain noninterest bearing checking accounts have unlimited coverage through December 31, 2012.

The FDIC imposes an assessment for deposit insurance on all depository institutions. Under the FDIC’s risk-based assessment system, insured institutions are assigned to risk categories based on supervisory evaluations, regulatory capital levels and certain other factors. An institution’s assessment rate depends upon the category to which it is assigned and certain adjustments specified by FDIC regulations, with institutions deemed less risky paying lower rates. Assessment rates (inclusive of possible adjustments) currently range from 2½ to 45 basis points

of each institution’s total assets less tangible capital. The FDIC may revise the scale uniformly, except that no adjustment can deviate more than two basis points from the base scale without notice and comment rulemaking. The FDIC’s current system represents a change, required by the Dodd-Frank Act, from its prior practice of basing the assessment on an institution’s volume of deposits.

As part of its plan to restore the Deposit Insurance Fund in the wake of the large number of bank failures following the financial crisis, the FDIC imposed a special assessment of 5 basis points for the second calendar quarter of 2009. In addition, the FDIC required all insured institutions to prepay their quarterly risk-based assessments for the fourth calendar quarter of 2009, and for all of calendar 2010, 2011 and 2012. The prepayment was recorded as a prepaid expense at December 31, 2009 and is being amortized to expense over three years. Any unused prepaid assessments would be returned to the institution in June 2013.

Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not know of any practice, condition or violation that might lead to termination of New England Bank’s deposit insurance.

In addition to the FDIC assessments, the Financing Corporation (“FICO”) is authorized to impose and collect, with the approval of the FDIC, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019. During the year ended March 31, 2012, New England Bank paid $46,000 in fees related to the FICO.

Transactions with Affiliates. New England Bank’s authority to engage in transactions with its affiliates is governed by the Federal Reserve Act and implementing regulations. The Federal Reserve Act limits the extent to which a bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such bank’s capital stock and retained earnings, and limits all such transactions with all affiliates to an amount equal to 20% of such capital stock and retained earnings. Certain transactions, such as extensions of credit to, or guarantees issued on behalf of, an affiliate, are subject to specific collateralization requirements. The Dodd-Frank Act significantly expands the coverage and scope of the limitations on affiliate transactions within a banking organization. For example, commencing in July 2011, the Dodd-Frank Act required that the 10% of capital limit on these transactions begin to apply to financial subsidiaries as well. Any covered transaction with an affiliate, such as the making of loans, purchase of assets, issuance of guarantees and other similar types of transactions, must be on terms that are substantially the same, or at least as favorable to the bank, as those that would be provided to a non-affiliate.

The Sarbanes-Oxley Act generally prohibits loans by the Company to its executive officers and directors. However, that act contains a specific exception for loans by New England Bank to its executive officers and directors in compliance with federal banking laws. Under such laws, New England Bank’s authority to extend credit to executive officers, directors and 10% stockholders (“insiders”), as well as entities such persons control, is limited. Among other things, these provisions require that extensions of credit to insiders be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders. There are also certain limitations on the amount of credit extended to insiders, individually and in the aggregate, which limits are based, in part, on the amount of New England Bank’s capital. In addition, extensions of credit in excess of certain limits must be approved by New England Bank’s board of directors.

Community Reinvestment Act. Under the Community Reinvestment Act (“CRA”), as implemented by FDIC regulations, New England Bank has a continuing and affirmative obligation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for New England Bank, nor does it limit their discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the FDIC, in connection with their examination of New England Bank to assess New England Bank’s record of meeting the credit needs of its community and to take the record into account in its evaluation of certain applications by New England Bank. The CRA also requires all institutions to make public disclosure of their CRA ratings. New England Bank received a “Satisfactory” CRA rating in its most recent examination.

Federal Home Loan Bank System. New England Bank is a member of the Federal Home Loan Bank of Boston, which is one of the 12 regional Federal Home Loan Banks making up the Federal Home Loan Bank System. Each Federal Home Loan Bank provides a central credit facility primarily for its member institutions. The Bank is required to acquire and hold shares of capital stock in that Federal Home Loan Bank. As of March 31, 2012, New England Bank was in compliance with this requirement with investments in the capital stock of the Federal Home Loan Bank of Boston of $4.1 million.

The Federal Home Loan Banks have been required to provide funds for the resolution of insolvent thrifts and to contribute funds for affordable housing programs. These requirements could reduce the amount of earnings that the Federal Home Loan Banks can pay as dividends to their members and could also result in the Federal Home Loan Banks imposing a higher rate of interest on advances to their members. If dividends were reduced, or interest on future Federal Home Loan Bank advances increased, the Bank’s net interest income would be affected.

Federal Reserve System. Under Federal Reserve Board regulations, New England Bank is required to maintain noninterest-earning reserves against its transaction accounts. New England Bank is in compliance with these requirements.

Holding Company Regulation

New England Bancshares is subject to examination, regulation, and periodic reporting under the Bank Holding Company Act of 1956, as amended, as administered by the Federal Reserve Board. New England Bancshares is required to obtain the prior approval of the Federal Reserve Board to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior Federal Reserve Board approval would be required for New England Bancshares to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after such acquisition, it would, directly or indirectly, own or control more than 5% of any class of voting shares of the bank or bank holding company. In addition to the approval of the Federal Reserve Board, before any bank acquisition can be completed, prior approval may also be required to be obtained from other agencies having supervisory jurisdiction over the bank to be acquired.

A bank holding company is generally prohibited from engaging in, or acquiring, direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve Board has determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing securities brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings association.

The Gramm-Leach-Bliley Act of 1999 authorizes a bank holding company that meets specified conditions, including its depository institution subsidiaries being “well capitalized” and “well managed,” to opt to become a “financial holding company.” A financial holding company may engage in a broader array of financial activities than a typical bank holding company. Such activities can include insurance underwriting and investment banking.

New England Bancshares is subject to the Federal Reserve Board’s capital adequacy guidelines for bank holding companies (on a consolidated basis). The current requirements and actual capital levels for New England Bancshares and New England Bank are detailed in Note 15 of “Notes to Consolidated Financial Statements” filed in Part II, Item 8, “Financial Statements and Supplementary Data.” Traditionally, the capital guidelines for a bank holding company have been structured similarly to the regulatory capital requirements for the subsidiary depository institutions, but were somewhat more lenient. For example, the holding company capital requirements allow inclusion of certain instruments in Tier 1 capital that are not includable at the institution level. As noted under “—The Dodd-Frank Act” above, the Dodd-Frank Act required that holding company capital standards be as stringent as those applicable to the insured institutions themselves. The Federal Reserve Board, the FDIC and other federal bank regulatory agencies have recently issued a proposed rule that would revise the capital requirements applicable to New England Bank and New England Bancshares.

A bank holding company is generally required to give the Federal Reserve Board prior written notice of any purchase or redemption of then outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve Board order or directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. The Federal Reserve Board has adopted an exception to this approval requirement for well-capitalized bank holding companies that meet certain other conditions.

The Federal Reserve Board has issued a policy statement regarding the payment of dividends by bank holding companies. In general, the Federal Reserve Board’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. The Federal Reserve Board’s policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by using available resources to provide capital funds during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. The Dodd-Frank Act codified the source of strength policy and requires the promulgation of implementing regulations. Under the prompt corrective action laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies can affect the ability of New England Bancshares to pay dividends or otherwise engage in capital distributions.

Under the Federal Deposit Insurance Act, depository institutions are liable to the FDIC for losses suffered or anticipated by the FDIC in connection with the default of a commonly controlled depository institution or any assistance provided by the FDIC to such an institution in danger of default.

The status of New England Bancshares as a registered bank holding company under the Bank Holding Company Act will not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws.

FEDERAL AND STATE TAXATION

Federal Taxation

General. New England Bancshares and New England Bank report their consolidated taxable income on a fiscal year basis ending March 31, using the accrual method of accounting and are subject to federal income taxation in the same manner as other corporations. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to New England Bancshares and New England Bank. Our federal tax returns are not currently under audit or have not been subject to an audit during the past five years, except as follows. In 2011 the Internal Revenue Service completed an audit of our federal tax returns for the years ended March 31, 2009 and 2008.

Distributions. To the extent that the Company makes “non-dividend distributions” to stockholders, such distributions will be considered to result in distributions from its unrecaptured tax bad debt reserve as of December 31, 1987 (the “base year reserve”), to the extent thereof and then from the Company’s supplemental reserve for losses on loans, and an amount based on the amount distributed will be included in the Company’s income. Non-dividend distributions include distributions in excess of the Company’s current and accumulated earnings and profits, distributions in redemption of stock and distributions in partial or complete liquidation. Dividends paid out of the Company’s current or accumulated earnings and profits will not be included in the Company’s income.

The amount of additional income created from a non-dividend distribution is equal to the lesser of the base year reserve and supplemental reserve for losses on loans or an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Thus, in some situations, approximately one and one-half times the non-dividend distribution would be includable in gross income for federal income tax purposes, assuming a 34% federal corporate income tax rate. The Company does not intend to pay dividends that would result in the recapture of any portion of the bad debt reserves.

Corporate Alternative Minimum Tax. The Code imposes a tax on alternative minimum taxable income at a rate of 20%. Only 90% of alternative minimum taxable income can be offset by alternative minimum tax net operating loss carryovers of which the Company currently has none. Alternative minimum taxable income is also adjusted by determining the tax treatment of certain items in a manner that negates the deferral of income resulting from the regular tax treatment of those items. Alternative minimum tax is due when it exceeds the regular income tax. The Company has not had a liability for a tax on alternative minimum taxable income during the past five years.

Elimination of Dividends. New England Bancshares may exclude from its income 100% of dividends received from New England Bank as a member of the same affiliated group of corporations.

State Taxation

New England Bancshares and New England Bank file Connecticut income tax returns on a consolidated basis. Generally, the income of financial institutions in Connecticut, which is calculated based on federal taxable income, subject to certain adjustments, is subject to Connecticut tax. The Company is not currently under audit with respect to its Connecticut income tax returns and its state tax returns have not been audited for the past five years.

ITEM 1A.

RISK FACTORS

Our increased emphasis on commercial lending may expose us to increased lending risks.

At March 31, 2012, our commercial loan portfolio consisted of $289.0 million of commercial real estate loans and $94.7 million of commercial business loans, or 51.9% and 17.0% of total loans, respectively. We intend to increase our emphasis on these types of loans. These types of loans generally expose a lender to greater risk of non-payment and loss than residential mortgage loans because repayment of the loans often depends on the successful operation of the property, the income stream of the borrowers and, for commercial construction loans, the accuracy of the estimate of the property’s value at completion of construction and the estimated cost of construction. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential mortgage loans. Commercial business loans expose us to additional risks since they typically are made on the basis of the borrower’s ability to make repayments from the cash flow of the borrower’s business and are secured by non-real estate collateral that may depreciate over time. In addition, since such loans generally entail greater risk than residential mortgage loans, we may need to increase our allowance for loan losses in the future to account for the likely increase in probable incurred credit losses associated with the growth of such loans. Also, many of our commercial and construction borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan.

Historically low interest rates may adversely affect our net interest income and profitability.

During the past four years it has been the policy of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) to maintain interest rates at historically low levels through its targeted federal funds rate and the purchase of mortgage-backed securities. As a result, yields on securities we have purchased and market rates on the loans we have originated are at levels lower than were available prior to the recent low interest rate environment. As a general matter, our interest-bearing liabilities reprice or mature more quickly than our interest-earning assets. This has resulted in recent increases in our net interest rate spread. However, our ability to lower our interest expense is limited at these interest rate levels, while the average yield on our interest-earning assets may

continue to decrease. Although our net interest rate spread increased by 12 basis points and 46 basis points in fiscal 2010 and 2011, respectively, our net interest rate spread decreased by 11 basis points during fiscal 2012. The Federal Reserve Board has indicated its intention to maintain low interest rates in the near future. Accordingly, our net interest income may decrease, which may have an adverse affect on our profitability. For information with respect to changes in interest rates, see “—Changes in interest rates could adversely affect our results of operations and financial condition,” below.

Changes in interest rates could adversely affect our results of operations and financial condition.

Our profitability depends substantially on our net interest income, which is the difference between the interest income earned on our interest-earning assets and the interest expense paid on our interest-bearing liabilities. Increases in interest rates may decrease loan demand and make it more difficult for borrowers to repay adjustable-rate loans. In addition, as market interest rates rise, we will have competitive pressures to increase the rates we pay on deposits. Because interest rates we pay on our deposits would be expected to increase more quickly than the increase in the yields we earn on our interest-earning assets, our net interest income would be adversely affected.

We also are subject to reinvestment risk associated with changes in interest rates. Changes in interest rates may affect the average life of loans and mortgage-related securities. Decreases in interest rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce borrowing costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments at rates that are comparable to the interest rates on existing loans and securities.

Strong competition within our market area could hurt our profits and slow growth.

We face intense competition both in making loans and attracting deposits. This competition has made it more difficult for us to make new loans and has occasionally forced us to offer higher deposit rates. Price competition for loans and deposits might result in us earning less on our loans and paying more on our deposits, which reduces net interest income. As of June 30, 2011, we held 1.3% of the deposits in Hartford County, which was the 11^th largest market share of deposits out of the 25 financial institutions in the county. Some of the institutions with which we compete have substantially greater resources and lending limits than we have and may offer services that we do not provide. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued ability to compete successfully in our market area.

A prolonged downturn in the Connecticut economy or real estate values could hurt our profits.

