UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

      For the fiscal year ended December 31, 2004

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

      For the transition period from _________________________ to _____________

                         Commission File Number: 0-50876

                     NAUGATUCK VALLEY FINANCIAL CORPORATION
             (Exact name of registrant as specified in its charter)

   UNITED STATES                                         65-1233977
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

333 Church Street, Naugatuck, Connecticut                             06770
    (Address of principal executive offices)                        (Zip Code)

       Registrant's telephone number, including area code: (203) 720-5000

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $0.01 per share
                                (Title of Class)

      Indicated 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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

      Indicated 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 the 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 an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|

      The aggregate market value of the voting and non-voting common equity held
by non-affiliates as of June 30, 2004, was $0.

      The number of shares outstanding of the registrant's common stock as of
March 1, 2005 was 7,604,375, of which 4,182,407 shares were held by Naugatuck
Valley Mutual Holding Company.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the 2004 Annual Report to Stockholders and of the Proxy Statement
for the 2005 Annual Meeting of Stockholders are incorporated by reference in
Parts II and III, respectively, of this Form 10-K.

<PAGE>

                                      INDEX

<TABLE>
<CAPTION>
                                     Part I
                                                                                                            Page
<S>                                                                                                           <C>
Item 1.     Business.......................................................................................... 1
Item 2.     Properties........................................................................................21
Item 3.     Legal Proceedings.................................................................................22
Item 4.     Submission of Matters to a Vote of Securities Holders.............................................22

                                     Part II

Item 5.     Market for Registrant's Common Equity, Related Stockholder Matters and
               Issuer Purchases of Equity Securities..........................................................22
Item 6.     Selected Financial Data...........................................................................23
Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operation..............23
Item 7A.    Quantitative and Qualitative Disclosures About Market Risk........................................23
Item 8.     Financial Statements and Supplementary Data.......................................................23
Item 9.     Changes in and Disagreements With Accountants on Accounting and Financial Disclosure..............23
Item 9A.    Controls and Procedures...........................................................................23
Item 9B.    Other Information.................................................................................23

                                    Part III

Item 10.    Directors and Executive Officers of the Registrant................................................24
Item 11.    Executive Compensation............................................................................24
Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related
              Stockholder Matters.............................................................................24
Item 13.    Certain Relationships and Related Transactions....................................................24
Item 14.    Principal Accountant Fees and Services............................................................24

                                     Part IV

Item 15.    Exhibits and Financial Statement Schedules........................................................24
</TABLE>


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<PAGE>

      This report contains certain "forward-looking statements" within the
meaning of the federal securities laws. These statements are not historical
facts, rather statements based on Naugatuck Valley Financial Corporation's
current expectations regarding its business strategies, intended results and
future performance. Forward-looking statements are preceded by terms such as
"expects," "believes," "anticipates," "intends" and similar expressions.

      Management's ability to predict results or the effect of future plans or
strategies is inherently uncertain. Factors which could affect actual results
include interest rate trends, the general economic climate in the market area in
which Naugatuck Valley Financial operates, as well as nationwide, Naugatuck
Valley Financial's ability to control costs and expenses, competitive products
and pricing, loan delinquency rates and changes in federal and state legislation
and regulation. These factors should be considered in evaluating the
forward-looking statements and undue reliance should not be placed on such
statements. Except as may be required by applicable law or regulation, Naugatuck
Valley Financial assumes no obligation to update any forward-looking statements.

                                     PART I

Item 1.     BUSINESS

                                  Risk Factors

A decline in our return on equity as a result of the capital we raised in our
2004 stock offering may negatively impact our stock price.

      Return on equity, which equals net income divided by average equity, is a
ratio used by many investors to compare the performance of a particular company
with other companies. Our return on equity for the year ended December 31, 2004,
and the three months ended December 31, 2004, was 1.41% and 4.12%, respectively.
Over time, we intend to use the net proceeds from our 2004 stock offering to
increase earnings per share and book value per share, without assuming undue
risk, with the goal of achieving a return on equity that is competitive with
other publicly held subsidiaries of mutual holding companies. This goal could
take a number of years to achieve, and we cannot assure you that it will be
attained. Consequently, you should not expect a competitive return on equity in
the near future. Failure to achieve a competitive return on equity might make an
investment in our common stock unattractive to some investors and might cause
our common stock to trade at lower prices than comparable companies with higher
returns on equity.

Additional expenses from operating as a public company and from new stock-based
benefit plans will adversely affect our profitability.

      Our noninterest expenses in 2005 are likely to increase as a result of the
financial accounting, legal and various other additional expenses usually
associated with operating as a public company. We also will recognize additional
annual employee compensation and benefit expenses stemming from the shares that
may be purchased or granted to employees and executives under new benefit plans,
if implemented. These additional expenses would adversely affect our
profitability. We recognize expenses for our employee stock ownership plan when
shares are committed to be released to participants' accounts and would
recognize expenses for restricted stock awards and stock options over the
vesting period of awards made to recipients.

Issuance of shares for benefit programs may dilute your ownership interest.

      We intend to adopt a stock-based incentive plan in 2005. If our
stockholders approve the new stock-based incentive plan, we intend to issue
shares to our officers and directors through this plan. If the restricted stock
awards under the stock-based incentive plan are funded from authorized but
unissued stock, your ownership interest in shares held by persons other than
Naugatuck Valley Mutual could be diluted by up to approximately 4.17%. If the
shares issued upon the exercise of stock options under the stock-based incentive
plan are issued from authorized but unissued stock, your ownership interest in
shares held by persons other than Naugatuck Valley Mutual could be diluted by up
to approximately 9.82%.

<PAGE>

Naugatuck Valley Mutual's majority control of our common stock enables it to
exercise voting control over most matters put to a vote of stockholders,
including preventing sale or merger transactions you may like or a second-step
conversion by Naugatuck Valley Mutual.

      Naugatuck Valley Mutual owns a majority of our common stock and, through
its Board of Directors, is able to exercise voting control over most matters put
to a vote of stockholders. The same directors and officers manage Naugatuck
Valley Financial, Naugatuck Valley Savings and Naugatuck Valley Mutual. As a
federally chartered mutual holding company, the Board of Directors of Naugatuck
Valley Mutual must ensure that the interests of depositors of Naugatuck Valley
Savings are represented and considered in matters put to a vote of stockholders
of Naugatuck Valley Financial. Therefore, the votes cast by Naugatuck Valley
Mutual may not be in your personal best interests as a stockholder. For example,
Naugatuck Valley Mutual may exercise its voting control to defeat a stockholder
nominee for election to the board of directors of Naugatuck Valley Financial. In
addition, stockholders will not be able to force a merger or second-step
conversion transaction without the consent of Naugatuck Valley Mutual. Some
stockholders may desire a sale or merger transaction, since stockholders
typically receive a premium for their shares, or a second-step conversion
transaction, since fully converted institutions tend to trade at higher
multiples than mutual holding companies.

Office of Thrift Supervision policy on remutualization transactions could
prohibit the merger or an acquisition of us, which may lower our stock price.

      Current Office of Thrift Supervision regulations permit a mutual holding
company to be acquired by a mutual institution in a remutualization transaction.
The possibility of a remutualization transaction has recently resulted in a
degree of takeover speculation for mutual holding companies which is reflected
in the stock prices of mutual holding companies. However, the Office of Thrift
Supervision has issued a policy statement indicating that it views
remutualization transactions as raising significant issues concerning disparate
treatment of minority stockholders and mutual members of the target entity and
as raising issues concerning the effect on the mutual members of the acquiring
entity. Under certain circumstances, the Office of Thrift Supervision intends to
give these issues special scrutiny and reject applications for the
remutualization of a mutual holding company unless the applicant can clearly
demonstrate that the Office of Thrift Supervision's concerns are not warranted
in the particular case. Should the Office of Thrift Supervision prohibit or
otherwise restrict these transactions in the future, our stock price may be
adversely affected. We have no current plans to undertake a remutualization
transaction. In addition, Office of Thrift Supervision regulations prohibit, for
three years following the completion of a stock offering by a company such as
Naugatuck Valley Financial, the acquisition of more than 10% of any class of
equity security of the company without the prior approval of the Office of
Thrift Supervision.

Our contribution to the Naugatuck Valley Savings and Loan Foundation may not be
tax deductible, which could hurt our profits.

      We believe that our contribution to the Naugatuck Valley Savings and Loan
Foundation, valued at $1.5 million, pre-tax, will be deductible for federal
income tax purposes. However, we do not have any assurance that the Internal
Revenue Service will grant tax-exempt status to the foundation. If the
contribution is not deductible, we would not receive any tax benefit from the
contribution. In addition, even if the contribution is tax deductible, we may
not have sufficient profits to be able to use the deduction fully.

Our increased emphasis on commercial and construction lending and the unseasoned
nature of these loans may expose us to increased lending risks and could impact
the level of our allowance for loan losses.

      Since December 31, 2000, our commercial real estate, commercial business
and residential construction loan portfolio has increased $37.2 million, or
471.4%, and at December 31, 2004, $45.0 million, or 21.6%, of our loan portfolio
consisted of these real estate, construction and commercial business loans. We
intend to continue to emphasize these types of lending. 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, the income stream of the
borrowers for commercial business loans and for construction loans, the accuracy
of the estimate of the property's value at completion of construction and the
estimated cost of construction. These factors can be impacted by many variables
including economic events beyond


                                       2
<PAGE>

the borrowers' control. Such loans typically involve larger loan balances to
single borrowers or groups of related borrowers compared to one- to four-family
residential mortgage 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.