Nearly all of our real estate loans are secured by real estate in Connecticut. We continue to operate in a challenging and uncertain economic environment, both nationally and locally. Continued declines in real estate values and home sales volumes along with greater financial stress on borrowers due to the uncertain economic environment and high unemployment could have an adverse effect on our borrowers or their customers, which could adversely affect our financial condition and results of operations. Decreases in real estate values could adversely affect the value of property used as collateral for our loans. Continued economic uncertainty may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which could result in increased loan delinquencies, problem assets and foreclosures. If poor economic conditions result in decreased demand for the Company’s products and services our financial condition and results of operations could be adversely affected.

If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings could decrease.

We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. If our assumptions are incorrect, our allowance for loan losses may not be sufficient to cover probable incurred losses in our loan portfolio, resulting in additions to our allowance. In addition, bank regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities might have a material adverse effect on our financial condition and results of operations.

The Dodd-Frank Wall Street Reform and Consumer Protection Act will, among other things, tighten capital standards, create a new Consumer Financial Protection Bureau and result in new laws and regulations that are expected to increase our costs of operations.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) is significantly change the bank regulatory structure and affecting the lending, deposit taking, investing, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for many months or years.

A provision of the Dodd-Frank Act eliminated the federal prohibitions on paying interest on demand deposits effective July 21, 2011, thus allowing businesses to have interest-bearing checking accounts. Depending on competitive responses, this significant change to existing law could have an adverse effect on our interest expense.

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

The Federal Reserve Board, the FDIC and other federal bank regulatory agencies recently issued a proposed rule that would revise the agencies’ current capital rules as required by the Dodd-Frank Act. The proposed rule would include a new common equity tier 1 minimum capital requirement and a higher minimum tier 1 capital requirement. The rule would also apply limits on a banking organization’s capital distributions if the banking organization does not hold a specified “buffer” of common equity tier 1 capital in addition to the minimum risk-based capital requirements. The proposed rule would also revise the agencies’ prompt corrective action framework by incorporating the new regulatory capital minimums and updating the definition of tangible common equity.

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

Our earnings have been negatively affected by the reduction in dividends paid by the Federal Home Loan Bank of Boston. In addition, any restrictions placed on the operations of the Federal Home Loan Bank of Boston could hinder our ability to use it as a liquidity source.

The Federal Home Loan Bank (“FHLB”) of Boston did not pay any dividends during the years 2009 and 2010. Although the FHLB Boston began paying a dividend again in the first quarter of 2011, the dividend paid was far below the dividend paid by the FHLB of Boston prior to 2009. The failure of the FHLB of Boston to pay full dividends for any quarter will reduce our earnings during that quarter. In addition, the FHLB of Boston is an important source of liquidity for us, and any restrictions on their operations may hinder our ability to use it as a liquidity source.

Risks associated with system failures, interruptions, or breaches of security could negatively affect our earnings.

Information technology systems are critical to our business. We use various technology systems to manage our customer relationships, general ledger, securities, deposits, and loans. We have established policies and procedures to prevent or limit the impact of system failures, interruptions, and security breaches, but such events may still occur and may not be adequately addressed if they do occur. In addition any compromise of our systems could deter customers from using our products and services. Although we rely on security systems to provide security and authentication necessary to effect the secure transmission of data, these precautions may not protect our systems from compromises or breaches of security.

The occurrence of any system failures, interruption, or breach of security could damage our reputation and result in a loss of customers and business thereby subjecting us to additional regulatory scrutiny, or could expose us to litigation and possible financial liability. Any of these events could have a material adverse effect on our financial condition and results of operations.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.

PROPERTIES

The Company currently conducts its business through fifteen full-service banking offices and two administrative offices. The net book value of the Company’s properties or leasehold improvements was $5.8 million at March 31, 2011.

Location	Leased or Owned	Original Year Leased or Acquired	Date of Lease Expiration

Executive/Main Office:

855 Enfield Street, Enfield, Connecticut	Leased	2006	2031

Operations Center:

45 North Main Street, Bristol, Connecticut	Leased	2006	2017⁽¹⁾

Branch Offices:

4 Riverside Avenue, Bristol, Connecticut	Leased	1999	2020 ⁽²⁾

888 Farmington Avenue, Bristol, Connecticut	Owned	2004	—

124 Main Street, Broad Brook, Connecticut	Owned	2003	—

286 Maple Avenue, Cheshire, Connecticut	Leased	2001	2021⁽³⁾

1 Shoham Road, East Windsor, Connecticut	Leased	2005	2015⁽⁴⁾

287 Somers Road, Ellington, Connecticut	Owned	2005	—

268 Hazard Avenue, Enfield, Connecticut	Owned	1962	—

23 Main Street, Manchester, Connecticut	Owned	2002	—

98 Main Street, Southington, Connecticut	Leased	2006	2028 ⁽⁵⁾

158 North Main Street, Southington, Connecticut	Owned	2007	—

112 Mountain Road, Suffield, Connecticut	Leased	1988	2013

8 South Main Street, Terryville, Connecticut	Leased	2002	2012 ⁽⁶⁾

707 North Colony Road, Wallingford, Connecticut	Leased	2006	2016 ⁽¹⁾

20 Main Street, Windsor Locks, Connecticut	Leased	2002	2017

(1)	We have an option to renew this lease for two additional five-year terms.
(2)	We have an option to renew this lease for two additional five-year terms
(3)	We have an option to renew this lease for one additional ten-year term.
(4)	We have an option to renew this lease for two additional seven-year terms.
(5)	We have an option to terminate this lease in 2018.
(6)	We have an option to renew this lease for one additional ten-year term.

ITEM 3.

LEGAL PROCEEDINGS

Periodically, there have been various claims and lawsuits involving the Company and the Bank, such as claims to enforce liens, condemnation proceedings on properties in which the Bank holds security interests, claims involving the making and servicing of real property loans and other issues incident to the Bank’s business. In the opinion of management, after consultation with the Company’s legal counsel, no such pending claims or lawsuits are expected to have a material adverse effect on the financial condition or operations of the Company, taken as a whole. The Company is not a party to any material pending legal proceedings.

ITEM 4.

MINE SAFETY DISCOLURES

None.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock is listed on the NASDAQ Global Market under the symbol “NEBS.” According to the records of its transfer agent, the Company had approximately 1,348 stockholders of record as of June 20, 2012. The following table sets forth the high and low sales prices and dividends paid per share for the Company’s common stock for each of the fiscal quarters in the two-year period ended March 31, 2012. See Item 1, “Business—Regulation and Supervision—Limitation on Capital Distributions” and Note 10 in the Notes to the Consolidated Financial Statements for more information relating to restrictions on dividends.

	High		Low		Dividends
Fiscal 2012:
Fourth Quarter	$	11.02	$	9.72	$	0.03
Third Quarter		11.26		9.09		0.03
Second Quarter		9.70		9.09		0.03
First Quarter		9.90		9.00		0.03

Fiscal 2011:
Fourth Quarter	$	10.56	$	7.92	$	0.03
Third Quarter		9.00		7.00		0.03
Second Quarter		7.88		6.50		0.02
First Quarter		8.65		7.00		0.02

The Company repurchased 67,191 shares of its common stock in the quarter ended March 31, 2012 as follows:

For the three months ended March 31, 2012	Total shares repurchased		Average price paid per share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs

January	57,991	$	10.51	182,696	149,561
February	2,200		10.10	184,896	147,361
March	7,000		10.22	191,896	140,361
Total	67,191	$	10.47

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

ITEM 6.

SELECTED FINANCIAL DATA

Not completed due to Registrant’s status as a smaller reporting company.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

The objective of this section is to help understand our views on our results of operations and financial condition. You should read this discussion in conjunction with the consolidated financial statements and Notes to the Consolidated Financial Statements that appear under Part II, Item 8 of this annual report.

Overview

Income. Our primary source of pre-tax income is net interest and dividend income. Net interest and dividend income is the difference between interest and dividend income, which is the income that we earn on our loans and investments, and interest expense, which is the interest that we pay on our deposits and borrowings. To a much lesser extent, we also recognize pre-tax income from service charge income – mostly from service charges on deposit accounts, from the increase in cash surrender value of our bank-owned life insurance and from the sale of securities and loans.

Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a monthly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.

Expenses. The expenses we incur in operating our business consist of salaries and employee benefits expenses, occupancy and equipment expenses, advertising and promotion expenses, professional fees, data processing expense, FDIC insurance assessment, stationery and supplies expense, amortization of identifiable intangible assets and other miscellaneous expenses.

Salaries and employee benefits expenses consist primarily of the salaries and wages paid to our employees, payroll taxes and expenses for health insurance, retirement plans and other employee benefits. It also includes expenses related to our employee stock ownership plan and restricted stock awards granted under our stock-based incentive plan. Expense for the employee stock ownership plan is based on the average market value of the shares committed to be released. An equal number of shares are released each year over terms of the two loans from New England Bancshares that were used to fund the employee stock ownership plan’s purchase of shares in the stock offering in both the mutual holding company reorganization and the second-step conversion. Expense for shares of restricted stock awards is based on the fair market value of the shares on the date of grant. Compensation and related expenses is recognized on a straight-line basis over the vesting period. We began expensing stock options in fiscal 2007 and are included in salaries and employee benefits expenses and the consolidated statements of income.

Occupancy and equipment expenses, which are the fixed and variable costs of land, building and equipment, consist primarily of lease payments, real estate taxes, depreciation charges, furniture and equipment expenses, maintenance and costs of utilities. Depreciation of premises and equipment is computed using the straight-line method based on the useful lives of the related assets, which range from ten to 50 years for buildings and premises and three to 20 years for furniture, fixtures and equipment. Leasehold improvements are amortized over the shorter of the useful life of the asset or term of the lease.

Advertising and promotion expenses include expenses for print advertisements, promotions and premium items.

Professional fees primarily include fees paid to our independent auditors, our attorneys, our internal auditor and any consultants we employ, such as to review our loan or investment portfolios.

Data processing expenses include fees paid to our third-party data processing service and ATM expense.

FDIC insurance assessment consists of deposit insurance premiums paid to the FDIC.

Stationery and supplies expense consists of expenses for office supplies.

Amortization of identifiable intangible assets consists of the amortization, on a straight-line basis over a ten-year period, of the $886,000 core deposit intangible that was incurred in connection with the acquisition of Windsor Locks Community Bank, FSL in December 2003 and the amortization, on a sum-of-years digits basis over a ten-year period, of the $2.5 million core deposit intangible that was incurred in conjunction with the Company’s acquisition of First Valley Bancorp, Inc. in July 2007.

Other expenses include charitable contributions, regulatory assessments, telephone, insurance and other miscellaneous operating expenses.

Critical Accounting Policies

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or income to be critical accounting policies. We consider accounting policies relating to the allowance for loan losses and goodwill and other intangibles to be critical accounting policies.

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impacted loans; the value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change.

Management reviews the level of the allowance on a monthly basis and establishes the provision for loan losses based on an evaluation of the portfolio, past loss experience, economic conditions and business conditions affecting our primary market area, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, the duration of the current business cycle, bank regulatory examination results and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future additions to the allowance may be necessary if certain future events occur that cause actual results to differ from the assumptions used in making the evaluation. For example, a downturn in the local economy could cause increases in non-performing loans. Additionally, a decline in real estate values could cause some of our loans to become inadequately collateralized. In either case, this may require us to increase our provisions for loan losses, which would negatively impact earnings. Further, the FDIC and State of Connecticut Department of Banking, as an integral part of their examination processes, review the Bank’s allowance for loan losses. Such agencies may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. An increase to the allowance required to be made by an agency would negatively impact our earnings. Additionally, a large loss could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect earnings. See Notes 2 and 4 to “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this annual report.

Goodwill and Other Intangibles. We record all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangibles, at fair value as required by ASU 2010-28. Goodwill is subject, at a minimum, to annual tests for impairment. Other intangible assets are amortized over their estimated useful lives using straight-line and accelerated methods, and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount. The initial goodwill and other intangibles recorded, and subsequent impairment analysis, requires us to make subjective judgments concerning estimates of how the acquired assets will perform in the future. Events and factors that may significantly affect the estimates include, among others, customer attrition, changes in revenue grown trends, specific industry conditions and changes in competition.

Operating Strategy

Our mission is to operate and further expand a profitable community-oriented financial institution. We plan to achieve this by executing our strategy of:

	•	pursuing opportunities to increase commercial real estate lending and commercial loans in our market area;

	•	continuing to emphasize the origination of one- to four-family residential real estate loans;

	•	expanding our delivery system through a combination of increased uses of technology and additional branch facilities, although we have not entered into any agreements regarding the establishment or acquisition of new branches;

	•	aggressively attracting core deposits;

	•	managing our net interest margin and net interest spread by having a greater percentage of our assets in loans, especially higher-yielding loans, which generally have a higher yield than securities; and

	•	managing interest rate risk by emphasizing the origination of adjustable-rate or shorter duration loans.

Pursue opportunities to increase commercial real estate lending in our market area

Commercial real estate loans provide us with the opportunity to earn more income because they tend to have higher interest rates than residential mortgage loans. In addition, these loans are beneficial for interest rate risk management because they typically have shorter terms and adjustable interest rates. Commercial real estate loans increased $37.3 million and $28.2 million for the years ended March 31, 2012 and 2011, respectively, and at March 31, 2012 comprised approximately 51.9% of total loans. There are many commercial properties located in our market area, and we may pursue the larger lending relationships associated with these opportunities, while continuing to originate any such loans in accordance with what we believe are our conservative underwriting guidelines. We have added expertise in our commercial loan department in recent years. Additionally, we may employ additional commercial lenders in the future to help increase our commercial lending.

However, these types of loans generally expose a lender to greater risk of non-payment and loss than one- to four-family residential mortgage loans because repayment of the loans often depends on the successful operation of the property and the income stream of the borrowers. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans. In addition, since such loans generally entail greater risk than one- to four-family residential mortgage loans, we may need to increase our allowance for loan losses in the future to account for the likely increase in probable incurred credit losses associated with the growth of such loans. Also, many of our commercial borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan.

Expand our delivery system through a combination of increased uses of technology and additional branch facilities

We intend to expand the ways in which we reach and serve our customers. We implemented internet banking in fiscal 2003, which allows our customers to access their accounts and pay bills online. In fiscal 2006, we introduced an enhancement to our website to enable customers to obtain loan information to apply for a residential or commercial loan online. Additionally, in fiscal 2008 we introduced remote deposit capture, a product which

allows commercial customers to deposit checks from their office with the use of a scanner; thereby eliminating the need to physically visit an office to make a deposit. Also, we opened new branch offices in East Windsor, Connecticut in October 2005, Ellington, Connecticut in April 2006, our Farmington Avenue, Bristol branch office in March 2007 and our Southington branch office in January 2007. In addition, we added four branch offices with our acquisition of Valley Bank in July 2007, and three branch offices in connection with our acquisition of Apple Valley Bank & Trust Company in June 2009. We intend to pursue expansion in our market area in the future, whether through de novo branching or acquisition. However, we have not entered into any binding commitments regarding our expansion plans.

Aggressively attract core deposits

Core deposits (accounts other than certificates of deposit) comprised 50.4% of our total deposits at March 31, 2012. We value core deposits because they represent longer-term customer relationships and a lower cost of funding compared to certificates of deposit. We aggressively seek core deposits through competitive pricing and targeted advertising. In addition, we offer business checking accounts for our commercial customers. We also hope to increase core deposits by pursuing expansion inside and outside of our market area through de novo branching.

Manage net interest margin and net interest spread by having a greater percentage of our assets in loans, especially higher-yielding loans, which generally have a higher yield than securities

We intend to continue to manage our net interest margin and net interest spread by seeking to increase lending levels and by originating higher-yielding loans. Loans secured by multi-family and commercial real estate and commercial business loans are generally larger and involve a greater degree of risk than one-to four-family residential mortgage loans. Consequently, multi-family and commercial real estate and commercial business loans typically have higher yields, which increase our net interest margin and net interest spread. In addition, we have started, and expect to continue, to sell one- to four-family mortgage loans in an effort to increase yields on the overall loan portfolio.

Manage interest rate risk by emphasizing the origination of adjustable-rate and shorter duration loans

We manage our interest rate sensitivity 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 longer-term loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect our earnings while decreases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, we have sought to: (1) improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread; and (2) decrease the maturities of our assets, in part by the origination of adjustable-rate and shorter-term loans. To this end, we sell some of our long term fixed rate residential mortgage loans.

Merger Agreement With United Financial Bancorp, Inc.

On May 30, 2012, New England Bancshares entered into an Agreement and Plan of Merger (the “Merger Agreement”) with United Financial Bancorp, Inc. (“United Financial”), the holding company of United Bank, pursuant to which the Company will merge with and into United Financial, with United Financial as the surviving entity (the “Merger”). In addition, the Bank will merge with and into United Bank, with United Bank as the surviving entity.

Under the terms of the Merger Agreement, each share of Company common stock issued and outstanding at the time of closing will be converted into the right to receive 0.9575 of a share of United Financial common stock. The merger is currently expected to be completed in the fourth quarter of 2012.

The directors and executive officers of the Company have agreed to vote their shares in favor of the approval of the Merger Agreement at the Company stockholders’ meeting to be held to vote on the proposed transaction. David J. O’Connor, current President and Chief Executive Officer of the Company, and one additional member of the Company’s Board of Directors will join the Board of Directors of United Financial. If the Merger Agreement is terminated under certain circumstances, the Company has agreed to pay United Financial a termination fee of $3.2 million.

The completion of the Merger is subject to customary closing conditions, including regulatory approval and approval by stockholders of the Company and United Financial. The Company has also agreed not to (i) solicit proposals relating to alternative business combination transactions or (ii) subject to certain exceptions, enter into discussions concerning confidential information in connection with, alternative business combination transactions.

The Merger Agreement also contains usual and customary representations and warranties that the Company and United Financial made to each other as of specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the contract between the Company and United Financial, and may be subject to important qualifications and limitations agreed to by the parties in connection with negotiating its terms. Moreover, the representations and warranties are subject to a contractual standard of materiality that may be different from what may be viewed as material to stockholders, and the representations and warranties may have been used to allocate risk between the Company and United Financial rather than establishing matters as facts.

Balance Sheet Analysis

Loans. We originate real estate loans secured by commercial real estate, residential real estate and construction loans, which are secured by residential and commercial real estate. At March 31, 2012, real estate loans totaled $452.4 million, or 81.2% of total loans, compared to $441.8 million, or 83.2%, of total loans at March 31, 2011.

Commercial real estate loans totaled $289.1 million at March 31, 2012, which represented 63.9% of real estate loans and 51.9% of total loans, compared to $251.7 million at March 31, 2011, which represented 57.0% of real estate loans and 47.4% of total loans. Commercial real estate loans increased $37.3 million, or 14.8%, for the year ended March 31, 2012 primarily due to the Company focusing on this type of lending.

One-to-four family residential real estate loans totaled $125.6 million at March 31, 2012, which represented 27.8% of real estate loans and 22.6% of total loans compared to $149.7 million at March 31, 2011, which represented 33.9% of real estate loans and 28.2% of total loans. Residential real estate loans decreased $24.1 million for the year ended March 31, 2012, primarily due to the Company selling originated loans in the secondary market and loan payoffs.

We originate home equity loans and lines of credit secured by residential real estate. This portfolio totaled $37.7 million at March 31, 2012, which represented 6.8% of total loans, compared to $40.4 million at March 31, 2011, which represented 7.6% of total loans.

We also originate commercial business loans secured by business assets other than real estate, such as business equipment, inventory and accounts receivable, in addition to issuing letters of credit. Commercial business loans totaled $94.7 million at March 31, 2012, which represented 17.0% of total loans, compared to $81.0 million at March 31, 2011, which represented 15.2% of total loans. Commercial business loans increased $13.7 million, or 16.9% for the year ended March 31, 2012 primarily due to the Company focusing on these types of loans.

We originate a variety of consumer loans, including loans secured by mobile homes, automobiles and passbook or certificate accounts. Consumer loans totaled $9.8 million and represented 1.8% of total loans at March 31, 2012, and $8.6 million at March 31, 2011 which represented 1.6% of total loans.

The following table sets forth the composition of our loan portfolio at the dates indicated.

	At March 31,
	2012						2011						2010						2009						2008
	Amount			Percent Of Total			Amount			Percent Of Total			Amount			Percent Of Total			Amount			Percent Of Total			Amount			Percent Of Total
	(Dollars in thousands)
Mortgage loans:
1-to-4 family residential	$	125,636			22.56	%	$	149,740			28.18	%	$	174,004			33.47	%	$	125,613			29.90	%	$	130,297			34.65	%
Commercial real estate		289,057			51.91			251,743			47.37			223,567			43.00			177,498			42.26			155,152			41.26
Home equity loans and lines		37,724			6.77			40,364			7.60			40,157			7.72			33,515			7.98			32,239			8.57
Total mortgage loans		452,417			81.24			441,847			83.15			437,728			84.19			336,626			80.14			317,688			84.48
Consumer loans		9,772			1.76			8,581			1.61			7,293			1.40			6,491			1.55			6,292			1.67
Commercial loans		94,668			17.00			80,967			15.24			74,918			14.41			76,935			18.31			52,058			13.85
Total loans		556,857			100.00	%		531,395			100.00	%		519,939			100.00	%		420,052			100.00	%		376,038			100.00	%

Deferred loan origination fees, net		1,086						886						190						(28	)					(223	)
Allowance for loan losses		(5,697	)					(5,686	)					(4,625	)					(6,458	)					(4,046	)
Total loans, net	$	552,246					$	526,595					$	515,504					$	413,566					$	371,769

The following table sets forth certain information at March 31, 2012 regarding the dollar amount of principal repayments becoming due during the periods indicated. The table does not include any estimate of prepayments that significantly shorten the average life of our loans and may cause our actual repayment experience to differ from that shown below. Demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less.

	1-to-4 Family Resi- dential		Commercial Real Estate		Home Equity Loans and Lines of Credit		Consumer		Commercial		Total Loans
	(In thousands)
Amounts due in:
One year or less	$	1,582	$	10,949	$	510	$	655	$	26,707	$	40,403
More than one year to three years		375		16,703		3,142		570		16,267		37,057
More than three years to five years		1,330		17,601		6,931		807		18,556		45,225
More than five years to ten years		5,700		42,401		13,986		441		27,261		89,789
More than ten years to fifteen years		10,821		55,514		7,405		3,455		2,579		79,774
More than fifteen years		105,828		145,889		5,750		3,844		3,298		264,609
Total amount due	$	125,636	$	289,057	$	37,724	$	9,772	$	94,668	$	556,857

The following table sets forth the dollar amount of all loans at March 31, 2012 that are due after March 31, 2013 and have either fixed interest rates or floating or adjustable interest rates. The amounts shown below exclude applicable loans in process, unearned interest on consumer loans and deferred loan fees.

	Due After March 31, 2013
	Fixed Rates		Floating or Adjustable Rates		Total
	(In thousands)
Mortgage loans:
1-to-4 family residential loans	$	99,114	$	24,940	$	124,054
Commercial real estate		55,040		223,068		278,108
Home equity loans and lines of credit		15,332		21,882		37,214
Total mortgage loans		169,486		269,890		439,376
Consumer loans		8,693		424		9,117
Commercial loans		37,270		30,691		67,961
Total loans	$	215,449	$	301,005	$	516,454

The following table shows loan activity during the periods indicated.

	For the Fiscal Year Ended March 31,
	2012			2011			2010
	(In thousands)
Beginning balance, loans, net	$	526,595		$	515,504		$	413,566
Originations:
Mortgage loans:
1-to-4 family residential loans		15,441			9,448			18,877
Commercial real estate		57,612			33,446			32,216
Construction loans		4,199			1,589			4,195
Total mortgage loans		77,252			44,483			55,288
Consumer loans		2,899			482			2,609
Commercial loans		34,139			11,973			15,711
Total loan originations		114,290			56,938			73,608
Loans sold		(8,571	)		(8,798	)		—
Loan participations purchased		—			10,555			51,236
Loans acquired in merger		—			—			60,233
Deduct:
Principal loan repayments and other, net		(78,479	)		(46,652	)		(78,257	)
Loan charge-offs, net of recoveries		(1,589	)		(952	)		(4,882	)
Ending balance, loans, net	$	552,246		$	526,595		$	515,504

Available-for-Sale Securities. Our securities portfolio consists primarily of mortgage-backed securities, municipal securities, U.S. government and agency securities and, to a lesser extent, marketable equity securities. Although municipal securities generally have greater credit risk than U.S. Treasury and government securities, they generally have higher yields than government securities of similar duration. Available-for-sale securities increased $2.3 million, or 3.9%, in the year ended March 31, 2012 due to increases in all investment categories, except for municipal securities. The majority of our mortgage-backed securities were issued by Ginnie Mae, Fannie Mae or Freddie Mac.

The following table sets forth the carrying values and fair values of our securities portfolio at the dates indicated.

	At March 31,
	2012				2011						2010
	Amortized Cost		Fair Value		Amortized Cost			Fair Value			Amortized Cost		Fair Value
	(In thousands)
Investments in available-for-sale securities:
U.S. government and federal agencies	$	6,499	$	6,470	$	7,355		$	7,332		$	8,833	$	8,956
Municipal securities		25,322		25,361		19,372			18,767			15,670		15,273
Mortgage-backed securities		29,014		29,756		32,236			33,169			38,988		39,750
Marketable equity securities		—		—		9			9			—		—
Total		60,835		61,587		58,972			59,277			63,491		63,979
Money market mutual funds included in cash and cash equivalents		—		—		(9	)		(9	)		—		—
Total	$	60,835	$	61,587	$	58,963		$	59,268		$	63,491	$	63,979

At March 31, 2012, we had no investments in a single company or entity that had an aggregate book value in excess of 10% of our equity, except for the U.S. government and federal agencies.

The following table sets forth activity in our available-for-sale securities:

	At and For the Fiscal Year Ended March 31,
	2012			2011			2010
	(In thousands)
Mortgage-related securities:
Mortgage-related securities, beginning of period ⁽¹⁾	$	33,169		$	39,750		$	44,041
Acquired in merger		—			—			2,412
Purchases		7,579			8,484			7,996
Sales		—			—			(470	)
Repayments and prepayments		(10,777	)		(15,301	)		(14,603	)
Increase (decrease) in net premium		(24	)		40			75
Increase (decrease) in net unrealized gain		(191	)		196			299
Net (decrease) increase in mortgage-related securities		(3,413	)		(6,581	)		(4,291	)
Mortgage-related securities, end of period ⁽¹⁾	$	29,756		$	33,169		$	39,750

Investment securities:
Investment securities, beginning of period ⁽¹⁾	$	26,099		$	24,229		$	27,780
Acquired in merger		—			—			592
Purchases		38,488			33,824			31,757
Sales		(23,855	)		(21,054	)		(22,445	)
Maturities		(9,449	)		(10,326	)		(14,953	)
(Decrease) increase in net premium		(90	)		(41	)		43
Reclass from other assets to securities		—			—			671
(Decrease) increase in net unrealized gain		638			(533	)		784
Net increase(decrease) in investment securities		5,732			1,870			(3,551	)
Investment securities, end of period ⁽¹⁾	$	31,831		$	26,099		$	24,229

⁽¹⁾	At fair value

The following table sets forth the maturities and weighted average yields of securities at March 31, 2012. Weighted average yields are presented on a tax-equivalent basis.