      Because of our planned continued emphasis on commercial and construction
lending and the unseasoned nature of many of these loans, we may determine it
necessary to increase the level of our allowance for loan losses. We make
various judgments about the collectibility of our loans, including the
creditworthiness of our borrowers and the value of the real estate and other
assets serving as collateral for our loans. In determining the amount of the
allowance for loan losses, we review our loans and our loan loss and delinquency
experience, and we evaluate economic conditions. However, as a result of our
recent expansion, a significant portion of our commercial and construction loans
are unseasoned, with the risk that these loans may not have had sufficient time
to perform to properly indicate the potential magnitude of losses. If our
judgments are incorrect, our allowance for loan losses may not be sufficient to
cover future losses, which will result in additions to our allowance through
increased provisions for loan losses. 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. Increased
provisions for loan losses would increase our expenses and reduce our profits.
Finally, during our recent expansion, we have also experienced a historically
low interest rate environment. Our unseasoned adjustable rate loans have not,
therefore, been subject to a rising interest rate environment which could cause
them to adjust to their maximum interest rate level. Such an increase could
increase collection risks resulting from potentially higher payment obligations
by the borrower.

Rising interest rates may hurt our profits and asset value.

      Interest rates were recently at historically low levels. However, since
June 30, 2004, the U.S. Federal Reserve has increased its target for the federal
funds rate six times to 2.50%. If interest rates continue to rise, and if rates
on our deposits and borrowings reprice upwards faster than the rates on our
loans and investments, we would experience compression of our interest rate
spread and net interest margin, which would have a negative effect on our
profitability.

If we do not achieve profitability on new branches, the new branches may
negatively impact our earnings.

      We opened a new branch in Seymour, Connecticut in January 2005. We also
expect to open a new branch in Southbury, Connecticut in the first quarter of
2006. We intend to continue to pursue opportunities to pursue expansion of our
branch network, as well as to upgrade our current branch facilities. We cannot
assure you that our branch expansion strategy and our branch upgrading will be
accretive to our earnings, or that it will be accretive to earnings within a
reasonable period of time. Numerous factors contribute to the performance of a
new branch, such as a suitable location, qualified personnel and an effective
marketing strategy. Additionally, it takes time for a new branch to generate
significant deposits and make sufficient loans to produce enough income to
offset expenses, some of which, like salaries and occupancy expense, are
relatively fixed costs. In addition to branch employees, we will hire lending
and other employees to support our expanded infrastructure.

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

      Although we consider ourselves competitive in the Greater Naugatuck
Valley, which we consider our market area, we face intense competition both in
making loans and attracting deposits. 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. 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.


                                       3
<PAGE>

We operate in a highly regulated environment and we may be adversely affected by
changes in laws and regulations.

      We are subject to extensive government regulation, supervision and
examination. Such regulation, supervision and examination govern the activities
in which we may engage, and is intended primarily for the protection of the
deposit insurance fund and our depositors. Regulatory authorities have extensive
discretion in their supervisory and enforcement activities, including the
imposition of restrictions on our operations, the classification of our assets
and determination of the level of our allowance for loan losses. Any change in
such regulation and oversight, whether in the form of regulatory policy,
regulations, legislation or supervisory action, may have a material impact on
our operations.

General

      Naugatuck Valley Financial Corporation was organized as a federal
corporation at the direction of Naugatuck Valley Savings and Loan in connection
with the mutual holding company reorganization of Naugatuck Valley Savings. The
reorganization was completed on September 30, 2004. In the reorganization,
Naugatuck Valley Financial sold 43% of its outstanding shares of common stock
(3,269,881 shares) to the public, contributed 2% of its outstanding shares of
common stock (152,087 shares) to the Naugatuck Valley Savings and Loan
Foundation and issued 55% of its outstanding shares of common stock (4,182,407
shares) to Naugatuck Valley Mutual Holding Company, the mutual holding company
parent of Naugatuck Valley Savings.

      So long as Naugatuck Valley Mutual exists, it will own at least a majority
of Naugatuck Valley Financial's common stock. Naugatuck Valley Financial's
business activity is the ownership of the outstanding capital stock of Naugatuck
Valley Savings and management of the investment of offering proceeds retained
from the reorganization. Naugatuck Valley Financial neither owns nor leases any
property but instead uses the premises, equipment and other property of
Naugatuck Valley Savings with the payment of appropriate rental fees, as
required by applicable law and regulations. In the future, Naugatuck Valley
Financial may acquire or organize other operating subsidiaries; however, there
are no current plans, arrangements, agreements or understandings, written or
oral, to do so. Naugatuck Valley Financial has no significant assets, other than
all of the outstanding shares of Naugatuck Valley Savings and U.S. government
and agency securities, and no significant liabilities. Accordingly, the
information set forth in this report, including the consolidated financial
statements and related financial data, relates primarily to Naugatuck Valley
Savings.

      Naugatuck Valley Savings is a federally chartered savings bank, and has
served its customers in Connecticut since 1922. We operate as a
community-oriented financial institution offering traditional financial services
to consumers and businesses in our market area. We attract deposits from the
general public and use those funds to originate one- to four-family,
multi-family and commercial real estate, construction, commercial business, and
consumer loans, which we primarily hold for investment.

      Naugatuck Valley Mutual is our federally chartered mutual holding company
parent. As a mutual holding company, Naugatuck Valley Mutual is a non-stock
company that has as its members the depositors of Naugatuck Valley Savings.
Naugatuck Valley Mutual does not engage in any business activity other than
owning a majority of the common stock of Naugatuck Valley Financial.

Available Information

      Naugatuck Valley Financial's annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and any amendments to such reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended, are made available free of charge on our website,
www.nvsl.com, as soon as reasonably practicable after such reports are
electronically filed with, or furnished to, the Securities and Exchange
Commission. Information on our website shall not be considered a part of this
Form 10-K.

Market Area

      We are headquartered in Naugatuck, Connecticut, which is located in
south-western Connecticut approximately six miles south of Waterbury and 26
miles north of Bridgeport. In addition to our main office, we


                                       4
<PAGE>

operate four branch offices in the Greater Naugatuck Valley which we consider
our market area. The Greater Naugatuck Valley encompasses the communities in the
central and lower Naugatuck Valley regions in New Haven and Fairfield Counties.
The economy in our market area is primarily oriented to the service, retail,
construction, and manufacturing industries.

Competition

      We face significant competition for the attraction of deposits and
origination of loans. Our most direct competition for deposits has historically
come from the several financial institutions operating in our market area and,
to a lesser extent, from other financial service companies, such as brokerage
firms, credit unions and insurance companies. We also face competition for
investors' funds from money market funds and other corporate and government
securities. In addition, banks owned by Bank of America Corporation, Wachovia
Corporation and J.P. Morgan Chase & Co., all of which are large super-regional
bank holding companies, also operate in our market area. These institutions are
significantly larger than us and, therefore, have significantly greater
resources.

      Our competition for loans comes primarily from financial institutions in
our market area and, to a lesser extent, from other financial service providers,
such as mortgage companies and mortgage brokers. Competition for loans also
comes from the increasing number of non-depository financial service companies
entering the mortgage market, such as insurance companies, securities companies
and specialty finance 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 enter new market areas, 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 growth in
the future.

Lending Activities

      General. Our loan portfolio consists primarily of one- to four-family
residential mortgage loans. To a lesser but growing extent, our loan portfolio
includes multi-family and commercial real estate loans, construction loans,
commercial business loans and consumer loans. Substantially all of our loans are
made to borrowers residing within Connecticut.

      One- to Four-Family Residential Loans. Our primary lending activity is the
origination of mortgage loans to enable borrowers to purchase or refinance
existing homes or to construct new residential dwellings in our market area. We
offer fixed-rate and adjustable-rate mortgage loans with terms up to 30 years.
Borrower demand for adjustable-rate loans versus fixed-rate loans is a function
of the level of interest rates, the expectations of changes in the level of
interest rates, the difference between the interest rates and loan fees offered
for fixed-rate mortgage loans and the initial period interest rates and loan
fees for adjustable-rate loans. The relative amount of fixed-rate mortgage loans
and adjustable-rate mortgage loans that can be originated at any time is largely
determined by the demand for each in a competitive environment and the effect
each has on our interest rate risk. The loan fees charged, interest rates and
other provisions of mortgage loans are determined by us on the basis of our own
pricing criteria and competitive market conditions.

      We offer fixed-rate loans with terms of either 10, 15, 20 or 30 years. Our
adjustable-rate mortgage loans are based on either a 15, 20 or 30 year
amortization schedule and interest rates and payments on our adjustable-rate
mortgage loans adjust annually after either a one, three, five or seven year
initial fixed period. Interest rates and payments on our adjustable-rate loans
generally are adjusted to a rate typically equal to 2.75% above the one-year
constant maturity Treasury index. The maximum amount by which the interest rate
may be increased or decreased is generally 2% per adjustment period and the
lifetime interest rate cap is generally 6% over the initial interest rate of the
loan.


                                       5
<PAGE>

      Due to historically low interest rate levels, borrowers generally have
preferred fixed-rate loans in recent years. While we anticipate that our
adjustable-rate loans will better offset the adverse effects on our net interest
income of an increase in interest rates as compared to fixed-rate mortgages, the
increased mortgage payments required of adjustable-rate loans 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.

      While one- to four-family residential real estate loans are normally
originated with up to 30-year terms, such loans typically remain outstanding for
substantially shorter periods because borrowers often prepay their loans in full
upon sale of the property pledged as security or upon refinancing the original
loan. Therefore, average loan maturity is a function of, among other factors,
the level of purchase and sale activity in the real estate market, prevailing
interest rates and the interest rates payable on outstanding loans. As interest
rates declined and remained low over the past few years, we have experienced
high levels of loan repayments and refinancings.

      We generally do not make conventional loans with loan-to-value ratios
exceeding 97% and generally make loans with a loan-to-value ratio in excess of
80% only when secured by first liens on owner-occupied one- to four-family
residences. Loans with loan-to-value ratios in excess of 80% generally require
private mortgage insurance or additional collateral. We require all properties
securing mortgage loans to be appraised by a Board-approved independent
appraiser. We require title insurance on all first mortgage loans. Borrowers
must obtain hazard insurance, or flood insurance for loans on property located
in a flood zone, before closing the loan.