	Within One Year					One To Five Years					Five To Ten Years					After Ten Years					Total
	Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield
	(Dollars in thousands)
Available-for-sale securities:
U.S. Government and Federal agencies	$	—		—	%	$	—		—	%	$	501		2.73	%	$	5,969		1.99	%	$	6,470		2.04	%
Municipal securities		178		3.30			1,398		3.61			4,027		3.10			19,758		3.68			25,361		3.58
Mortgage-backed securities		—		—			36		3.82			490		4.70			29,230		2.25			29,756		2.93
Total	$	178		3.30	%	$	1,434		3.61	%	$	5,018		3.22	%	$	54,957		2.74	%	$	61,587		3.10	%

Deposits. Our primary source of funds is our deposit accounts, which are comprised of demand deposits, savings accounts and time deposits. These deposits are provided primarily by individuals and, to a lesser extent, commercial customers, within our market area. We do not currently use brokered deposits as a source of funding. Deposits increased $40.5 million for the year ended March 31, 2012 due to increases in every deposit category. The Company has continued to experience disintermediation, as rates on other types of investments (CDs and money market accounts) have increased substantially over the past several years resulting in customers moving funds from the generally lower rates of savings accounts.

The following table sets forth the balances of our deposit products at the dates indicated.

	At March 31,
	2012		2011
	(In thousands)
Non-interest bearing accounts	$	69,412	$	59,787
NOW and money market accounts		142,062		117,914
Savings accounts		81,311		76,731
Certificates of deposit		288,483		286,337
Total	$	581,268	$	540,769

The following table indicates the amount of jumbo certificates of deposit by time remaining until maturity as of March 31, 2012. Jumbo certificates of deposit require minimum deposits of $100,000.

Maturity Period	Amount		Weighted Average Rate
	(Dollars in thousands)

Three months or less	$	14,724		1.83	%
Over three through six months		12,581		1.62
Over six through twelve months		20,653		1.56
Over twelve months		60,400		2.82
Total	$	108,358		2.31	%

The following table sets forth the time deposits classified by rates at the dates indicated.

			At March 31,
	2012		2011		2010
			(In thousands)
Certificate accounts:
0.00 to 2.00%	$	162,384	$	136,870	$	101,981
2.01 to 3.00%		41,709		44,866		49,484
3.01 to 4.00%		57,553		69,090		88,608
4.01 to 5.00%		19,427		27,324		38,040
5.01 to 6.00%		7,410		8,187		8,134
Fair value adjustment		—		—		253	⁽¹⁾
Total	$	288,483	$	286,337	$	286,500

(1)	Represents the remaining balance of the fair value adjustment on the deposits of Apple Valley Bank at the time of the purchase of Apple Valley Bank in July 2009.

The following table sets forth the amount and maturities of time deposits classified by rates at March 31, 2012.

	Amount Due
	Less than One Year		One to Two Years		Two to Three Years		Over Three Years		Total		Percent of Total Certificate Accounts
	(In thousands)
Certificate accounts:
0 to 2.00%	$	106,707	$	38,948	$	8,759	$	7,970	$	162,384		56.3	%
2.01 to 3.00%		16,361		2,631		2,364		20,353		41,709		14.5
3.01 to 4.00%		10,581		11,106		18,216		17,650		57,553		19.9
4.01 to 5.00%		4,875		14,552		—		—		19,427		6.7
5.01 to 6.00%		1,590		5,820		—		—		7,410		2.6
Total	$	140,114	$	73,057	$	29,339	$	45,973	$	288,483		100.0	%

The following table sets forth the deposit activity for the periods indicated.

	For the Fiscal Year Ended March 31,
	2012		2011		2010
	(In thousands)

Net deposits	$	32,259	$	14,346	$	11,219
Deposits acquired through merger		—		—		76,380
Interest credited on deposit accounts ⁽¹⁾		8,240		8,851		10,537
Total increase in deposit accounts	$	40,499	$	23,197	$	98,136

(2)	Includes amortization of fair value adjustment.

Borrowings. We use advances from the Federal Home Loan Bank and securities sold under agreements to repurchase to supplement our supply of funds for loans and investments and to meet deposit withdrawal requirements.

The following table sets forth certain information regarding our borrowed funds:

	At or For the Years Ended March 31,
	2012			2011			2010
	(Dollars in thousands)

Federal Home Loan Bank advances:
Average balance outstanding	$	37,094		$	46,437		$	61,837
Maximum amount outstanding at any month-end during the period		38,974			56,860			66,566
Balance outstanding at end of period		33,044			39,113			56,860
Weighted average interest rate during the period		3.30	%		3.94	%		4.19	%
Weighted average interest rate at end of period		3.24	%		3.22	%		4.05	%

Subordinated Debentures. On July 28, 2005, FVB Capital Trust I (“Trust”), a Delaware statutory trust formed by First Valley Bancorp, completed the sale of $4.1 million of 6.42%, 5 Year Fixed-Floating Capital Securities (“Capital Securities”). The Trust also issued common securities to First Valley Bancorp and used the net proceeds from the offering to purchase a like amount of 6.42% Junior Subordinated Debentures (“Debentures”) of First Valley Bancorp. Debentures are the sole assets of the Trust.

Capital Securities accrue and pay distributions quarterly at a variable annual rate equal to the 3 month LIBOR plus 1.90%. The rate for the quarterly period February 23, 2012 to May 22, 2012 equated to 2.39%. First Valley Bancorp fully and unconditionally guaranteed all of the obligations of the Trust, which are now guaranteed by the Company. The guaranty covers the quarterly distributions and payments on liquidation or redemption of Capital Securities, but only to the extent that the Trust has funds necessary to make these payments.

Capital Securities are mandatorily redeemable upon the maturing of the Debentures on August 23, 2035 or upon earlier redemption as provided in the Indenture. The Company has the right to redeem the Debentures, in whole or in part at the liquidation amount plus any accrued but unpaid interest to the redemption date.

The trust and guaranty provide for the binding of any successors in the event of a merger, as is the case in the merger of First Valley Bancorp and the Company. The Company has assumed the obligations of First Valley Bancorp in regards to the Debentures due to the acquisition of First Valley Bancorp by the Company.

Results of Operations for the Years Ended March 31, 2012 and 2011

Overview.

	2012			2011			% Change
	(Dollars in thousands)

Net income	$	4,559		$	3,154			44.55	%
Return on average assets		0.64	%		0.46	%		39.13
Return on average equity		6.29	%		4.55	%		38.24
Average equity to average assets		10.17	%		10.12	%		0.49

Net income increased due primarily to increases in net interest and dividend income, a decrease in the provision for loan losses and a gain from a legal settlement related to the investment portfolio partially offset by increases in noninterest expense and income tax expense. Net interest and dividend income increased primarily as a result of a higher average balance of interest-earning assets and a decrease in the cost of funds, partially offset by a decrease in the yield on interest-earning assets and a higher average balance of interest-bearing liabilities.

Net Interest and Dividend Income. Net interest and dividend income totaled $22.6 million for the year ended March 31, 2012, an increase of $500,000 or 2.3% compared to the prior fiscal year. This resulted mainly from a $33.8 million increase in average interest-earning assets during the year partially offset by an 11 basis point decrease in our interest rate spread to 3.25% and a $13.9 million increase in average interest-bearing liabilities. Our net interest margin decreased 9 basis points to 3.48% for fiscal 2012.

Interest and dividend income decreased $614,000, or 2.2%, from $33.4 million for fiscal 2011 to $32.8 million for fiscal 2012. Average interest-earning assets were $660.8 million for fiscal 2012, an increase of $33.8 million, or 5.4%, compared to $627.0 million for fiscal 2011. The increase in average interest-earning assets resulted primarily from increases in loans and federal funds sold, interest-bearing deposits and marketable equity securities, partially offset by a decrease in mortgage-backed and mortgage-related securities. The yield on interest-earning assets decreased from 5.33% to 4.95% due primarily to a decline in interest rates which affected our loan portfolio, the yield on which decreased 23 basis points.

Interest expense decreased $1.2 million, or 11.3%, from $11.0 million for fiscal 2011 to $9.8 million for fiscal 2012. Average interest-bearing liabilities grew $13.9 million, or 2.5%, from $555.9 million for fiscal 2011 to $569.8 million for fiscal 2012 due primarily to increases in deposits partially offset by a decrease in Federal Home Loan Bank advances and subordinated debentures, and securities sold under agreements to repurchase. The average rate paid on interest-bearing liabilities decreased to 1.71% for fiscal 2012 from 1.98% for fiscal 2011 due to the decline in interest rates on deposits and securities sold under agreements to repurchase.

Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, as well as the total dollar amounts of interest income and dividends from average interest-earning assets and interest expense on average interest-bearing liabilities and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. For purposes of this table, average balances have been calculated using the average of month-end balances and non-accrual loans are included in average balances; however, accrued interest income has been excluded from these loans.

	For the Fiscal Years Ended March 31,
	2012								2011								2010
	Average Balance			Interest		Average Yield/ Rate			Average Balance			Interest		Average Yield/ Rate			Average Balance			Interest		Average Yield/ Rate
	(Dollars in thousands)
Assets:
Federal funds sold, interest-bearing deposits and marketable equity securities	$	57,706		$	166		0.29	%	$	41,606		$	123		0.30	%	$	53,122		$	295		0.56	%
Investments in available for sale securities, other than mortgage-backed and mortgage-related securities ⁽¹⁾		27,013			1,307		4.84			26,114			1,456		5.58			24,909			1,483		5.95
Mortgage-backed and mortgage-related securities		31,778			1,001		3.15			33,827			1,338		3.96			41,798			2,037		4.87
Federal Home Loan Bank and Bankers Bank stock		4,694			21		0.45			4,396			—		—			4,322			—		—
Loans, net ⁽²⁾		539,582			30,304		5.62			521,012			30,496		5.85			480,813			28,867		6.00
Total interest-earning assets		660,774			32,799		4.96			626,955			33,413		5.33			604,964			32,682		5.40
Noninterest-earning assets		39,714								48,550								45,491
Cash surrender value of life insurance		10,195								9,806								9,392
Total assets	$	710,683							$	685,311							$	659,847

Liabilities and Stockholders’ Equity:
Deposits:
Savings accounts	$	77,911		$	596		0.76	%	$	73,019		$	605		0.83	%	$	69,297		$	683		0.99	%
NOW accounts		17,069			51		0.30			16,891			54		0.32			16,342			63		0.39
Money market accounts		118,421			875		0.74			99,291			922		0.93			83,112			1,282		1.54
Certificate accounts		290,000			6,694		2.31			286,405			7,167		2.50			285,163			8,467		2.97
Total deposits		503,401			8,216		1.63			475,606			8,748		1.84			453,914			10,495		2.31
Federal Home Loan Bank advances and subordinated debentures		41,026			1,328		3.24			50,351			1,995		3.96			65,743			2,841		4.32
Advanced payments by borrowers for taxes and insurance		1,589			15		0.94			1,336			15		1.12			1,209			15		1.24
Securities sold under agreements to repurchase		23,809			213		0.89			28,610			261		0.91			18,593			190		1.02
Total interest-bearing liabilities		569,825			9,772		1.71			555,903			11,019		1.98			539,459			13,541		2.51
Demand deposits		60,978								51,874								45,569
Other liabilities		7,634								8,211								7,915
Total liabilities		638,437								615,988								592,943
Stockholders’ Equity		72,246								69,323								66,904
Total liabilities and stockholders’ equity	$	710,683							$	685,311							$	659,847
Net interest income/net interest rate spread ⁽³⁾				$	23,027		3.25	%				$	22,394		3.35	%				$	19,141		2.89	%
Net interest margin ⁽⁴⁾							3.48	%							3.57	%							3.16	%
Ratio of interest-earning assets to interest-bearing liabilities		115.96	%							112.78	%							112.14	%

⁽¹⁾	Reported on a tax equivalent basis, using a 34% tax rate.
⁽²⁾	Amount is net of deferred loan origination costs, undisbursed proceeds of construction loans in process, allowance for loan losses and includes non-accruing loans. We record interest income on non-accruing loans on a cash basis. Loan fees are included in interest income.
⁽³⁾	Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
⁽⁴⁾	Net interest margin represents net interest income as a percentage of average interest-earning assets.