      In an effort to provide financing for first-time buyers, we offer a
first-time home buyers program. We offer fixed-rate residential mortgage loans
through this program to qualified individuals and originate the loans using
modified underwriting guidelines.

      Multi-Family and Commercial Real Estate Loans. We offer fixed-rate and
adjustable-rate mortgage loans secured by multi-family and commercial real
estate. Our multi-family and commercial real estate loans are generally secured
by condominiums, apartment buildings, single-family subdivisions and
owner-occupied properties used for businesses. We intend to continue to grow
this segment of our loan portfolio.

      We originate multi-family and commercial real estate loans for terms
generally up to 20 years. Interest rates and payments on adjustable-rate loans
adjust every one, three or five years. Interest rates and payment on our
adjustable rate loans generally are adjusted to a rate typically equal to 3%
above the one-year, three-year or five-year constant maturity Treasury index.
There are no adjustment period or lifetime interest rate caps. Loan amounts
generally do not exceed 80% of the appraised value.

      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 or 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. We
require either an environmental survey or impaired property insurance for all
multi-family and commercial real estate loans.

      Construction Loans. We originate loans to individuals to finance the
construction of residential dwellings for personal use. Our construction loans
generally provide for the payment of interest only during the construction
phase, which is usually nine months. At the end of the construction phase, the
loan converts to a permanent mortgage loan. Loans generally can be made with a
maximum loan to value ratio of 80% of the appraised value with a maximum term of
30 years. The largest outstanding residential construction loan at December 31,
2004 was $644,000, $115,000 of which was outstanding. This loan was performing
according to its


                                       6
<PAGE>

terms at December 31, 2004. We also make commercial construction loans for
commercial development projects, including condominiums, apartments buildings,
single family subdivisions, as well as owner-occupied properties used for
business. These loans provide for payment of interest only during the
construction phase and may, in the case of an apartment or commercial building,
convert to a permanent mortgage loan or, in the case of a single family
subdivision or construction or builder loan, be paid in full with the sale of
the property after construction is complete. In the case of a commercial
construction loan, the construction period may be from nine months to two years.
Loans are generally made to a maximum of 80% of the appraised value as
determined by an appraisal of the property made by an independent licensed
appraiser. We also require an inspection of the property before disbursement of
funds during the term of the construction loan for both residential and
commercial construction loans. The largest outstanding commercial construction
loan at December 31, 2004 was $3.2 million, of which $1.9 million was
outstanding. This loan was performing according to its terms at December 31,
2004.

      We originate land loans to individuals on approved residential building
lots for personal use for terms of up to 20 years and to a maximum loan-to-value
ratio of 75% of the lower of the appraisal value or purchase price. Our land
loans adjust annually after a five-year initial fixed period. Interest rates are
equal to 3.75% above the one-year constant maturity Treasury index.

      We also originate loans to local contractors and developers for the
purpose of making improvements to, and on, approved subdivisions and condominium
projects within two years of the date of the original loan. Such loans generally
are written with a maximum loan-to-value ratio of 80% of the lower of the
appraised value or purchase price of the land. These loans adjust when and as
the index changes at a rate that is generally equal to the prime rate as
published in The Wall Street Journal plus 1%. We require title insurance and, if
applicable, a hazardous waste survey reporting that the land is free of
hazardous or toxic waste.

      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 or development
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 development. If the estimate of value proves to be inaccurate,
we may be confronted, at or before the maturity of the loan, with a project
having a value which is insufficient to assure full repayment. As a result of
the foregoing, construction lending often involves the disbursement of
substantial funds with repayment dependent, in part, on the success of the
ultimate project rather than the ability of the borrower or guarantor to repay
principal and interest. If we are forced to foreclose on a 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.

      Commercial Business Loans. We make commercial business loans to a variety
of professionals, sole proprietorships and small businesses primarily in our
market area. We offer a variety of commercial lending products. These loans are
typically secured, primarily by business assets. These loans are originated with
maximum loan-to-value ratios of 75% of the value of the personal property. We
originate one- to seven-year term loans for the acquisition of equipment or
business expansion, lines of credit for seasonal financing needs and demand
loans for short term financing needs with specific repayment sources. Commercial
business loans are usually written at variable rates which use the prime rate as
published in The Wall Street Journal as an index and, depending on the
qualifications of the borrower, a 0.5% to 3.0% margin is added. These rates will
change when and as the index rate changes without caps. Fixed-rate loans are
written at market rates determined at the time the loan is granted and are based
on the length of the term and the qualifications of the borrower. Our largest
commercial business loan relationship was a $654,000 loan secured primarily by
commercial real estate and business assets, including drilling equipment and
trucks. This loan was performing according to its original terms at December 31,
2004.

      When making commercial business loans, we consider the financial
statements of the borrower, the borrower's payment history of both corporate and
personal debt, the debt service capabilities of the borrower, the projected cash
flows of the business, and viability of the industry in which the customer
operates and the value of the collateral.


                                       7
<PAGE>

      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 tends to be more
easily ascertainable, commercial business 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 business 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. We offer a variety of consumer loans, primarily second
mortgage loans and home equity lines of credit, and, to a much lesser extent,
loans secured by passbook or certificate accounts, automobiles and unsecured
loans. Unsecured loans generally have a maximum borrowing limit of $5,000 and a
maximum term of three years.

      The procedures for underwriting consumer loans include an assessment of
the applicant's payment history on other debts and ability to meet existing
obligations and payments on the proposed loans. Although the applicant's
creditworthiness is a primary consideration, the underwriting process also
includes a comparison of the value of the collateral, if any, to the proposed
loan amount. Second mortgage loans have fixed rates of interest for terms of up
to 15 years. These loans are originated with maximum loan-to-value ratios of 80%
of the appraised value of the property. Home equity lines of credit have
adjustable rates of interest that are indexed to the prime rate as published in
The Wall Street Journal for terms of up to 10 years. These loans are originated
with maximum loan-to-value ratios of 80% of the value of the appraised value of
the property and we require that we have a second lien position on the property.

      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. Loan originations come from a
number of sources. The primary source of loan originations are our in-house loan
originators, and to a lesser extent, local mortgage brokers, advertising and
referrals from customers. We occasionally purchase loans or participation
interests in loans.

      Historically, we have originated loans for investment purposes only.
However, as the low interest rate environment continued, we determined to
consider loan sales as part of our interest rate risk management efforts.
Beginning in 2002, we began selling some of the longer-term fixed-rate loans
that we originate. We sell these loans in the secondary market based on
prevailing market interest rate conditions, an analysis of the composition and
risk of the loan portfolio, liquidity needs and interest rate risk management
goals. Generally, loans are sold without recourse and with servicing retained.
We sold $1.9 million, $8.9 million and $7.0 million of loans in the years ended
December 31, 2004, 2003 and 2002, respectively. We occasionally sell
participation interests in loans.

      Loan Approval Procedures and Authority. Our lending activities follow
written, nondiscriminatory, underwriting standards and loan origination
procedures established by our Board of Directors and management.

      For one- to four-family loans and owner occupied residential construction
loans, two members of the mortgage loan committee, one of whom must be the
President and Chief Executive Officer or a vice president, may approve loans up
to $359,700 and a majority of the members of the Board loan committee must
approve loans over $359,700. For unsecured commercial business loans, a majority
of the members of the Board must approve loans over $500,000 and two members of
the Board of Directors loan committee must approve loans over $200,000 and up to
$500,000. For secured commercial loans and commercial construction loans, a
majority of the members of the Board must approve loans over $1.0 million and
two members of the Board of Directors loan committee must approve loans over
$500,000 and up to $1.0 million. The Board of Directors must approve all
consumer loans over


                                       8
<PAGE>

$200,000. Various bank personnel have been delegated authority to approve
smaller commercial loans and consumer loans.

      Loans to One Borrower. The maximum amount that we may lend to one borrower
and the borrower's related entities is limited, by regulation, to generally 15%
of our stated capital and reserves. At December 31, 2004, our regulatory limit
on loans to one borrower was $6.0 million. At that date, our largest lending
relationship was $3.5 million and included residential mortgage, home equity
lines of credit and construction loans, all of which were performing according
to the original repayment terms at December 31, 2004.

      Loan Commitments. We issue commitments for fixed-rate and adjustable-rate
mortgage loans conditioned upon the occurrence of certain events. Commitments to
originate mortgage loans are legally binding agreements to lend to our customers
and generally expire in 45 days or less.

      Delinquencies. 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 then received by the 30th day of
delinquency, additional letters and phone calls generally are made. We send a
letter notifying the borrower that we will commence foreclosure proceedings if
the loan is not brought current within 91 days. When the loan becomes 91 days
past due, we generally commence foreclosure proceedings against any real
property that secures the loan or attempt to repossess any personal property
that secures a consumer loan. If a foreclosure action is instituted and the loan
is not brought current, paid in full, or refinanced before the foreclosure sale,
the real property securing the loan generally is sold at foreclosure. We may
consider loan workout arrangements with certain borrowers under certain
circumstances.

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

Investment Activities

      We have legal authority to invest in various types of liquid assets,
including U.S. Treasury obligations, securities of various federal agencies and
of state and municipal governments, mortgage-backed securities and certificates
of deposit of federally insured institutions. Within certain regulatory limits,
we also may invest a portion of our assets in corporate securities and mutual
funds. We also are required to maintain an investment in Federal Home Loan Bank
of Boston stock.

      At December 31, 2004, our investment portfolio consisted primarily of U.S.
government and agency securities with maturities of five years or less,
mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae with
stated final maturities of 30 years or less, collateralized mortgage
obligations, and insured certificates of deposit at other financial
institutions.