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

	Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011									Fiscal Year Ended March 31, 2011 Compared to Fiscal Year Ended March 31, 2010
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Rate			Volume			Net			Volume			Rate			Net
	(In thousands)
Interest-earning assets:
Federal funds sold, interest-bearing deposits and marketable equity securities	$	(4	)	$	46		$	42		$	(117	)	$	(55	)	$	(172	)
Investments in available-for-sale securities, other than mortgage-backed and mortgage-related securities		(209	)		60			(149	)		(134	)		107			(27	)
Mortgage-backed and mortgage-related securities		(260	)		(76	)		(336	)		(348	)		(351	)		(699	)
Federal Home Loan Bank stock		21			—			21			—			—			—
Loans, net ⁽¹⁾		(1,106	)		915			(191	)		(698	)		2,327			1,629
Total interest-earning assets		(1,558	)		945			613			(1,297	)		2,028			731

Interest-bearing liabilities:
Savings accounts		(58	)		49			(9	)		(117	)		39			(78	)
NOW accounts		(4	)		1			(3	)		(11	)		2			(9	)
Money market accounts		(702	)		655			(47	)		(705	)		345			(360	)
Certificate accounts		(561	)		88			(473	)		(1,337	)		37			(1,300	)
Federal Home Loan Bank advances and subordinated debentures		(333	)		(334	)		(667	)		(223	)		(623	)		(846	)
Advanced payments by borrowers for taxes and insurance		(1	)		2			1			—			—			—
Securities sold under agreements to repurchase		(6	)		(43	)		(49	)		(17	)		88			71
Total interest-bearing liabilities		(1,665	)		418			(1,247	)		(2,410	)		(112	)		(2,522	)
Increase in net interest income	$	107		$	527		$	634		$	1,113		$	2,140		$	3,253

⁽¹⁾	Amount is net of deferred loan origination costs, undisbursed proceeds of construction loans in process, allowance for loan losses and includes non-accruing loans. We record interest income on non-accruing loans on a cash basis. Loan fees are included in interest income.

Provision for Loan Losses. Provisions for loan losses are charges to earnings to bring the total allowance for losses to a level considered by management as adequate to provide for estimated losses inherent in the loan portfolio. The size of the provision for each year is dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, management’s assessment of loan portfolio quality, the value of collateral and general economic factors.

We recorded provisions for loan losses of $1.6 million and $2.0 million in the years ended March 31, 2012 and 2011, respectively. The provision was relatively stable as the quality of the loan portfolio has remained relatively stable over the last year.

Although management utilizes its best judgment in providing for losses, there can be no assurance that we will not have to change the provisions for loan losses in subsequent periods. Management will continue to monitor the allowance for loan losses and make additional provisions to the allowance as appropriate.

An analysis of the changes in the allowance for loan losses, non-performing loans and classified loans is presented under “—Risk Management—Analysis of Non-Performing and Classified Assets” and “—Risk Management—Analysis and Determination of the Allowance for Loan Losses.”

Noninterest Income (Charges). The following table shows the components of noninterest (charges) income and the percentage changes from 2012 to 2011.

	2012		2011		% Change
	(In thousands)

Service charges on deposit accounts	$	1,407	$	1,321		6.5	%
Gain on sales and calls of securities, net		276		327		(18.5	)
Gain on sale of loans		280		306		(8.5	)
Increase in cash surrender value of life insurance policies		348		367		(5.2	)
Gain from legal settlement		1,283		—		100.0
Other income		422		205		105.9
Total	$	4,016	$	2,526		59.0	%

The $1,490,000 increase in noninterest income was primarily due to the $1,283,000 increase in gain on from legal settlement related to the investment portfolio and a $217,000 increase in other income, partially offset by the $51,000 decrease in gain on sale of securities and the $26,000 decrease in gain on sale of loans.

Noninterest Expense. The following table shows the components of noninterest expense and the percentage changes from fiscal 2012 to fiscal 2011.

	2012			2011			% Change
	(In thousands)
Salaries and employee benefits	$	8,966		$	8,585			4.4	%
Occupancy and equipment expenses		3,213			3,358			(4.3	)
Advertising and promotion		571			282			102.5
Professional fees		1,100			594			85.2
Data processing expense		710			675			5.2
FDIC insurance assessment		569			944			(39.7	)
Stationery and supplies		190			213			(10.8	)
Amortization of identifiable intangible assets		372			417			(10.8	)
Write-down of other real estate owned		141			524			(73.1	)
Other real estate owned		245			177			38.4
Other expense		2,027			2,008			(0.9	)
Total	$	18,104		$	17,777			1.8

Efficiency ratio⁽¹⁾		68.1	%		72.4	%

⁽¹⁾	Computed as noninterest expense divided by the sum of net interest and dividend income and other income.

The increase in noninterest expense was due primarily to the increase in advertising and promotion and professional fees, partially offset by decreases in FDIC insurance assessment and write-down of other real estate owned.

Income Taxes. The Company recorded income tax expense of $2.3 million for the fiscal year ended March 31, 2012 compared to $1.6 million in the previous year.

Risk Management

Overview. Managing risk is an essential part of successfully managing a financial institution. Our most prominent risk exposures are credit risk, interest rate risk and market risk. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is contractually due. Interest rate risk is the potential reduction of interest income as a result of changes in interest rates. Market risk arises from fluctuations in interest rates that may result in changes in the values of financial instruments, such as available-for-sale securities that are accounted for on a mark-to-market basis. Other risks that we encounter are operational risks, liquidity risks and reputation risk. Operational risks include risks related to fraud, regulatory compliance, processing errors, technology and disaster recovery. Liquidity risk is the possible inability to fund obligations owed to depositors, lenders or borrowers. Reputation risk is the risk that negative publicity or press, whether true or not, could cause a decline in our customer base or revenue.

Credit Risk Management. 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.

Management informs the Boards of Directors monthly of the amount of loans delinquent more than 30 days, and all loans in foreclosure and all foreclosed and repossessed property that we own on a quarterly basis.

Analysis of Non-performing and Classified Assets. We consider repossessed assets and loans that are 90 days or more past due to be non-performing assets. 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.

Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as foreclosed real estate until it is sold. When property is acquired, it is recorded at the lower of the recorded investment in the loan or at fair value. Thereafter, we carry foreclosed real estate at fair value, net of estimated selling costs. Holding costs and declines in fair value after acquisition of the property result in charges against income.

Non-performing assets totaled $16.7 million, or 2.29% of total assets, at March 31, 2012, which was an increase of $1.8 million from March 31, 2011. As a result, nonperforming loans as a percentage of loans increased from 2.53% at March 31, 2011 to 2.72% at March 31, 2012. At March 31, 2012 we had four residential properties and three commercial properties classified as other real estate owned totaling $1.5 million. We had five residential properties and three commercial properties classified as other real estate owned with a balance of $1.5 million at March 31, 2011. At March 31, 2012, non-accrual loans consisted of twenty six residential real estate loans, thirty commercial loans, twenty two commercial real estate loans, eight consumer loans and seven home equity loans, compared to twenty-three residential real estate loans, eighteen commercial loans, seventeen commercial real estate loans, eight consumer loans and six home equity loans at March 31, 2011.

The following table provides information with respect to our non-performing assets at the dates indicated.

	At March 31,
	2012			2011			2010			2009			2008
	(Dollars in thousands)
Non-accruing loans:
Mortgage loans:
Residential loans	$	3,734		$	4,429		$	3,119		$	1,905		$	737
Commercial real estate		7,141			5,461			2,664			3,918			—
Home equity loans and lines of credit		170			184			102			439			398
Total mortgage loans		11,045			10,074			5,885			6,262			1,135
Consumer loans		56			165			46			28			22
Commercial loans		4,072			3,203			3,064			5,636			10
Total nonaccrual loans		15,173			13,442			8,995			11,926			1,167
Other real estate owned		1,491			1,496			2,846			141			—
Other repossessed assets		—			—			173			—			—
Total nonperforming assets	$	16,664		$	14,938		$	12,014		$	12,067		$	1,167
Performing troubled debt restructurings		3,000			—			—			—			—

Total nonperforming assets and performing troubled debt restructurings	$	19,664		$	14,938		$	12,014		$	12,067		$	1,167
Impaired loans	$	15,311		$	15,339		$	7,978		$	10,135		$	398
Accruing loans 90 days or more past due		—			214			—			15			8
Allowance for loan losses as a percent of loans ⁽¹⁾		1.02	%		1.07	%		0.89	%		1.54	%		1.08	%
Allowance for loan losses as a percent of nonperforming loans ⁽²⁾		37.55	%		42.30	%		51.42	%		54.15	%		346.70	%
Nonperforming loans as a percent of loans ⁽¹⁾⁽²⁾		2.72	%		2.53	%		1.73	%		2.84	%		0.31	%
Nonperforming assets as a percent of total assets		2.29	%		2.19	%		1.78	%		2.11	%		0.23	%

⁽¹⁾	Loans are presented before allowance for loan losses.
⁽²⁾	Non-performing loans consist of all loans 90 days or more past due and other loans which have been identified as presenting uncertainty with respect to the full collection of interest or principal.

Interest income that would have been recorded for the year ended March 31, 2012 had non-accruing loans been current according to their original terms amounted to $640,000, none of which was recognized in interest income.

Troubled Debt Restructurings. At March 31, 2012, we had total troubled debt restructurings of $5.0 million. At March 31, 2012, $3.0 million of our troubled debt restructurings were accruing and performing in accordance with their modified terms.

For the year ended March 31, 2012, gross interest income that would have been recorded had our troubled debt restructurings been current in accordance with their original terms was $278,000. Interest income recognized on such loans for the year ended March 31, 2012 was $232,000.

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.

Classified Assets. The following table shows the aggregate amounts of our classified and criticized assets at the dates indicated.

	At March 31,
	2012		2011
	(In thousands)
Special mention assets	$	9,252	$	11,420
Substandard assets		25,983		26,693
Doubtful assets		—		—
Loss assets		—		—
Total classified and criticized assets	$	35,235	$	38,113

Classified assets at March 31, 2012 included ninety three loans totaling $18.5 million that were considered non-performing. Classified assets at March 31, 2011 included seventy two loans totaling $13.4 million that were considered non-performing.

Classified and special mention assets decreased $2.9 million to $35.2 million at March 31, 2012, from $38.1 million at March 31, 2011, and were 6.3% and 7.2% of total loans at March 31, 2012 and 2011, respectively. The decrease was caused primarily by the reduction of loans in the special mention category.

Potential problem loans are loans that are currently performing and are not included in non-accrual loans above, but may be delinquent. These loans require an increased level of management attention, because we have serious doubts as to the ability of the borrower to comply with the present loan repayment terms and as a result such loans may be included at a later date in non-accrual loans. At March 31, 2012, we had no potential problem loans that are not discussed above under “—Classified Assets.”

Delinquencies. The following table provides information about delinquencies in our loan portfolio at the dates indicated.

	At March 31, 2012										At March 31, 2011										At March 31, 2010
	30-89 Days					90 Days or More⁽²⁾					30-89 Days					90 Days or More⁽²⁾					30-89 Days					90 Days or More⁽²⁾
	Number of Loans		Principal Balance of Loans			Number of Loans		Principal Balance of Loans			Number of Loans		Principal Balance of Loans			Number of Loans		Principal Balance of Loans			Number of Loans		Principal Balance of Loans			Number of Loans		Principal Balance of Loans
	(Dollars in Thousands)
Mortgage loans:
Residential loans		5	$	2,771			12	$	2,217			7	$	1,724			13	$	2,772			13	$	2,617			14	$	2,105
Commercial real estate		11		2,854			12		4,976			20		7,109			9		2,223			11		2,676			10		3,843
Home equity loans and lines		2		266			3		84			10		533			3		89			5		174			3		80
Total mortgage loans		18		5,891			27		7,277			37		9,366			25		5,084			29		5,467			27		6,028
Consumer loans		6		149			3		47			2		14			7		162			5		43			2		3
Commercial loans		9		1,795			18		3,545			14		2,322			12		2,069			10		2,108			15		2,074
Total		33	$	7,835			48	$	10,869			53	$	11,702			44	$	7,315			44	$	7,618			44	$	8,105
Delinquent loans to loans ⁽¹⁾				1.41	%				1.95	%				2.20	%				1.37	%				1.46	%				1.56	%

⁽¹⁾	Loans are presented before the allowance for loan losses and net of deferred loan origination fees.
⁽²⁾	Includes all non-accrual loans.

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 and willingness to repay the loan; (2) the type, marketability, 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 reevaluated quarterly to ensure their relevance in the current real estate environment.

The Connecticut Department of Banking, as an integral part of its examination process, periodically reviews our loan and foreclosed real estate portfolios and the related allowance for loan losses and valuation allowance for foreclosed real estate. They may require the Bank to increase the allowance for loan losses or the valuation allowance for foreclosed real estate based on their judgments of information available to them at the time of their examination, thereby adversely affecting our results of operations.

At March 31, 2012, our allowance for loan losses represented 1.02% of total loans and 37.55% of non-performing loans. The allowance for loan losses increased $11,000 from March 31, 2011 to March 31, 2012 due to a provision for loan losses of $1.6 million, partially offset by net charge-offs of $1.6 million. The provision for loan losses for the year ended March 31, 2012 reflected the deterioration in the local economy as well as continued growth of the loan portfolio, particularly the increase in commercial real estate and commercial loans, which carry higher risks of default than one- to four-family residential real estate loans.

The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated.

	At March 31,
	2012					2011					2010					2009					2008
	Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
Mortgage loans:
Residential loans	$	789		22.56	%	$	738		28.18	%	$	566		33.47	%	$	545		29.90	%	$	531		34.65	%
Commercial real estate		2,794		51.91			1,981		47.37			1,824		43.00			1,981		42.26			2,202		41.26
Home equity loans and lines of credit		127		6.78			154		7.60			177		7.72			296		7.98			287		8.57
Consumer loans		64		1.75			98		1.61			39		1.40			68		1.55			54		1.67
Commercial loans		1,923		17.00			2,715		15.24			2,019		14.41			3,568		18.31			972		13.85
Total allowance for loan losses	$	5,697		100.00	%	$	5,686		100.00	%	$	4,625		100.00	%	$	6,458		100.00	%	$	4,046		100.00	%

Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established our allowance for loan losses in conformity with generally accepted accounting principles, there can be no assurance that regulators, in reviewing our loan portfolio, will not request us to increase our allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loan deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.