      Our investment objectives are to provide and maintain liquidity, to
maintain a balance of high quality, diversified investments to minimize risk, to
provide collateral for pledging requirements, to establish an acceptable level
of interest rate risk, to provide an alternate source of low-risk investments
when demand for loans is weak, and to generate a favorable return. Our Board of
Directors has the overall responsibility for our investment portfolio, including
approval of our investment policy and appointment of our Asset/Liability
Committee. The Asset/Liability Committee is responsible for approval of
investment strategies and monitoring of investment performance. Our Executive
Vice President is the designated investment officer and is responsible for the
daily investment activities and is authorized to make investment decisions
consistent with our investment policy. The Asset/Liability Committee meets
regularly with the Executive Vice President and President and Chief Executive
Officer in order to review and determine investment strategies and transactions.


                                       9
<PAGE>

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. The vast majority of our depositors are residents of the
State of Connecticut. Deposits are attracted from within our primary market area
through the offering of a broad selection of deposit instruments, including NOW
accounts, checking accounts, money market accounts, regular savings accounts,
club savings accounts, certificate accounts and various retirement accounts.
Generally, we do not 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,
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, and even higher rates on
long-term deposits, but not be the market leader in every type and maturity.

      Borrowings. We borrow from the Federal Home Loan Bank of Boston to
supplement our supply of lendable 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, we are required
to own capital stock in the Federal Home Loan Bank of Boston and are authorized
to apply for advances on the security of such stock and certain of our mortgage
loans and other assets (principally securities which are obligations of, or
guaranteed by, the United States), 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.

      In addition, we occasionally borrow short-term from correspondent banks to
cover temporary cash needs.

Subsidiaries

      Naugatuck Valley Mortgage Servicing Corporation, established in 1999 under
Connecticut law as a subsidiary of Naugatuck Valley Savings and Loan, is a
passive investment corporation organized in order to take advantage of certain
tax benefits. Its primary business is to service mortgage loans which we have
originated and subsequently transferred to Naugatuck Valley Mortgage Servicing.
At December 31, 2004, Naugatuck Valley Mortgage Servicing had $162.5 million in
assets.

Personnel

      At December 31, 2004, we had 80 full-time employees and 14 part-time
employees, none of whom is represented by a collective bargaining unit. We
believe our relationship with our employees is good.


                                       10
<PAGE>

                           Regulation and Supervision

General

      Naugatuck Valley Savings and Loan is subject to extensive regulation,
examination and supervision by the Office of Thrift Supervision, as its primary
federal regulator, and the Federal Deposit Insurance Corporation, as its
deposits insurer. Naugatuck Valley Savings and Loan is a member of the Federal
Home Loan Bank System and its deposit accounts are insured up to applicable
limits by the Savings Association Insurance Fund managed by the Federal Deposit
Insurance Corporation. Naugatuck Valley Savings and Loan must file reports with
the Office of Thrift Supervision and the Federal Deposit Insurance Corporation
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 financial institutions. There are periodic
examinations by the Office of Thrift Supervision and, under certain
circumstances, the Federal Deposit Insurance Corporation to evaluate Naugatuck
Valley Savings and Loan's safety and soundness and compliance with various
regulatory requirements. This regulatory structure 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
policies, whether by the Office of Thrift Supervision, the Federal Deposit
Insurance Corporation or Congress, could have a material adverse impact on our
operations.

      Naugatuck Valley Financial and Naugatuck Valley Mutual, as savings and
loan holding companies, are required to file certain reports with, are subject
to examination by, and otherwise have to comply with the rules and regulations
of the Office of Thrift Supervision. Naugatuck Valley Financial is also subject
to the rules and regulations of the Securities and Exchange Commission under the
federal securities laws.

      Certain of the regulatory requirements that are applicable to Naugatuck
Valley Savings and Loan, Naugatuck Valley Financial and Naugatuck Valley Mutual
are described below. This description of statutes and regulations is not
intended to be a complete explanation of such statutes and regulations and their
effects on Naugatuck Valley Savings and Loan, Naugatuck Valley Financial and
Naugatuck Valley Mutual and is qualified in its entirety by reference to the
actual statutes and regulations.

Regulation of Federal Savings Associations

      Business Activities. Federal law and regulations, primarily the Home
Owners' Loan Act and the regulations of the Office of Thrift Supervision, govern
the activities of federal savings banks, such as Naugatuck Valley Savings and
Loan. These laws and regulations delineate the nature and extent of the
activities in which federal savings banks may engage. In particular, certain
lending authority for federal savings banks, e.g., commercial, non-residential
real property loans and consumer loans, is limited to a specified percentage of
the institution's capital or assets. Naugatuck Valley Savings and Loan complies
with all lending limits imposed by the Office of Thrift Supervision.

      Branching. Federal savings banks are authorized to establish branch
offices in any state or states of the United States and its territories, subject
to the approval of the Office of Thrift Supervision.

      Capital Requirements. The Office of Thrift Supervision's capital
regulations require federal savings institutions to meet three minimum capital
standards: a 1.5% tangible capital to total assets ratio, a 4% leverage ratio
(3% for institutions receiving the highest rating on the CAMELS examination
rating system) and an 8% risk-based capital ratio. In addition, the prompt
corrective action standards discussed below also establish, in effect, a minimum
2% tangible capital standard, a 4% leverage ratio (3% for institutions receiving
the highest rating on the CAMELS system) and, together with the risk-based
capital standard itself, a 4% Tier 1 risk-based capital standard. The Office of
Thrift Supervision regulations also require that, in meeting the tangible,
leverage and risk-based capital standards, institutions must generally deduct
investments in and loans to subsidiaries engaged in activities as principal that
are not permissible for a national bank.


                                       11
<PAGE>

      The risk-based capital standard requires federal savings institutions to
maintain Tier 1 (core) and total capital (which is defined as core capital and
supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, recourse obligations, residual
interests and direct credit substitutes, are multiplied by a risk-weight factor
of 0% to 100%, assigned by the Office of Thrift Supervision capital regulation
based on the risks believed inherent in the type of asset. Core (Tier 1) capital
is defined as common stockholders' equity (including retained earnings), certain
noncumulative perpetual preferred stock and related surplus and minority
interests in equity accounts of consolidated subsidiaries, less intangibles
other than certain mortgage servicing rights and credit card relationships. The
components of supplementary capital currently include cumulative preferred
stock, long-term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock, the allowance for loan and
lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 45%
of unrealized gains on available-for-sale equity securities with readily
determinable fair market values. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.

      The Office of Thrift Supervision also has authority to establish
individual minimum capital requirements in appropriate cases upon a
determination that an institution's capital level is or may become inadequate in
light of the particular circumstances. At December 31, 2004, Naugatuck Valley
Savings and Loan met each of these capital requirements.

      Prompt Corrective Regulatory Action. The Office of Thrift Supervision is
required to take certain supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution's degree of
undercapitalization. Generally, a savings institution that has a ratio of total
capital to risk weighted assets of less than 8%, a ratio of Tier 1 (core)
capital to risk-weighted assets of less than 4% or a ratio of core capital to
total assets of less than 4% (3% or less for institutions with the highest
examination rating) is considered to be "undercapitalized." A savings
institution that has a total risk-based capital ratio of less than 6%, a Tier 1
capital ratio of less than 3% or a leverage ratio that is less than 3% is
considered to be "significantly undercapitalized" and a savings institution that
has a tangible capital to assets ratio equal to or less than 2% is deemed to be
"critically undercapitalized." Subject to a narrow exception, the Office of
Thrift Supervision is required to appoint a receiver or conservator within
specified time frames for an institution that is "critically undercapitalized."
An institution must file a capital restoration plan with the Office of Thrift
Supervision within 45 days of the date it receives notice that it is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Compliance with the plan must be guaranteed by any parent
holding company. In addition, numerous mandatory supervisory actions become
immediately applicable to an undercapitalized institution, including, but not
limited to, increased monitoring by regulators and restrictions on growth,
capital distributions and expansion. "Significantly undercapitalized" and
"critically undercapitalized" institutions are subject to more extensive
mandatory regulatory actions. The Office of Thrift Supervision could also take
any one of a number of discretionary supervisory actions, including the issuance
of a capital directive and the replacement of senior executive officers and
directors.

      Loans to One Borrower. Federal law provides that savings institutions are
generally subject to the limits on loans to one borrower applicable to national
banks. A savings institution may not make a loan or extend credit to a single or
related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if secured by specified readily-marketable collateral.

      Standards for Safety and Soundness. As required by statute, the federal
banking agencies have adopted Interagency Guidelines prescribing Standards for
Safety and Soundness. 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. If the
Office of Thrift Supervision determines that a savings institution fails to meet
any standard prescribed by the guidelines, the Office of Thrift Supervision may
require the institution to submit an acceptable plan to achieve compliance with
the standard. Naugatuck Valley has not received any notice that it has failed to
meet any standard prescribed by the guidelines.

      Limitation on Capital Distributions. Office of Thrift Supervision
regulations impose limitations upon all capital distributions by a savings
institution, including cash dividends, payments to repurchase its shares and
payments to shareholders of another institution in a cash-out merger. Under the
regulations, an application to and


                                       12
<PAGE>

the prior approval of the Office of Thrift Supervision is required before any
capital distribution if the institution does not meet the criteria for
"expedited treatment" of applications under Office of Thrift Supervision
regulations (i.e., generally, examination and Community Reinvestment Act ratings
in the two top categories), the total capital distributions for the calendar
year exceed net income for that year plus the amount of retained net income for
the preceding two years, the institution would be undercapitalized following the
distribution or the distribution would otherwise be contrary to a statute,
regulation or agreement with the Office of Thrift Supervision. If an application
is not required, the institution must still provide prior notice to the Office
of Thrift Supervision of the capital distribution if, like Naugatuck Valley
Savings and Loan, it is a subsidiary of a holding company. If Naugatuck Valley
Savings and Loan's capital were ever to fall below its regulatory requirements
or the Office of Thrift Supervision notified it that it was in need of increased
supervision, its ability to make capital distributions could be restricted. In
addition, the Office of Thrift Supervision could prohibit a proposed capital
distribution that would otherwise be permitted by the regulation, if the agency
determines that such distribution would constitute an unsafe or unsound
practice.

      Qualified Thrift Lender Test. Federal law requires savings institutions to
meet a qualified thrift lender test. Under the test, a savings association is
required to either qualify as a "domestic building and loan association" under
the Internal Revenue Code or maintain at least 65% of its "portfolio assets"
(total assets less: (i) specified liquid assets up to 20% of total assets; (ii)
intangibles, including goodwill; and (iii) the value of property used to conduct
business) in certain "qualified thrift investments" (primarily residential
mortgages and related investments, including certain mortgage-backed securities)
in at least 9 months out of each 12-month period.

      A savings institution that fails the qualified thrift lender test is
subject to certain operating restrictions and may be required to convert to a
bank charter. Recent legislation has expanded the extent to which education
loans, credit card loans and small business loans may be considered "qualified
thrift investments." At December 31, 2004, Naugatuck Valley Savings and Loan met
the qualified thrift lender test.

      Transactions with Related Parties. Federal law limits Naugatuck Valley
Savings and Loan's authority to lend to, and engage in certain other
transactions with (collectively, "covered transactions"), "affiliates" (e.g.,
any company that controls or is under common control with an institution,
including Naugatuck Valley Financial, Naugatuck Valley Mutual and their
non-savings institution subsidiaries). The aggregate amount of covered
transactions with any individual affiliate is limited to 10% of the capital and
surplus of the savings institution. The aggregate amount of covered transactions
with all affiliates is limited to 20% of the savings institution's capital and
surplus. Loans and other specified transactions with affiliates are required to
be secured by collateral in an amount and of a type described in federal law.
The purchase of low quality assets from affiliates is generally prohibited.
Transactions with affiliates must be on terms and under circumstances that are
at least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. In addition, savings
institutions are prohibited from lending to any affiliate that is engaged in
activities that are not permissible for bank holding companies and no savings
institution may purchase the securities of any affiliate other than a
subsidiary.

      The Sarbanes-Oxley Act of 2002 generally prohibits a company from making
loans to its executive officers and directors. However, that act contains a
specific exception for loans by a depository institution to its executive
officers and directors in compliance with federal banking laws. Under such laws,
Naugatuck Valley Savings and Loan's authority to extend credit to executive
officers, directors and 10% shareholders ("insiders"), as well as entities such
persons control, is limited. The law restricts both the individual and aggregate
amount of loans Naugatuck Valley Savings and Loan may make to insiders based, in
part, on Naugatuck Valley Savings and Loan's capital position and requires
certain Board approval procedures to be followed. Such loans must be made on
terms substantially the same as those offered to unaffiliated individuals and
not involve more than the normal risk of repayment. 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 over other employees. There are additional restrictions applicable to
loans to executive officers.

      Enforcement. The Office of Thrift Supervision has primary enforcement
responsibility over federal savings institutions and has the authority to bring
actions against the institution and all institution-affiliated parties,
including stockholders, and any attorneys, appraisers and accountants who
knowingly or recklessly participate in wrongful action likely to have an adverse
effect on an insured institution. Formal enforcement action may range


                                       13
<PAGE>

from the issuance of a capital directive or cease and desist order to removal of
officers and/or directors to appointment of a receiver or conservator or
termination of deposit insurance. Civil penalties cover a wide range of
violations and can amount to $25,000 per day, or even $1 million per day in
especially egregious cases. The Federal Deposit Insurance Corporation has
authority to recommend to the Director of the Office of Thrift Supervision that
enforcement action to be taken with respect to a particular savings institution.
If action is not taken by the Director, the Federal Deposit Insurance
Corporation has authority to take such action under certain circumstances.
Federal law also establishes criminal penalties for certain violations.

      Assessments. Federal savings banks are required to pay assessments to the
Office of Thrift Supervision to fund its operations. The general assessments,
paid on a semi-annual basis, are based upon the savings institution's total
assets, including consolidated subsidiaries, as reported in the institution's
latest quarterly thrift financial report.

      Insurance of Deposit Accounts. Naugatuck Valley Savings and Loan is a
member of the Savings Association Insurance Fund. The Federal Deposit Insurance
Corporation maintains a risk-based assessment system by which institutions are
assigned to one of three categories based on their capitalization and one of
three subcategories based on examination ratings and other supervisory
information. An institution's assessment rate depends upon the categories to
which it is assigned. Assessment rates for Savings Association Insurance Fund
member institutions are determined semi-annually by the Federal Deposit
Insurance Corporation and currently range from zero basis points of assessable
deposits for the healthiest institutions to 27 basis points of assessable
deposits for the riskiest.

      The Federal Deposit Insurance Corporation has authority to increase
insurance assessments. A material increase in Savings Association Insurance Fund
insurance premiums would likely have an adverse effect on the operating expenses
and results of operations of Naugatuck Valley Savings and Loan. Management
cannot predict what insurance assessment rates will be in the future.

      In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation to recapitalize the predecessor to the Savings Association Insurance
Fund. During the year ended December 31, 2004, Financing Corporation payments
for Savings Association Insurance Fund members averaged 1.51 basis points of
assessable deposits. At December 31, 2004, Naugatuck Valley Savings and Loan had
paid all fees and assessments for deposit insurance.

      The Federal Deposit Insurance Corporation may terminate an institution's
insurance of deposits upon a finding that the 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 Federal Deposit Insurance Corporation or the Office of
Thrift Supervision. The management of Naugatuck Valley Savings and Loan does not
know of any practice, condition or violation that might lead to termination of
deposit insurance.

      Federal Home Loan Bank System. Naugatuck Valley Savings and Loan is a
member of the Federal Home Loan Bank System, which consists of 12 regional
Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit
facility primarily for member institutions. Naugatuck Valley Savings and Loan,
as a member of the Federal Home Loan Bank of Boston, is required to acquire and
hold shares of capital stock in that Federal Home Loan Bank. The Federal Home
Loan Banks are required to provide funds for the resolution of insolvent thrifts
in the late 1980s and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the Federal Home Loan
Banks pay 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,
our net interest income would likely also be reduced.

      Community Reinvestment Act. Under the Community Reinvestment Act, as
implemented by Office of Thrift Supervision regulations, a savings association
has a continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The Community Reinvestment Act does not
establish specific lending requirements or programs for financial institutions
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with the Community Reinvestment


                                       14
<PAGE>

Act. The Community Reinvestment Act requires the Office of Thrift Supervision,
in connection with its examination of a savings association, to assess the
institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications by such
institution.

      The Community Reinvestment Act requires public disclosure of an
institution's rating and requires the Office of Thrift Supervision to provide a
written evaluation of an association's Community Reinvestment Act performance
utilizing a four-tiered descriptive rating system.

      Naugatuck Valley Savings received a "Satisfactory" rating as a result of
its most recent Community Reinvestment Act assessment.

Federal Reserve System

      The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily Negotiable Order of Withdrawal (NOW) and regular checking accounts).
The regulations generally provided that reserves be maintained against aggregate
transaction accounts as follows: a 3% reserve ratio is assessed on net
transaction accounts up to and including $47.6 million; a 10% reserve ratio is
applied above $47.6 million. The first $7.0 million of otherwise reservable
balances (subject to adjustments by the Federal Reserve Board) are exempted from
the reserve requirements. The amounts are adjusted annually. Naugatuck Valley
Savings complies with the foregoing requirements.

Holding Company Regulation

      General. Naugatuck Valley Financial and Naugatuck Valley Mutual are
savings and loan holding companies within the meaning of federal law. As such,
they are registered with the Office of Thrift Supervision and are subject to
Office of Thrift Supervision regulations, examinations, supervision, reporting
requirements and regulations concerning corporate governance and activities. In
addition, the Office of Thrift Supervision has enforcement authority over
Naugatuck Valley Financial and Naugatuck Valley Mutual and their non-savings
institution subsidiaries. Among other things, this authority permits the Office
of Thrift Supervision to restrict or prohibit activities that are determined to
be a serious risk to Naugatuck Valley Savings and Loan.

      Restrictions Applicable to Mutual Holding Companies. According to federal
law and Office of Thrift Supervision regulations, a mutual holding company, such
as Naugatuck Valley Mutual, may generally engage in the following activities:
(1) investing in the stock of insured depository institutions and acquiring them
by means of a merger or acquisition; (2) investing in a corporation the capital
stock of which may be lawfully purchased by a savings association under federal
law; (3) furnishing or performing management services for a savings association
subsidiary of a savings and loan holding company; (4) conducting an insurance
agency or escrow business; (5) holding, managing or liquidating assets owned or
acquired from a savings association subsidiary of the savings and loan holding
company; (6) holding or managing properties used or occupied by a savings
association subsidiary of the savings and loan holding company; (7) acting as
trustee under deed or trust; (8) any activity permitted for multiple savings and
loan holding companies by Office of Thrift Supervision regulations; (9) any
activity permitted by the Board of Governors of the Federal Reserve System for
bank holding companies and financial holding companies; and (10) any activity
permissive for service corporations. Recent legislation, which authorized mutual
holding companies to engage in activities permitted for financial holding
companies, expanded the authorized activities. Financial holding companies may
engage in a broad array of financial services activities, including insurance
and securities.

      Federal law prohibits a savings and loan holding company, including a
federal mutual holding company, from directly or indirectly, or through one or
more subsidiaries, acquiring more than 5% of the voting stock of another savings
institution, or its holding company, without prior written approval of the
Office of Thrift Supervision. Federal law also prohibits a savings and loan
holding company from acquiring or retaining control of a depository institution
that is not insured by the Federal Deposit Insurance Corporation. In evaluating
applications by holding companies to acquire savings institutions, the Office of
Thrift Supervision must consider the financial and managerial resources and
future prospects of the company and institution involved, the effect of the
acquisition on the risk to the insurance funds, the convenience and needs of the
community and competitive factors.