Analysis of Loan Loss Experience. The following table sets forth an analysis of the allowance for loan losses for the periods indicated. Where specific loan loss allowances have been established, any difference between the loss allowance and the amount of loss realized has been charged or credited to current income.

	At or For the Fiscal Year Ended March 31,
	2012			2011			2010			2009			2008
	(Dollars in thousands)

Balance at beginning of period	$	5,686		$	4,625		$	6,458		$	4,046		$	1,875
Provision for loan losses		1,600			2,013			3,049			2,929			307
Charge-offs:
Residential loans		379			145			202			127			24
Commercial real estate loans		313			29			540			—			58
Home equity loans and lines of credit		17			—			14			—			—
Consumer loans		42			65			27			36			34
Commercial loans		974			771			4,160			354			15
Total charge-offs		1,725			1,010			4,943			517			131
Recoveries:
Residential loans		58			9			3			—			—
Consumer loans		22			7			24			—			3
Commercial loans		56			42			34			—			11
Total Recoveries		136			58			61			—			14
Net charge-offs		1,589			952			4,882			517			117
Allowance obtained through merger		—			—			—			—			1,981
Balance at end of period	$	5,697		$	5,686		$	4,625		$	6,458		$	4,046
Ratio of net charge-offs during the period to average loans outstanding during the period		0.29	%		0.18	%		0.94	%		0.12	%		0.03	%
Allowance for loan losses as a percent of loans ⁽¹⁾		1.02	%		1.07	%		0.89	%		1.54	%		1.08	%
Allowance for loan losses as a percent of nonperforming loans ⁽²⁾		37.55	%		42.30	%		51.42	%		54.15	%		346.70	%

⁽¹⁾	Loans are presented before allowance for loan losses.
⁽²⁾	Non-performing loans consist of all loans 90 days or more past due and other loans which we have identified as presenting uncertainty with respect to the collectibility of interest or principal.

During the fiscal year ended March 31, 2008, we acquired $2.0 million of allowance for loan losses in connection with the acquisition of First Valley Bancorp. The loans acquired in the merger were primarily commercial real estate loans, residential loans and commercial loans, which had a face value of $141.1 million and a fair value of $141.0 million. In determining the fair value of the loans, we used a discounted cash flow method utilizing the current loan rate as of the date of the consummation of the merger. The amount of the allowance for loan losses that was attributable to these loans was calculated based on the collectibility of the loans, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions.

During the fiscal year ended March 31, 2010 we acquired Apple Valley’s $60.2 million in net loans. In accordance with FASB Statement No. 141(R), the allowance for loan losses of Apple Valley was not consolidated into New England Bank’s allowance for loan losses. Instead, individual loan book values were reduced by the estimated credit loss associated with the allowance for loan losses.

Liquidity Management. Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of investment securities, borrowings from the Federal Home Loan Bank of Boston and securities sold under agreements to repurchase. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management program. Excess liquid assets are invested generally in money market mutual funds, federal funds sold and short- and intermediate-term agency and municipal securities.

Our most liquid assets are cash and cash equivalents and interest-bearing deposits. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At March 31, 2012, cash and cash equivalents totaled $62.1 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $61.6 million at March 31, 2012. In addition, at March 31, 2012 we had $33.0 million in outstanding advances from the Federal Home Loan Bank of Boston, and the ability to borrow an additional $30.8 million from the Federal Home Loan Bank of Boston, subject to collateral requirements.

At March 31, 2012, we had $78.6 million in loan commitments outstanding, which included $12.6 million in undisbursed construction loans and $37.9 million in unused lines of credit. Certificates of deposit due within one year of March 31, 2012 totaled $140.1 million, or 24.1% of total deposits. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and lines of credit. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before March 31, 2013. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

The following table presents our contractual obligations at March 31, 2012.

	Payments Due by Period
	Total		One Year or Less		More than One Year to Three Years		More than Three Years to Five Years		More than Five Years
	(In thousands)

Long-Term Debt Obligations⁽¹⁾	$	37,181	$	3,835	$	14,016	$	13,302	$	6,028
Operating Lease Obligations		12,393		990		1,901		1,861		7,641
Total	$	49,574	$	4,825	$	15,917	$	15,163	$	13,669

__________________

(1)	Consists of Federal Home Loan Bank advances, subordinated debentures and excludes fair value adjustment.

Our primary investing activities are the origination and purchase of loans and the purchase of securities. Our primary financing activities consist of activity in deposit accounts, Federal Home Loan Bank advances and securities sold under agreements to repurchase. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive and to increase core deposits and commercial banking relationships. Occasionally, we offer promotional rates on certain deposit products to attract certain deposit products.

The following table presents our primary investing and financing activities during the periods indicated.

	Years Ended March 31,
	2012				2011			2010
				(In thousands)
Investing activities:
Loan originations	$	114,290			$	56,938		$	73,608
Loan participations purchased		—				10,555			51,236
Securities purchased		46,067				42,308			39,753

Financing activities:
Increase in deposits	$	40,499			$	23,197		$	98,136
(Decrease) increase in FHLB advances		(6,069	)			(17,747	)		(9,973	)
(Decrease) increase in securities sold under agreements to repurchase		6,086				(1,794	)		11,391

Capital Management. The Bank manages its capital to maintain strong protection for depositors and creditors and is subject to various regulatory capital requirements. The risk-based capital guidelines for the Bank include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. The Company is also subject to capital requirements on a consolidated basis. At March 31, 2012, the Company and the Bank exceeded all of their regulatory capital requirements. The Bank is considered “well capitalized” under regulatory guidelines. See “Item 1. Description of Business” and Note 15 of “Notes to the Consolidated Financial Statements.”

Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our 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 and lines of credit. A presentation of our outstanding loan commitments and unused lines of credit at March 31, 2012 and their effect on our liquidity is presented at Note 20 of the Notes to the Consolidated Financial Statements included in this annual report and under “—Risk Management—Liquidity Management.”

For the year ended March 31, 2012, we did not engage in any off-balance-sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Impact of Recent Accounting Pronouncements

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. The required disclosures are included in Note 4 to the Company’s Financial Statements.

In December 2010, the FASB issued ASU 2010-28, “Intangibles – Goodwill and Other.” This ASU addresses when to perform step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts. The amendments in this ASU are effective for fiscal years, and interim periods beginning after December 15, 2010. The adoption of this pronouncement did not have a material impact on the Company’s results of operation or financial position.

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. The adoption of this pronouncement did not have a material impact on the Company’s results of operation or financial position.

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 required disclosures are included in Note 4 to the Company’s Financial Statements.

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

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

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

In September 2011, the FASB issued ASU 2011-09, “Disclosures About an Employer’s Participation in a Multiemployer Plan,” which amends ASC 715-80, “Compensation – Retirement Benefits - Multiemployer Plans,” and requires additional separate disclosures for multiemployer pension plans and multiemployer other postretirement benefit plans. This objective of this ASU is to help users of financial statements assess the potential future cash flow implications relating to an employer’s participation in multiemployer pension plans. The disclosures also will indicate the financial health of all of the significant plans in which the employer participates and assist a financial statement user to access additional information that is available outside the financial statements. The amendments in this ASU are effective for fiscal years ending after December 15, 2011, with early adoption permitted. The amendments should be applied retrospectively for all prior periods presented. The Company does not anticipate that the adoption of this guidance will have a material impact on its consolidated financial statements.

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

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

Effect of Inflation and Changing Prices

The financial statements and related financial data presented in this annual report have been prepared in accordance with generally accepted accounting principles in the United States, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 their earnings. To reduce the potential volatility of their 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 has commenced a program of selling long term, fixed-rate one- to four-family residential loans in the secondary market. The Bank currently does not participate in hedging programs, interest rate swaps or other activities involving the use of off-balance sheet derivative financial instruments.

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

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

The Bank’s goal is to manage asset and liability positions to moderate the effects of interest rate fluctuations on net interest income. Interest income simulations are completed quarterly and presented to the Asset/Liability Committee. The simulations provide an estimate of the impact of changes in interest rates on net interest income under a range of assumptions. The numerous assumptions used in the simulation processes are reviewed by the Asset/Liability Committee on a quarterly basis. Changes to these assumptions can significantly affect the results of the simulation. The simulations incorporate assumptions regarding the potential timing in the repricing of certain assets and liabilities when market rates change and the changes in spreads between different market rates. The simulation analyses incorporate management’s 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’s board of directors and management continually review the potential effect changes in interest rates could have on the repayment of rate sensitive assets and funding requirements of rate sensitive liabilities.

ITEM 8.

CONSOLIDATED FINANCIAL STATEMENTS

The Board of Directors

New England Bancshares, Inc.

Enfield, Connecticut

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the consolidated balance sheets of New England Bancshares, Inc. and Subsidiaries as of March 31, 2012 and 2011, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of New England Bancshares, Inc. and Subsidiaries as of March 31, 2012 and 2011, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

	/s/ Shatswell, MacLeod & Company, P.C.
	SHATSWELL, MacLEOD & COMPANY, P.C.
West Peabody, Massachusetts
June 12, 2012

NEW ENGLAND BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

March 31, 2012 and 2011

(Dollars In Thousands, Except Per Share Amounts)

	2012			2011
ASSETS
Cash and due from banks	$	9,666		$	8,738
Interest-bearing demand deposits with other banks		52,398			34,865
Money market mutual funds		—			9
Total cash and cash equivalents		62,064			43,612
Investments in available-for-sale securities, at fair value		61,587			59,268
Federal Home Loan Bank stock, at cost		4,100			4,396
Loans, net of allowance for loan losses of $5,697 as of March 31, 2012 and $5,686 as of March 31, 2011		552,246			526,595
Premises and equipment, net		6,161			6,245
Other real estate owned		1,491			1,496
Accrued interest receivable		2,392			2,451
Deferred income taxes, net		4,741			4,874
Cash surrender value of life insurance		10,371			10,023
Identifiable intangible assets		915			1,287
Goodwill		16,783			16,783
Other assets		3,651			5,014
Total assets	$	726,502		$	682,044

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	69,412		$	59,787
Interest-bearing		511,856			480,982
Total deposits		581,268			540,769
Advanced payments by borrowers for taxes and insurance		1,504			1,400
Federal Home Loan Bank advances		33,044			39,113
Subordinated debentures		3,927			3,918
Securities sold under agreements to repurchase		27,752			21,666
Other liabilities		5,637			4,487
Total liabilities		653,132			611,353

Stockholders’ Equity:
Preferred stock, par value $.01 per share: 1,000,000 shares authorized; none issued		—			—
Common stock, par value $.01 per share: 19,000,000 shares authorized; 6,945,591 shares issued at March 31, 2012 and 6,938,087 shares issued at March 31, 2011		69			69
Paid-in capital		60,001			59,876
Retained earnings		23,942			20,091
Unearned ESOP shares, 147,641 shares at March 31, 2012 and 181,515 at March 31, 2011		(1,476	)		(1,714	)
Treasury stock, 998,967 shares at March 31, 2012 and 781,411 March 31, 2011, at cost		(9,625	)		(7,431	)
Unearned shares, stock-based incentive plans, no shares at March 31, 2012 and 35,984 shares at March 31, 2011		—			(386	)
Accumulated other comprehensive income		459			186
Total stockholders’ equity		73,370			70,691
Total liabilities and stockholders’ equity	$	726,502		$	682,044

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

NEW ENGLAND BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended March 31, 2012 and 2011

(Dollars In Thousands, Except Per Share Amounts)

	2012			2011
Interest and dividend income:
Interest and fees on loans	$	30,209		$	30,496
Interest and dividends on securities:
Taxable		1,261			1,757
Tax-exempt		691			683
Interest on federal funds sold, interest-bearing deposits and dividends on money market mutual funds		166			123
Total interest and dividend income		32,327			33,059

Interest expense:
Interest on deposits		8,216			8,748
Interest on advanced payments by borrowers for taxes and insurance		15			15
Interest on Federal Home Loan Bank advances		1,225			1,827
Interest on subordinated debentures		103			168
Interest on securities sold under agreements to repurchase		213			261
Total interest expense		9,772			11,019
Net interest and dividend income		22,555			22,040
Provision for loan losses		1,600			2,013
Net interest and dividend income after provision for loan losses		20,955			20,027

Noninterest income:
Service charges on deposit accounts		1,407			1,321
Gain on securities, net		309			327
Impairment loss on securities (includes total losses of $33 net if $- recognized on other comprehensive income, pretax)		(33	)		—
Gain on sale of loans		280			306
Increase in cash surrender value of life insurance policies		348			367
Gain from legal settlement		1,283			—
Other income		422			205
Total noninterest income		4,016			2,526
Noninterest expense:
Salaries and employee benefits		8,966			8,585
Occupancy and equipment expense		3,213			3,358
Advertising and promotion		571			282
Professional fees		1,100			594
Data processing expense		710			675
FDIC insurance assessment		569			944
Stationery and supplies		190			213
Amortization of identifiable intangible assets		372			417
Write-down of other real estate owned		141			524
Other real estate owned		245			177
Other expense		2,027			2,008
Total noninterest expense		18,104			17,777
Income before income taxes		6,867			4,776
Income tax expense		2,308			1,622
Net income	$	4,559		$	3,154

Earnings per share:
Basic	$	0.77		$	0.53
Diluted		0.76			0.53
Dividends per share		0.12			0.10

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

NEW ENGLAND BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Years Ended March 31, 2012 and 2011

(Dollars In Thousands, Except Per Share Amounts)

														Unearned
														Shares
														Stock-						Accumulated
											Unearned			Based						Other
	Common Stock				Paid-in			Retained			ESOP			Incentive			Treasury			Comprehensive
	Shares		Amount		Capital			Earnings			Shares			Plans			Stock			Income			Total
Balance, March 31, 2010		6,938,087	$	69	$	59,786		$	17,530		$	(1,952	)	$	(522	)	$	(7,302	)	$	298		$	67,907
ESOP shares released (33,884 shares)		—		—		4			—			238			—			—			—			242
Compensation cost for stock-based incentive plans		—		—		86			—			—			136			—			—			222
Dividends paid ($0.10 per share)		—		—		—			(593	)		—			—			—			—			(593	)
Treasury stock purchases (17,613 shares)		—		—		—			—			—			—			(129	)		—			(129	)
Comprehensive income:
Net income		—		—		—			3,154			—			—			—			—			—
Other comprehensive loss, net of tax effect		—		—		—			—			—			—			—			(112	)		—
Comprehensive income		—		—		—			—			—			—			—			—			3,042
Balance, March 31, 2011		6,938,087		69		59,876			20,091			(1,714	)		(386	)		(7,431	)		186			70,691
Issuance of stock for option exercise		7,504		—		61			—			—			—			—			—			61
ESOP shares released (33,874 shares)		—		—		86			—			238			—			—			—			324
Compensation cost for stock-based incentive plans		—		—		72			—			—			57			—			—			129
Dividends paid ($0.12 per share)		—		—		—			(708	)		—			—			—			—			(708	)
Treasury stock purchases (192,209 shares)		—		—		—			—			—			—			(1,959	)		—			(1,959	)
Transfer of ungranted incentive stock to treasury stock (25,347 shares)		—		—		(94	)		—			—			329			(235	)		—			—
Comprehensive income:
Net income		—		—		—			4,559			—			—			—			—			—
Other comprehensive loss, net of tax effect		—		—		—			—			—			—			—			273			—
Comprehensive income		—		—		—			—			—			—			—			—			4,832
Balance, March 31, 2012		6,945,591	$	69	$	60,001		$	23,942		$	(1,476	)	$	—		$	(9,625	)	$	459		$	73,370

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

NEW ENGLAND BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended March 31, 2012 and 2011

(In Thousands)

	2011			2012
Cash flows from operating activities:
Net income	$	4,559		$	3,154
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization (accretion) of fair value adjustments		117			(330	)
Amortization (accretion) of securities, net		108			(16	)
Gain on sales and calls of securities, net		(309	)		(327	)
Writedown of available for sale securities		33			—
Writedown of other real estate owned		141			524
Provision for loan losses		1,600			2,013
Gain on sale of loans, net		(280	)		(306	)
Loans originated for sale		(4,802	)		(5,082	)
Proceeds from sale of loans for sale		4,952			5,240
(Gain) loss on sale of other real estate owned		(6	)		40
Change in deferred loan origination costs, net		(200	)		(696	)
Depreciation and amortization		732			841
Loss on disposal of fixed assets		41			11
Decrease in accrued interest receivable		59			317
Deferred income tax benefit		(40	)		(511	)
Increase in cash surrender value of life insurance policies		(348	)		(367	)
Decrease in prepaid expenses and other assets		1,342			3,419
Amortization of identifiable intangible assets		372			417
Increase (decrease) in accrued expenses and other liabilities		570			(220	)
ESOP shares released		285			274
Compensation cost for stock option plan		72			86
Compensation cost for stock-based incentive plan		57			136

Net cash provided by operating activities		9,055			8,617

Cash flows from investing activities:
Proceeds from maturities of interest-bearing time deposits with other banks		—			99
Purchases of available-for-sale securities		(46,067	)		(41,309	)
Proceeds from sales of available-for-sale securities		23,855			21,054
Proceeds from maturities of available-for-sale securities		21,126			25,626
Proceeds from redemption of Federal Home Loan Bank stock		296			—
Proceeds from sales of other real estate owned		333			361
Loan originations and principal collections, net		(31,406	)		(6,252	)
Purchases of loans		—			(10,555	)
Recoveries of loans previously charged off		136			58
Proceeds from sale of loans		3,769			3,755
Non-refundable deposit on other real estate owned		13			—
Investment in life insurance policies		—			(70	)
Capital expenditures - premises and equipment		(668	)		(166	)

Net cash used in investing activities		(28,613	)		(7,399	)

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

NEW ENGLAND BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended March 31, 2012 and 2011

(In Thousands)

(continued)

	2012			2011
Cash flows from financing activities:
Net increase in demand deposits, NOW, MMDA and savings accounts		38,353			23,360
Net increase in time deposits		2,146			90
Net increase in advanced payments by borrowers for taxes and insurance		104			229
Proceeds from Federal Home Loan Bank advances		—			14,298
Principal payments on Federal Home Loan Bank advances		(6,073	)		(32,049	)
Net increase (decrease) in securities sold under agreements to repurchase		6,086			(1,794	)
Purchase of treasury stock		(1,959	)		(129	)
Proceeds from exercise of stock options		61			—
Payments of cash dividends on common stock		(708	)		(593	)

Net cash provided by financing activities		38,010			3,412

Net increase in cash and cash equivalents		18,452			4,630
Cash and cash equivalents at beginning of year		43,612			38,982
Cash and cash equivalents at end of year	$	62,064		$	43,612

Supplemental disclosures:
Interest paid	$	9,800		$	11,228
Income taxes paid		2,510			1,069
Increase in due to broker		619			500
Loans transferred to other real estate owned		536			1,303
Other real estate owned transferred to other assets		—			1,248
Other real estate owned transferred to loans		60			480

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

NEW ENGLAND BANCSHARES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 31, 2012 and 2011

NOTE 1 - NATURE OF OPERATIONS

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

NOTE 2 - ACCOUNTING POLICIES

The accounting and reporting policies of the Company and its subsidiary conform to accounting principles generally accepted in the United States of America and predominant practices within the banking industry. The consolidated financial statements of the Company were prepared using the accrual basis of accounting. The significant accounting policies of the Company are summarized below to assist the reader in better understanding the consolidated financial statements and other data contained herein.

USE OF ESTIMATES:

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

BASIS OF PRESENTATION:

The accompanying consolidated financial statements include the accounts of the Company and its subsidiary. All significant intercompany accounts and transactions have been eliminated in the consolidation.

CASH AND CASH EQUIVALENTS:

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, cash items, due from banks, interest bearing demand deposits with other banks and money market mutual funds. Cash and due from banks as of March 31, 2012 and 2011 includes $2.5 million and $2.3 million, respectively, which is subject to withdrawals and usage restrictions to satisfy the reserve requirements of the Federal Reserve Bank.

SECURITIES:

Investments in debt securities are adjusted for amortization of premiums and accretion of discounts computed so as to approximate the interest method. Gains or losses on sales of investment securities are computed on a specific identification basis.

The Company classifies debt and equity securities with readily determinable fair values into one of two categories: available-for-sale or held-to-maturity. In general, securities may be classified as held-to-maturity only if the Company has the positive intent and ability to hold them to maturity. All other securities must be classified as available-for-sale.

	--	Available-for-sale securities are carried at fair value on the consolidated balance sheets. Unrealized holding gains and losses are not included in earnings but are reported as a net amount (less expected tax) in a separate component of stockholders’ equity until realized.

	--	Held-to-maturity securities are measured at amortized cost in the consolidated balance sheets. Unrealized holding gains and losses are not included in earnings or in a separate component of capital. They are merely disclosed in the notes to the consolidated financial statements.

For any debt security with a fair value less than its amortized cost basis, the Company will determine whether it has the intent to sell the debt security or whether it is more likely than not it will be required to sell the debt security before the recovery of its amortized cost basis. If either condition is met, the Company will recognize a full impairment charge to earnings. For all other debt securities that are considered other-than-temporarily impaired and do not meet either condition, the credit loss portion of impairment will be recognized in earnings as realized losses. The other-than-temporary impairment related to all other factors will be recorded in other comprehensive income.

Declines in marketable equity securities below their cost that are deemed other than temporary are reflected in earnings as realized losses.

As a member of the Federal Home Loan Bank of Boston (FHLB), the Company is required to invest in $100 par value stock of the FHLB. The FHLB capital structure mandates that members must own stock as determined by their Total Stock Investment Requirement which is the sum of a member’s Membership Stock Investment Requirement and Activity-Based Stock Investment Requirement. The Membership Stock Investment Requirement is calculated as 0.35% of member’s Stock Investment Base, subject to a minimum investment of $10,000 and a maximum investment of $25,000,000. The Stock Investment Base is an amount calculated based on certain assets held by a member that are reflected on call reports submitted to applicable regulatory authorities. The Activity-Based Stock Investment Requirement is calculated as 4.5% of a member’s outstanding principal balances of FHLB advances plus a percentage of advance commitments, 4.5% of standby letters of credit issued by the FHLB and 4.5% of the value of intermediated derivative contracts. Management evaluates the Company’s investment in the FHLB stock for other-than-temporary impairment at least on a quarterly basis and more frequently when economic or market conditions warrant such evaluation. Based on its most recent analysis of the FHLB as of March 31, 2012 management deems its investment in FHLB stock to be not other-than-temporarily impaired.

On February 23, 2012, the Federal Home Loan Bank of Boston notified the Bank of its intent to repurchase excess stock. On March 9, 2012, the Federal Home Loan Bank of Boston repurchased 2,957 shares of its stock from the Bank for $295,700.

LOANS:

Loans receivable that management has the intent and ability to hold until maturity or payoff, are reported at their outstanding principal balances adjusted for amounts due to borrowers on unadvanced loans, any charge-offs, the allowance for loan losses and any deferred fees or costs on originated loans, or unamortized premiums or discounts on purchased loans.

Interest on loans is recognized on a simple interest basis.

Loan origination, commitment fees and certain direct origination costs are deferred and the net amount amortized as an adjustment of the related loan’s yield by the interest method. Deferred amounts are recognized for fixed rate loans over the contractual life of the related loans. If the loan’s stated interest rate varies with changes in an index or rate, the effective yield used by the Bank for amortization is the index or rate that is in effect at the inception of the loan. Home equity line deferred fees are recognized using the straight-line method over the period the home equity line is active, assuming that borrowings are outstanding for the maximum term provided in the contract.

Residential real estate loans are generally placed on nonaccrual when reaching 90 days past due or in process of foreclosure. All closed-end consumer loans 90 days or more past due and any equity line in the process of foreclosure are placed on nonaccrual status. Secured consumer loans are written down to realizable value and unsecured consumer loans are charged-off upon reaching 120 or 180 days past due depending on the type of loan. Commercial real estate loans and commercial business loans and leases which are 90 days or more past due are generally placed on nonaccrual status, unless secured by sufficient cash or other assets immediately convertible to cash. When a loan has been placed on nonaccrual status, previously accrued and uncollected interest is reversed against interest on loans. A loan can be returned to accrual status when collectability of principal is reasonably assured and the loan has performed for a period of time, generally six months.

Cash receipts of interest income on impaired loans are credited to principal to the extent necessary to eliminate doubt as to the collectability of the net carrying amount of the loan. Some or all of the cash receipts of interest income on impaired loans is recognized as interest income if the remaining net carrying amount of the loan is deemed to be fully collectible. When recognition of interest income on an impaired loan on a cash basis is appropriate, the amount of income that is recognized is limited to that which would have been accrued on the net carrying amount of the loan at the contractual interest rate. Any cash interest payments received in excess of the limit and not applied to reduce the net carrying amount of the loan are recorded as recoveries of charge-offs until the charge-offs are fully recovered.

ALLOWANCE FOR LOAN LOSSES:

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

General Component:

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: residential real estate, commercial real estate, commercial and consumer. Management uses a rolling average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; trends in volume and terms of loans; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; experience/ability/depth of lending management and staff; and national and local economic trends and conditions. There were no changes in the Company’s policies or methodology pertaining to the general component of the allowance for loan losses during fiscal year 2012.

The qualitative factors are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

Residential real estate: The Company generally does not originate loans with a loan-to-value ratio greater than 80 percent and does not grant subprime loans. All loans in this segment are collateralized by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment.

Commercial real estate: Loans in this segment are primarily income-producing properties throughout Connecticut. The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment. Management periodically obtains rent rolls and continually monitors the cash flows of these loans.

Home equity loans and lines of credit: Loans in this segment primarily include first and second mortgages on residential real estate and have maturities up to 15 years. The risks for this category are similar to the risks in the residential real estate category.

Commercial loans: Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.

Consumer loans: Loans in this segment are generally secured by non-real estate collateral, which includes mobile homes, vehicles and deposit accounts. To a lesser extent the Bank makes unsecured loans and repayment is dependent on the credit quality of the individual borrower.

Allocated Component:

The allocated component relates to loans that are classified as impaired. Impairment is measured on a loan by loan basis for commercial, commercial real estate and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. An allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential real estate loans for impairment disclosures, unless such loans are subject to a troubled debt restructuring agreement.

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.

The Company periodically may agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”). All TDRs are initially classified as impaired.

Unallocated Component:

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.

PREMISES AND EQUIPMENT:

Premises and equipment are stated at cost, less accumulated depreciation and amortization. Cost and related allowances for depreciation and amortization of premises and equipment retired or otherwise disposed of are removed from the respective accounts with any gain or loss included in income or expense. Depreciation and amortization are calculated principally on the straight-line method over the estimated useful lives of the assets. Estimated lives are 10 to 50 years for buildings and premises and 3 to 20 years for furniture, fixtures and equipment. Expenditures for replacements or major improvements are capitalized; expenditures for normal maintenance and repairs are charged to expense as incurred.