                                       15
<PAGE>

      The Office of Thrift Supervision is prohibited from approving any
acquisition that would result in a multiple savings and loan holding company
controlling savings institutions in more than one state, except: (1) the
approval of interstate supervisory acquisitions by savings and loan holding
companies, and (2) the acquisition of a savings institution in another state if
the laws of the state of the target savings institution specifically permit such
acquisitions. The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.

      If the savings institution subsidiary of a savings and loan holding
company fails to meet the qualified thrift lender test set, the holding company
must register with the Federal Reserve Board as a bank holding company within
one year of the savings institution's failure to so qualify.

      Stock Holding Company Subsidiary Regulation. The Office of Thrift
Supervision has adopted regulations governing the two-tier mutual holding
company form of organization and subsidiary stock holding companies that are
controlled by mutual holding companies. We have this two-tier form of
organization. Naugatuck Valley Financial is the stock holding company subsidiary
of Naugatuck Valley Mutual. Naugatuck Valley Financial is only permitted to
engage in activities that are permitted for Naugatuck Valley Mutual subject to
the same restrictions and conditions.

      Waivers of Dividends by Naugatuck Valley Mutual. Office of Thrift
Supervision regulations require Naugatuck Valley Mutual to notify the Office of
Thrift Supervision if it proposes to waive receipt of our dividends from
Naugatuck Valley Financial. The Office of Thrift Supervision reviews dividend
waiver notices on a case-by-case basis, and, in general, does not object to any
such waiver if: (i) the waiver would not be detrimental to the safe and sound
operation of the savings association; (ii) the mutual holding company's Board of
Directors determines that such waiver is consistent with such directors'
fiduciary duties to the mutual holding company's members; (iii) for as long as
the savings association subsidiary is controlled by the mutual holding company,
the dollar amount of dividends waived by the mutual holding company is
considered as a restriction on the retained earnings of the savings association,
which restriction, if material, is disclosed in the public financial statements
of the savings association as a note to the financial statements; (iv) the
amount of any dividend waived by the mutual holding company is available for
declaration as a dividend solely to the mutual holding company, and, in
accordance with SFAS 5, where the savings association determines that the
payment of such dividend to the mutual holding company is probable, an
appropriate dollar amount is recorded as a liability; and (v) the amount of any
waived dividend is considered as having been paid by the savings association in
evaluating any proposed subsequent dividend under Office of Thrift Supervision
capital distribution regulations. We anticipate that Naugatuck Valley Mutual
will waive dividends that Naugatuck Valley Financial may pay, if any.

      Conversion of Naugatuck Valley Mutual to Stock Form. Office of Thrift
Supervision regulations permit Naugatuck Valley Mutual to convert from the
mutual form of organization to the capital stock form of organization. There can
be no assurance when, if ever, a conversion transaction will occur, and the
Board of Directors has no current intention or plan to undertake a conversion
transaction. In a conversion transaction a new holding company would be formed
as our successor, Naugatuck Valley Mutual's corporate existence would end, and
certain depositors of Naugatuck Valley Savings and Loan would receive the right
to subscribe for additional shares of the new holding company. In a conversion
transaction, each share of common stock held by stockholders other than
Naugatuck Valley Mutual would be automatically converted into a number of shares
of common stock of the new holding company based on an exchange ratio determined
at the time of conversion that ensures that stockholders other than Naugatuck
Valley Mutual own the same percentage of common stock in the new holding company
as they owned in us immediately before conversion. Under Office of Thrift
Supervision regulations, stockholders other than Naugatuck Valley Mutual would
not be diluted because of any dividends waived by Naugatuck Valley Mutual (and
waived dividends would not be considered in determining an appropriate exchange
ratio), in the event Naugatuck Valley Mutual converts to stock form. The total
number of shares held by stockholders other than Naugatuck Valley Mutual after a
conversion transaction also would be increased by any purchases by stockholders
other than Naugatuck Valley Mutual in the stock offering conducted as part of
the conversion transaction.


                                       16
<PAGE>

      Acquisition of Control. Under the federal Change in Bank Control Act, a
notice must be submitted to the Office of Thrift Supervision if any person
(including a company), or group acting in concert, seeks to acquire "control" of
a savings and loan holding company or savings association. An acquisition of
"control" can occur upon the acquisition of 10% or more of the voting stock of a
savings and loan holding company or savings institution or as otherwise defined
by the Office of Thrift Supervision. Under the Change in Bank Control Act, the
Office of Thrift Supervision has 60 days from the filing of a complete notice to
act, taking into consideration certain factors, including the financial and
managerial resources of the acquirer and the anti-trust effects of the
acquisition. Any company that so acquires control would then be subject to
regulation as a savings and loan holding company.

      Remutualization Transactions. Current Office of Thrift Supervision
regulations permit a mutual holding company to be acquired by a mutual
institution in a remutualization transaction. However, the Office of Thrift
Supervision has issued a policy statement indicating that it views
remutualization transactions as raising significant issues concerning disparate
treatment of minority stockholders and mutual members of the target entity and
as raising issues concerning the effect on the mutual members of the acquiring
entity. Under certain circumstances, the Office of Thrift Supervision intends to
give these issues special scrutiny and reject applications for the
remutualization of a mutual holding company unless the applicant can clearly
demonstrate that the Office of Thrift Supervision's concerns are not warranted
in the particular case.

Federal Securities Laws

      Naugatuck Valley Financial's common stock is registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
Naugatuck Valley Financial is subject to the information, proxy solicitation,
insider trading restrictions and other requirements under the Securities
Exchange Act of 1934.

Sarbanes-Oxley Act of 2002

      The Sarbanes-Oxley Act of 2002 implemented legislative reforms intended to
address corporate and accounting fraud. The Sarbanes-Oxley Act restricts the
scope of services that may be provided by accounting firms to their public
company audit clients and any non-audit services being provided to a public
company audit client will require preapproval by the company's audit committee.
In addition, the Sarbanes-Oxley Act requires chief executive officers and chief
financial officers, or their equivalent, to certify to the accuracy of periodic
reports filed with the Securities and Exchange Commission, subject to civil and
criminal penalties if they knowingly or willingly violate this certification
requirement.

      Under the Sarbanes-Oxley Act, bonuses issued to top executives before
restatement of a company's financial statements are now subject to disgorgement
if such restatement was due to corporate misconduct. Executives are also
prohibited from insider trading during retirement plan "blackout" periods, and
loans to company executives (other than loans by financial institutions
permitted by federal rules and regulations) are restricted. The legislation
accelerates the time frame for disclosures by public companies and changes in
ownership in a company's securities by directors and executive officers.

      The Sarbanes-Oxley Act also increases the oversight of, and codifies
certain requirements relating to audit committees of public companies and how
they interact with the company's "registered public accounting firm." Among
other requirements, companies must disclose whether at least one member of the
committee is a "financial expert" (as such term is defined by the Securities and
Exchange Commission) and if not, why not.

      Although we anticipate that we will incur additional expense in complying
with the provisions of the Sarbanes-Oxley Act and the resulting regulations,
management does not expect that such compliance will have a material impact on
our results of operations or financial condition.

Privacy Requirements of the GLBA

      The Gramm-Leach-Bliley Act of 1999 provided for sweeping financial
modernization for commercial banks, savings banks, securities firms, insurance
companies, and other financial institutions operating in the United


                                       17
<PAGE>

States. Among other provisions, the Gramm-Leach-Bliley Act places limitations on
the sharing of consumer financial information with unaffiliated third parties.
Specifically, the Gramm-Leach-Bliley Act requires all financial institutions
offering financial products or services to retail customers to provide such
customers with the financial institution's privacy policy and provide such
customers the opportunity to "opt out" of the sharing of personal financial
information with unaffiliated third parties.

Anti-Money Laundering

      The Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 (referred to as the
"USA PATRIOT Act") significantly expands the responsibilities of financial
institutions, including savings and loan associations, in preventing the use of
the U.S. financial system to fund terrorist activities. Title III of the USA
PATRIOT Act provides for a significant overhaul of the U.S. anti-money
laundering regime. Among other provisions, it requires financial institutions
operating in the United States to develop new anti-money laundering compliance
programs, due diligence policies and controls to ensure the detection and
reporting of money laundering. Such required compliance programs are intended to
supplement existing compliance requirements, also applicable to financial
institutions, under the Bank Secrecy Act and the Office of Foreign Assets
Control Regulations. We have established policies and procedures to ensure
compliance with the USA PATRIOT Act's provisions, and the impact of the USA
PATRIOT Act on our operations has not been material.

Other Regulations

      Interest and other charges collected or contracted for by Naugatuck Valley
Savings and Loan are subject to state usury laws and federal laws concerning
interest rates. Naugatuck Valley Savings and Loan's loan operations are also
subject to federal laws applicable to credit transactions, such as the:

      o     Truth-In-Lending Act, governing disclosures of credit terms to
            consumer borrowers;

      o     Home Mortgage Disclosure Act of 1975, requiring financial
            institutions to provide information to enable the public and public
            officials to determine whether a financial institution is fulfilling
            its obligation to help meet the housing needs of the community it
            serves;

      o     Equal Credit Opportunity Act, prohibiting discrimination on the
            basis of race, creed or other prohibited factors in extending
            credit;

      o     Fair Credit Reporting Act of 1978, governing the use and provision
            of information to credit reporting agencies;

      o     Fair Debt Collection Act, governing the manner in which consumer
            debts may be collected by collection agencies; and

      o     rules and regulations of the various federal agencies charged with
            the responsibility of implementing such federal laws.

      The deposit operations of Naugatuck Valley Savings and Loan also are
subject to the:

      o     Right to Financial Privacy Act, which imposes a duty to maintain
            confidentiality of consumer financial records and prescribes
            procedures for complying with administrative subpoenas of financial
            records;

      o     Electronic Funds Transfer Act and Regulation E promulgated
            thereunder, which governs automatic deposits to and withdrawals from
            deposit accounts and customers' rights and liabilities arising from
            the use of automated teller machines and other electronic banking
            services; and


                                       18
<PAGE>

      o     Check Clearing for the 21st Century Act (also known as "Check 21"),
            which gives "substitute checks," such as digital check images and
            copies made from that image, the same legal standing as the original
            paper check.

                           Federal and State Taxation

Federal Income Taxation

      General. We report our income on a fiscal year basis using the accrual
method of accounting. The federal income tax laws apply to us in the same manner
as to other corporations with some exceptions, including particularly our
reserve for bad debts discussed below. 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 us. Our federal income tax returns
have been either audited or closed under the statute of limitations through tax
year 2000. For its 2004 year, Naugatuck Valley Savings and Loan's maximum
federal income tax rate was 34%.

      Bad Debt Reserves. For fiscal years beginning before June 30, 1996, thrift
institutions that qualified under certain definitional tests and other
conditions of the Internal Revenue Code were permitted to use certain favorable
provisions to calculate their deductions from taxable income for annual
additions to their bad debt reserve. A reserve could be established for bad
debts on qualifying real property loans, generally secured by interests in real
property improved or to be improved, under the percentage of taxable income
method or the experience method. The reserve for nonqualifying loans was
computed using the experience method. Federal legislation enacted in 1996
repealed the reserve method of accounting for bad debts and the percentage of
taxable income method for tax years beginning after 1995 and require savings
institutions to recapture or take into income certain portions of their
accumulated bad debt reserves. Approximately $1.8 million of our accumulated bad
debt reserves would not be recaptured into taxable income unless Naugatuck
Valley Savings and Loan makes a "non-dividend distribution" to Naugatuck Valley
Savings and Loan as described below.

      Distributions. If Naugatuck Valley Savings and Loan makes "non-dividend
distributions" to us, the distributions will be considered to have been made
from Naugatuck Valley Savings and Loan's unrecaptured tax bad debt reserves,
including the balance of its reserves as of December 31, 1987, to the extent of
the "non-dividend distributions," and then from Naugatuck Valley Savings and
Loan's supplemental reserve for losses on loans, to the extent of those
reserves, and an amount based on the amount distributed, but not more than the
amount of those reserves, will be included in Naugatuck Valley Savings and
Loan's taxable income. Non-dividend distributions include distributions in
excess of Naugatuck Valley Savings and Loan's current and accumulated earnings
and profits, as calculated for federal income tax purposes, distributions in
redemption of stock, and distributions in partial or complete liquidation.
Dividends paid out of Naugatuck Valley Savings and Loan's current or accumulated
earnings and profits will not be so included in Naugatuck Valley Savings and
Loan's taxable income.

      The amount of additional taxable income triggered by a non-dividend is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Therefore, if Naugatuck Valley Savings and Loan
makes a non-dividend distribution to us, approximately one and one-half times
the amount of the distribution not in excess of the amount of the reserves would
be includable in income for federal income tax purposes, assuming a 34% federal
corporate income tax rate. Naugatuck Valley Savings and Loan does not intend to
pay dividends that would result in a recapture of any portion of its bad debt
reserves.

State Taxation

      Naugatuck Valley Mutual, Naugatuck Valley Financial and its subsidiaries
are subject to the Connecticut corporation business tax. Naugatuck Valley
Mutual, Naugatuck Valley Financial and its subsidiaries will be eligible to file
a combined Connecticut income tax return and will pay the larger of the regular
corporation business tax (income tax) or a capital stock tax, but no less than a
nominal minimum tax.


                                       19
<PAGE>

      The Connecticut corporation business tax is based on the federal taxable
income before net operating loss and special deductions of Naugatuck Valley
Mutual, Naugatuck Valley Financial and its subsidiaries and makes certain
modifications to federal taxable income to arrive at Connecticut taxable income.
Connecticut taxable income is multiplied by the effective state tax rate (9.375%
for 2004) to arrive at Connecticut income tax.

      Connecticut capital stock tax is computed as the average value of our
issued and outstanding capital stock, including treasury stock at par or face
value, fractional shares, scrip certificates convertible into stock and amounts
received on capital stock subscriptions plus the average value of its surplus
and undivided profit and the average value of its surplus reserves less the
average value of any deficit carried on its balance sheets and the average value
of any stock it owns in private corporations, including treasury shares. The
average capital calculated so computed is then multiplied by the Connecticut
capital tax rate of 0.31% per dollar not to exceed $1 million.

      In May 1998, the State of Connecticut enacted legislation permitting the
formation of passive investment company subsidiaries by financial institutions.
This legislation exempts qualifying passive investment companies from the
Connecticut corporation business tax and excludes dividends paid from a passive
investment company from the taxable income of the parent financial institution.
Naugatuck Valley Savings and Loan's formation of a passive investment company in
September 1999 is expected to substantially eliminate the state income tax
expense of Naugatuck Valley Mutual, Naugatuck Valley Financial and its
subsidiaries. However, we will remain liable for the capital stock tax. The
State of Connecticut continues to be under pressure to find new sources of
revenue, and therefore could propose legislation to eliminate the passive
investment company exemption. If such legislation were enacted, we would be
subject to state income taxes in Connecticut.

                      Executive Officers of the Registrant

      The executive officers of Naugatuck Valley Financial, Naugatuck Valley
Mutual Holding Company and Naugatuck Valley Savings are elected annually by the
Board of Directors and serve at the Board's discretion. The executive officers
of Naugatuck Valley Financial, Naugatuck Valley Mutual Holding Company and
Naugatuck Valley Savings are:

<TABLE>
<CAPTION>
                   Name                                            Position
-------------------------------------------   ----------------------------------------------------
<S>                                           <C>
John C. Roman                                 President and Chief Executive Officer of Naugatuck
                                              Valley Financial, Naugatuck Valley Mutual and
                                              Naugatuck Valley Savings and Loan

Dominic J. Alegi, Jr.                         Executive Vice President of Naugatuck Valley
                                              Financial, Naugatuck Valley Mutual and Naugatuck
                                              Valley Savings and Loan

Jane H. Walsh                                 Senior Vice President of Naugatuck Valley
                                              Financial, Naugatuck Valley Mutual and Naugatuck
                                              Valley Savings and Loan

William C. Nimons                             Senior Vice President of Naugatuck Valley
                                              Financial, Naugatuck Valley Mutual and Naugatuck
                                              Valley Savings and Loan

Lee R. Schlesinger                            Vice President and Treasurer of Naugatuck Valley
                                              Financial, Naugatuck Valley Mutual and Naugatuck
                                              Valley Savings and Loan

Mark S. Graveline                             Senior Vice President of Naugatuck Valley Financial
                                              and Naugatuck Valley Mutual, Senior Vice President
                                              and Chief Lending Officer of Naugatuck Valley
                                              Savings and Loan
</TABLE>


                                       20
<PAGE>

      Below is information regarding the executive officers who are not also
directors. Unless otherwise stated, each executive officer has held his or her
current position for at least the last five years. Ages presented are as of
December 31, 2004.

      Dominic J. Alegi, Jr. has served as Executive Vice President of Naugatuck
Valley Financial and Naugatuck Valley Mutual since September 2004 and has been
Executive Vice President of Naugatuck Valley Savings and Loan since 1989. Mr.
Alegi has served with Naugatuck Valley Savings and Loan since 1970. Age 58.

      William C. Nimons has served as Senior Vice President of Naugatuck Valley
Financial and Naugatuck Valley Mutual since September 2004 and has been Senior
Vice President of Naugatuck Valley Savings and Loan since 2001. Mr. Nimons
previously was the Manager-Network Management of Prudential Real Estate and
Relocation, a real estate and relocation firm and was an Executive Vice
President at Shelton Savings Bank. Age 58.

      Lee R. Schlesinger has served as Vice President and Treasurer of Naugatuck
Valley Financial and Naugatuck Valley Mutual since September 2004 and has been
Vice President and Treasurer of Naugatuck Valley Savings since August 2004. Mr.
Schlesinger served as Vice President and Controller of Naugatuck Valley Savings
and Loan from 2003 to 2004 and as Assistant Vice President and Controller of
Naugatuck Valley Savings and Loan from 2000 to 2003. Mr. Schlesinger has served
with Naugatuck Valley Savings and Loan since 1983. Age 44.

      Mark S. Graveline has served as Senior Vice President of Naugatuck Valley
Financial and Naugatuck Valley Mutual and as Senior Vice President and Chief
Lending Officer of Naugatuck Valley Savings and Loan since February 2005. Mr.
Graveline previously was a Vice President of Banknorth-Connecticut and a Vice
President of North American Bank and Trust. Age 48.

ITEM 2.  PROPERTIES

      We conduct our business through our main office and branch offices. The
following table sets forth certain information relating to these facilities as
of December 31, 2004.