OTHER REAL ESTATE OWNED AND IN-SUBSTANCE FORECLOSURES:

Other real estate owned includes properties acquired through foreclosure and properties classified as in-substance foreclosures in accordance with ASC 310-40, “Receivables – Troubled Debt Restructuring by Creditors.” These properties are carried at the lower of cost or estimated fair value less estimated costs to sell. Any writedown from cost to estimated fair value required at the time of foreclosure or classification as in-substance foreclosure is charged to the allowance for loan losses. Expenses incurred in connection with maintaining these assets, subsequent writedowns and gains or losses recognized upon sale, are included in other expense.

In accordance with ASC 310-10-35, “Receivables – Overall – Subsequent Measurements,” the Company classifies loans as in-substance repossessed or foreclosed if the Company receives physical possession of the debtor’s assets regardless of whether formal foreclosure proceedings take place.

INCOME TAXES:

The Company recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are established for the temporary differences between the accounting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when the amounts related to such temporary differences are realized or settled.

EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN:

In connection with its Executive Supplemental Retirement Plan, the Company established a Rabbi Trust to assist in the administration of the plan. The accounts of the Rabbi Trust are consolidated in the Company’s financial statements. Any available-for-sale securities held by the Rabbi Trust are accounted for in accordance with ASC 320, “Investments – Debt and Equity Securities.” Until the plan benefits are paid, creditors may make claims against the trust’s assets if the Company becomes insolvent.

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. The Company had 113,721 and 155,664 anti-dilutive shares at March 31, 2012 and 2011, respectively. Anti-dilutive shares are stock options with weighted-average exercise prices in excess of the weighted-average market value of the Company’s stock for the same period. 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.

FAIR VALUES OF FINANCIAL INSTRUMENTS:

ASC 825, “Financial Instruments,” requires that the Company disclose the estimated fair value for its financial instruments. Fair value methods and assumptions used by the Company in estimating its fair value disclosures are as follows:

Cash and cash equivalents: The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets’ fair values.

Interest-bearing time deposits with other banks: Fair values of interest-bearing time deposits with other banks are estimated using discounted cash flow analyses based on current rates for similar types of deposits.

Securities (including mortgage-backed securities): Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

Accrued interest receivable: The carrying amount of accrued interest receivable approximates its fair value.

Deposit liabilities: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Advanced payments by borrowers for taxes and insurance: The carrying amounts of advance payments by borrowers for taxes and insurance approximate their fair values.

Federal Home Loan Bank advances: The fair value of Federal Home Loan Bank advances was determined by discounting the anticipated future cash payments by using the rates currently available to the Company for debt with similar terms and remaining maturities.

Subordinated debentures: Fair values of subordinated debentures are estimated using discounted cash flow analyses, using interest rates currently being offered for debentures with similar terms.

Securities sold under agreements to repurchase: The carrying amount reported on the consolidated balance sheet for securities sold under agreements to repurchase maturing within ninety days approximate its fair value. Fair values of other securities sold under agreements to repurchase are estimated using discounted cash flow analyses based on the current rates for similar types of borrowing arrangements.

Due to or from broker: The carrying amount of due to or from broker approximates its fair value.

Off-balance sheet instruments: The fair value of commitments to originate loans is estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments and the unadvanced portion of loans, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligation with the counterparties at the reporting date.

STOCK-BASED COMPENSATION:

At March 31, 2012, the Company has two stock-based incentive plans which are described more fully in Note 13; the Company accounts for the plans under ASC 718-10, “Compensation - Stock Compensation - Overall.” During the year ended March 31, 2012 and 2011, $140,000 and $248,000, respectively in stock-based employee compensation was recognized.

ADVERTISING COSTS:

It is the Company’s policy to expense advertising costs as incurred. Advertising and promotion expense is shown as a separate line item in the consolidated Statements of Income.

RECENT ACCOUNTING PRONOUNCEMENTS:

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. The required disclosures are included in Note 4.

NOTE 3 - INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES

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

				Gross		Gross
	Amortized			Unrealized		Unrealized		Fair
	Cost Basis			Gains		Losses		Value
				(In thousands)
March 31, 2012:
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies	$	6,499		$	8	$	37	$	6,470

Debt securities issued by states of the United States and political subdivisions of the states		25,322			330		291		25,361
Mortgage-backed securities		29,015			994		253		29,756
	$	60,836		$	1,332	$	581	$	61,587

March 31, 2011:
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies	$	7,355		$	25	$	48	$	7,332
Debt securities issued by states of the United States and political subdivisions of the states		19,372			83		688		18,767
Mortgage-backed securities		32,236			1,169		236		33,169
Marketable equity securities		9			—		—		9
		58,972			1,277		972		59,277
Money market mutual funds included in cash and cash equivalents		(9	)		—		—		(9	)
	$	58,963		$	1,277	$	972	$	59,268

The scheduled maturities of available-for-sale debt securities were as follows as of March 31, 2012:

	Fair Value
	(In Thousands)
Due in less than one year	$	178
Due after one year through five years		1,398
Due after five years through ten years		4,528
Due after ten years		25,727
Mortgage-backed securities		29,756
	$	61,587

Proceeds from sales of available-for-sale securities for the year ended March 31, 2012 were $23.9 million. Gross realized gains and losses on those sales amounted to $306,000 and $3,000, respectively. Proceeds from sales of available-for-sale securities for the year ended March 31, 2011 were $21.1 million. Gross realized gains and losses on those sales amounted to $290,000 and $7,000, respectively. The tax expense applicable to these net realized gains in the years ended March 31, 2012 and 2011 amounted to $118,000 and $112,000, respectively.

As of March 31, 2012 and 2011, securities with carrying amounts of $29.6 million and $33.6 million, respectively, were pledged to secure securities sold under agreements to repurchase.

The aggregate fair value and unrealized losses of securities, including debt securities for which a portion of other-than-temporary impairment has been recognized in other comprehensive income (loss), that have been in a continuous unrealized-loss position for less than twelve months and for twelve months or more, are as follows:

		Less than 12 Months				12 Months or Longer				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
		(In Thousands)
March 31, 2012:
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies	$	3,212	$	37	$	—	$	—	$	3,212	$	37
Debt securities issued by states of the United States and political subdivisions of the states		11,219		240		1,502		51		12,721		291
Mortgage-backed securities		6,469		98		1,231		73		7,700		171
Total temporarily impaired securities		20,900		375		2,733		124		23,633		499
Other-than-temporarily impaired securities
Mortgage-backed securities		—		—		372		82		372		82
Total temporarily impaired and other-than-temporarily impaired securities	$	20,900	$	375	$	3,105	$	206	$	24,005	$	581

March 31, 2011:
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies	$	3,000	$	48	$	—	$	—	$	3,000	$	48
Debt securities issued by states of the United States and political subdivisions of the states		8,950		352		3,313		336		12,263		688
Mortgage-backed securities		2,446		15		1,123		117		3,569		132
Total temporarily impaired securities		14,396		415		4,436		453		18,832		868
Other-than-temporarily impaired securities
Mortgage-backed securities		—		—		384		104		384		104
Total temporarily impaired and other-than-temporarily impaired securities	$	14,396	$	415	$	4,820	$	557	$	19,216	$	972

Management has assessed the securities which are classified as available-for-sale and in an unrealized loss position at March 31, 2012 and determined the decline in fair value below amortized cost to be temporary. 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 market inefficiencies and not to the credit deterioration of the individual issuer.

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 evaluated for other-than-temporary impairment in accordance with ASC 320-10, “Investment - Debt and Equity Securities.”

The following table summarizes other-than-temporary impairment losses on non-agency mortgage backed securities for the years ended March 31:

	2012		2011
	(In Thousands)

Total other-than-temporary impairment losses	$	33	$	—
Less: unrealized other-than-temporary
Losses recognized in other comprehensive loss ⁽¹⁾		—		—

Net impairment losses recognized in earnings ⁽²⁾	$	33	$	—

⁽¹⁾ Represents the noncredit component of the other-than-temporary impairment on the securities.

⁽²⁾ Represents the credit component of the other-than-temporary impairment on securities.

Activity related to the credit component recognized in earnings on debt securities held by the Company for which a portion of other-than-temporary impairment was recognized in other comprehensive loss for the years ended March 31 are as follows:

	2012		2011
	Total		Total
	(In Thousands)
Balance, April 1	$	63	$	63
Additions for the credit component on debt securities in which other-than-temporary impairment was previously recognized		33		—
Balance, March 31	$	96	$	63

For the year ended March 31, 2012 and 2011, securities with other-than-temporary impairment losses related to credit that were recognized in earnings consisted of non-agency mortgage-backed securities. In accordance with ASC 320-10, the Company estimated the portion of loss attributable to credit using a discounted cash flow model. Significant inputs for the non-agency mortgage-backed securities included the estimated cash flows of the underlying collateral based on key assumptions, such as default rate, loss severity and prepayment rate. Assumptions used can vary widely from loan to loan, and are influenced by such factors as loan interest rate, geographical location of the borrower, borrower characteristics and collateral type. The present values of the expected cash flows were 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:

	Weighted			Range
March 31, 2012	Average			Minimum			Maximum
Prepayment rates		11.3	%		5.6	%		18.6	%
Default rates		7.2			3.0			16.2
Loss severity		56.9			45.4			70.9

March 31, 2011
Prepayment rates		14.9	%		5.4	%		20.6	%
Default rates		5.3			0.3			9.9
Loss severity		57.4			39.9			67.0

NOTE 4 - LOANS

Loans consisted of the following as of March 31:

	2012			2011
	(In Thousands)

Residential real estate	$	125,636		$	149,740
Commercial real estate		289,057			251,743
Home equity loans		37,724			40,364
Consumer loans		9,772			8,581
Commercial loans		94,668			80,967
		556,857			531,395
Deferred loan origination costs, net		1,086			886
Allowance for loan losses		(5,697	)		(5,686	)
Loans, net	$	552,246		$	526,595

Certain directors and executive officers of the Company and companies in which they have significant ownership interest were customers of the Bank during the year ended March 31, 2012. Total loans to such persons and their companies amounted to $2.7 million as of March 31, 2012. During the year ended March 31, 2012, principal payments totaled $1.6 million and principal advances amounted to $293,000.

Changes in the allowance for loan losses were as follows for the years ended March 31:

	Residential Real Estate			Home Equity Loans			Commercial Real Estate			Consumer Loans			Commercial Loans			Total
	(In thousands)
Balance March 31, 2010	$	566		$	177		$	1,824		$	39		$	2,019		$	4,625
Provision		308			(23	)		187			118			1,423			2,013
Charge Offs		(145	)		—			(30	)		(65	)		(770	)		(1,010	)
Recoveries		9			—			—			7			42			58
Balance March 31, 2011	$	738		$	154		$	1,981		$	99		$	2,714		$	5,686
Provision		372			(10	)		1,126			(15	)		127			1,600
Charge Offs		(379	)		(17	)		(313	)		(42	)		(974	)		(1,725	)
Recoveries		58			—			—			22			56			136
Balance March 31, 2012	$	789		$	127		$	2,794		$	64		$	1,923		$	5,697

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

	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
			(In Thousands)
Allowance for loan losses:
Residential real estate	$	15	$	774	$	789
Commercial real estate		207		2,587		2,794
Home equity loans		—		127		127
Consumer loans		—		64		64
Commercial loans		372		1,551		1,923
Total allowance for loan losses	$	594	$	5,103	$	5,697

Loan balances:
Residential real estate	$	1,247	$	124,389	$	125,636
Commercial real estate		9,961		279,096		289,057
Home equity loans		—		37,724		37,724
Consumer loans		—		9,772		9,772
Commercial loans		4,103		90,565		94,668
Total loan balances	$	15,311	$	541,546	$	556,857

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

	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
	(In Thousands)
Allowance for loan losses:
Residential real estate	$	361	$	377	$	738
Commercial real estate		634		1,347		1,981
Home equity loans		—		154		154
Consumer loans		35		64		99
Commercial loans		667		2,047		2,714
Total allowance for loan losses	$	1,697	$	3,989	$	5,686

Loan balances:
Residential real estate	$	5,204	$	144,536	$	149,740
Commercial real estate		16,185		235,558		251,743
Home equity loans		184		40,180		40,364
Consumer loans		166		8,415		8,581
Commercial loans		4,954		76,013		80,967
Total loan balances	$	26,693	$	504,702	$	531,395

The following table provides information about delinquencies and nonaccrual loans in our loan portfolio as of March 31, 2012:

	30-59 Days		60-89 Days		90 Days or More		Total Past Due		90 Days or More and Accruing		Nonaccrual loans
	(Dollars in Thousands)

Residential real estate	$	2,771	$	—	$	2,217	$	4,988	$	—	$	3,734
Commercial real estate		1,702		1,152		4,976		7,830		—		7,141
Home equity loans		112		154		84		350		—		170
Consumer loans		100		49		47		196		—		56
Commercial loans		1,641		154		3,545		5,340		—		4,072
Total	$	6,326	$	1,509	$	10,869	$	18,704	$	—	$	15,173

The following table provides information about delinquencies and nonaccrual loans in our loan portfolio as March 31, 2011:

	30-59 Days		60-89 Days		90 Days or More		Total Past Due		90 Days or More and Accruing		Nonaccrual loans
	(Dollars in Thousands)

Residential real estate	$	757	$	967	$	2,772	$	4,496	$	214	$	4,429
Commercial real estate		2,376		4,733		2,223		9,332		—		5,461
Home equity loans		533		—		89

New England Bancshares, Inc. 10-K