<TABLE>
<CAPTION>
                                        Year           Net Book Value
                                      Opened/                at              Square       Owned/     Date of Lease
Location                              Acquired       December 31, 2004      Footage       Leased      Expiration
---------                          -------------   ---------------------   ----------   ----------  ---------------
                                                  (Dollars in thousands)
<S>                                     <C>                <C>               <C>          <C>           <C>
Main Office:
333 Church Street                       1996               $2,936            23,000       Owned            --
Naugatuck, Connecticut  06770

Branches:
1009 New Haven Road                     2001                1,347             3,300       Owned            --
Naugatuck, Connecticut  06770

127 South Main Street                   1997                  204               960       Owned            --
Beacon Falls, Connecticut  06403

860 Bridgeport Avenue                   2001                   46               725       Leased         2006(1)
Shelton, Connecticut  06484

49 Pershing Drive                       2003                  245             1,950       Leased         2013(2)
Derby, Connecticut  06418

249 West Street (4)                     2002                   --             9,500       Owned            --
Seymour, Connecticut  06483

Other Properties:
1007 New Haven Road                     1974                   39             1,725       Leased         2014(3)
Naugatuck, Connecticut  06770
</TABLE>

                                       21
<PAGE>
<TABLE>
<CAPTION>
                                        Year           Net Book Value
                                      Opened/                at              Square       Owned/     Date of Lease
Location                              Acquired       December 31, 2004      Footage       Leased      Expiration
---------                          -------------   ---------------------   ----------   ----------  ---------------
                                                  (Dollars in thousands)
<S>                                     <C>                <C>               <C>          <C>           <C>
135 South Main Street (5)               2003                  147               N/A       Owned            --
Beacon Falls, Connecticut
06403

504 Bridgeport Avenue (6)               2004                   --               N/A       Leased         2020
Shelton, Connecticut
06484

Lot #2 Quaker Farms Road (7)            2004                  381               N/A       Owned            --
Southbury, Connecticut
06488
</TABLE>

-------------------------
(1)   We have an option to renew this lease for one additional ten-year period.

(2)   We have an option to renew this lease for three additional five-year
      periods.

(3)   Former branch site. We have an option to renew this lease for two
      additional ten-year periods. This property has been leased to a subtenant
      under a lease that expires in 2006. The tenant has an option to renew this
      lease for one additional five-year period.

(4)   This branch opened in January 2005. The Net Book Value of this property at
      January 31, 2005 was $2.0 million. This branch occupies 3,500 square feet
      of this office along with 6,000 square feet of rentable space, none of
      which was rented as of this date.

(5)   This property is designated for future parking, additional access and
      possible future expansions of our Beacon Falls branch. Based on current
      estimates, we expect the total cost of this project to be approximately
      $36,000, $11,000 of which had been incurred at December 31, 2004.

(6)   We expect to relocate our current Shelton branch to this location in the
      third quarter of 2005. Based on current estimates, we expect the total
      cost of the lease, construction, furniture, fixtures and equipment to be
      approximately $575,000, $4,000 of which had been incurred at December 31,
      2004.

(7)   We expect to open a branch at this location in the first quarter of 2006.
      We have not yet completed a cost analysis for this new branch.

ITEM 3.  LEGAL PROCEEDINGS

      Periodically, there have been various claims and lawsuits against us, such
as claims to enforce liens, condemnation proceedings on properties in which we
hold security interests, claims involving the making and servicing of real
property loans and other issues incident to our business. We are not a party to
any pending legal proceedings that we believe would have a material adverse
effect on our financial condition, results of operations or cash flows.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      None.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
         PURCHASES OF EQUITY SECURITIES

      The information regarding the market for Naugatuck Valley Financial's
common equity and related stockholder matters is incorporated herein by
reference to Naugatuck Valley Financial's 2004 Annual Report to Stockholders at
"Investor and Corporate Information."

      Naugatuck Valley Financial did not repurchase any of its common stock
during the three months ended December 31, 2004.


                                       22
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

      The information required by this item is incorporated herein by reference
to the Section captioned "Selected Consolidated Financial Information" in the
2004 Annual Report to Stockholders.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION

      The information regarding management's discussion and analysis of
financial condition and results of operation is incorporated herein by reference
to Naugatuck Valley Financial's 2004 Annual Report to Stockholders at
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The information required by this item is incorporated herein by reference
to the Section captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the 2004 Annual Report to Stockholders.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

      The information regarding financial statements is incorporated herein by
reference to Naugatuck Valley Financial's 2004 Annual Report to Stockholders in
the Consolidated Financial Statements and the Notes thereto.

ITEM 9.  CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

      None.

ITEM 9A. CONTROLS AND PROCEDURES

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

ITEM 9B. OTHER INFORMATION

      On November 16, 2004, the Company and John C. Roman, President and Chief
Executive Officer of the Company, entered into an amendment to Mr. Roman's Death
Benefit Agreement. Under the terms of the amendment, Mr. Roman's beneficiary
will become entitled to a single lump sum payment of $193,000 upon Mr. Roman's
death during his employment with the Bank or $25,000 upon Mr. Roman's death at
any other time.

      On September 30, 2004, the Company and the Bank executed an employment
agreement with John C. Roman, President and Chief Executive Officer. On
September 30, 2004 and November 24, 2004, the Bank executed change in control
agreements with Jane E. Walsh, Senior Vice President and Director, and Dominic
J. Alegi, Jr., Executive Vice President, respectively. On September 30, 2004,
the Bank entered into the Naugatuck Valley Savings and Loan Change in Control
Severance Plan. The terms of the employment agreement, the change in control
agreements and the severance plan were previously disclosed in the Company's
Registration Statement on Form S-1 (File No. 333-116627).


                                       23
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The information relating to the directors and officers of Naugatuck Valley
Financial and information regarding compliance with Section 16(a) of the
Exchange Act is incorporated herein by reference to Naugatuck Valley Financial's
Proxy Statement for the 2005 Annual Meeting of Stockholders and to Part I, Item
1, "Description of Business -- Executive Officers of the Registrant."

      Naugatuck Valley Financial has adopted a Code of Ethics and Business
Conduct. See the Exhibits to this Annual Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

      The information regarding executive compensation is incorporated herein by
reference to Naugatuck Valley Financial's Proxy Statement for the 2005 Annual
Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDERS MATTERS

      The information relating to security ownership of certain beneficial
owners and management and the equity compensation plan information is
incorporated herein by reference to Naugatuck Valley Financial's Proxy Statement
for the 2005 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information relating to certain relationships and related transactions
is incorporated herein by reference to Naugatuck Valley Financial's Proxy
Statement for the 2005 Annual Meeting of Stockholders.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND EXPENSES

      The information relating to the principal accountant fees and expenses is
incorporated herein by reference to Naugatuck Valley Financial's Proxy Statement
for the 2005 Annual Meeting of Stockholders.

                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

      (1)   The following are filed as a part of this report by means of
            incorporation to Naugatuck Valley Financial's 2005 Annual Report to
            Stockholders:

            o     Report of Independent Registered Public Accounting Firm

            o     Consolidated Statements of Financial Condition as of December
                  31, 2004 and 2003

            o     Consolidated Statements of Income for the Years Ended December
                  31, 2004, 2003 and 2002

            o     Consolidated Statements of Changes in Capital Accounts for the
                  Years Ended December 31, 2004, 2003 and 2002

            o     Consolidated Statements of Cash Flows for the Years Ended
                  December 31, 2004, 2003 and 2002

            o     Notes to Consolidated Financial Statements


                                       24
<PAGE>

      (2)   All financial statement schedules are omitted because they are not
            required or applicable, or the required information is shown in the
            consolidated financial statements or the notes thereto.

      (3)   Exhibits

             3.1  Charter of Naugatuck Valley Financial Corporation(1)

             3.2  Bylaws of Naugatuck Valley Financial Corporation(1)

             4.1  Specimen Stock Certificate of Naugatuck Valley Financial
                  Corporation(2)

            10.1  Naugatuck Valley Financial Corporation and Naugatuck Valley
                  Savings and Loan Employment Agreement with John C. Roman(1)

            10.2  Naugatuck Valley Savings and Loan Change in Control Agreement
                  with Jane H. Walsh(1)

            10.3  Naugatuck Valley Savings and Loan Change in Control Agreement
                  with Dominic J. Aleji

            10.4  Naugatuck Valley Savings and Loan Directors' Retirement
                  Plan(2)

            10.5  Form of Naugatuck Valley Savings and Loan Employee Severance
                  Compensation Plan(2)

            10.6  Naugatuck Valley Savings and Loan Death Benefit Agreement with
                  John C. Roman, as amended

            10.7  Naugatuck Valley Savings and Loan Death Benefit Agreement with
                  Dominic J. Alegi, Jr.(2)

            13.0  Annual Report to Stockholders

            14.0  Code of Ethics and Business Conduct

            21.0  List of Subsidiaries

            23.0  Consent of Snyder & Haller, P.C.

            31.1  Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
                  Officer

            31.2  Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
                  Officer

            32.0  Section 1350 Certification of Chief Executive Officer and
                  Chief Financial Officer

------------------------------
(1)   Incorporated by reference to the Company's Form 10-Q for the three months
      ended September 30, 2004.

(2)   Incorporated by reference to the Company's Registration Statement on Form
      S-1, as amended, initially filed on June 18, 2004.


                                       25
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        NAUGATUCK VALLEY FINANCIAL CORPORATION

Date: March 22, 2005                By:/s/ John C. Roman
                                           -------------------------------------
                                           John C. Roman
                                           President and Chief Executive Officer

      Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
      Name                       Title                                     Date
      ----                       -----                                     ----
<S>                              <C>                                   <C>
/s/ John C. Roman                President, Chief Executive Officer    March 22, 2005
----------------------------     (principal executive officer)
John C. Roman

/s/ Lee R. Schlesinger           Vice President and Treasurer          March 22, 2005
----------------------------     (principal accounting and
Lee R. Schlesinger               financial officer)

/s/ Ronald D. Lengyel            Director                              March 22, 2005
----------------------------
Ronald D. Lengyel

/s/ Carlos S. Batista            Director                              March 22, 2005
----------------------------
Carlos S. Batista

/s/ Richard M. Famiglietti       Director                              March 22, 2005
----------------------------
Richard M. Famiglietti

/s/ James A. Mengacci            Director                              March 22, 2005
----------------------------
James A. Mengacci

/s/ Michael S. Plude             Director                              March 22, 2005
----------------------------
Michael S. Plude

/s/ Camilo P. Vieira             Director                              March 22, 2005
----------------------------
Camilo P. Vieira

/s/ Jane H. Walsh                Director                              March 22, 2005
----------------------------
Jane H. Walsh
</TABLE>