**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM** **10-K**


**(Mark
      One)**





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





**For
      the fiscal year ended December 31, 2006**





** ̈**
            **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 incorporation or organization)
            
            (I.R.S.
                Employer Identification No.)**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:




Title
                of each class
            
            Name
                of each exchange on which registeredCommon
                Stock, par value $0.01 per share
            
            Nasdaq
                Global Market




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





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes ** ̈** No **x**





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes ** ̈** No **x**





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 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 ** ̈**





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of 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 a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one): Large accelerated filer ** ̈** Accelerated filer ** ̈** Non-accelerated filer **x**





Indicate
      by check mark whether the registrant is a shell company (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, 2006, was $34,794,925.





The
      number of shares outstanding of the registrant’s common stock as of March 6,
      2007 was 7,408,225. Of
      such
      shares outstanding, 4,182,407 shares were held by Naugatuck Valley Mutual
      Holding Company.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





**Portions
      of the 2006 Annual Report to Stockholders and portions of the Proxy Statement
      for the 2007 Annual Meeting of Stockholders are incorporated by reference in
      Parts II and III, respectively, of this Form 10-K.**












**INDEX**





Part
      I


PageItem
                1.
            Business
            1Item
                1A.
            Risk
                Factors
            14Item
                1B.
            Unresolved
                Staff Comments
            16Item
                2.
            Properties
            17Item
                3.
            Legal
                Proceedings
            18Item
                4.
            Submission
                of Matters to a Vote of Securities
                Holders
            18Part
                IIItem
                5.
            Market
                for Registrant’s Common Equity, Related
                Stockholder Matters and Issuer Purchases of Equity
                Securities
            18Item
                6.
            Selected
                Financial Data
            18Item
                7.
            Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operation
            18Item
                7A.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            18Item
                8.
            Financial
                Statements and Supplementary
                Data
            19Item
                9.
            Changes
                in and Disagreements With Accountants on
                Accounting and Financial Disclosure
            19Item
                9A.
            Controls
                and Procedures
            19Item
                9B.
            Other
                Information
            19Part
                IIIItem
                10.
            Directors,
                Executive Officers and Corporate
                Governance
            19Item
                11.
            Executive
                Compensation
            19Item
                12.
            Security
                Ownership of Certain Beneficial Owners and
                Management and Related Stockholder Matters
            19Item
                13.
            Certain
                Relationships and Related Transactions, and
                Director Independence
            20Item
                14.
            Principal
                Accountant Fees and
                Services
            20Part
                IVItem
                15.
            Exhibits
                and Financial Statement
                Schedules
            20SIGNATURES




***Index***





*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.* *Additional
      factors that may affect our results are discussed in this Annual Report on
      Form
      10-K under “Item 1A. Risk Factors.”*  *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.**





**General**





Naugatuck
      Valley Financial Corporation was organized as a federal corporation at the
      direction of Naugatuck Valley Savings in connection with the mutual holding
      company reorganization of Naugatuck Valley Savings. The reorganization and
      initial public offering of Naugatuck Valley Financial was completed on September
      30, 2004. In the offering, Naugatuck Valley Financial issued a majority of
      its
      outstanding shares of common stock to Naugatuck Valley Mutual Holding Company,
      the mutual holding company parent of Naugatuck Valley Savings. As 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 ,




***Index***
  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 operate eight 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, J.P. Morgan
      Chase & Co. and TD Bank Financial Group, 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 from financial institutions in our market area
      and
      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.
      In addition, 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 40 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, 30 or 40 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




2
 ***Index***
  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.


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, lower rates and terms of up to 40 years.





***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, offices, retail and other income producing properties, as well
      as
      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, five or ten years. Interest rates and payment on our adjustable
      rate
      loans generally are adjusted to a rate typically equal to 2.25% above the
      one-year, three-year, five-year or ten-year Federal Home Loan Bank classic
      advance rate **.** 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.





3
 ***Index***





***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, 2006 was $1.0 million,
      $998,000 of which was outstanding. **** This
      loan
      was performing according to its terms at December 31, 2006. We also make
      commercial construction loans for commercial development projects, including
      condominiums, apartments buildings, single family subdivisions; as well as
      office buildings, retail and other income producing properties. 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, 2006 was $3.7 million, of which
      $3.6 million was outstanding. This loan was performing according to its terms
      at
      December 31, 2006.





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 business assets. 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 at December 31, 2006 were loans totaling $5.7 million, secured
      by a
      home mortgage loan, a home equity line of credit, two commercial mortgages
      and a
      commercial line of credit. These loans were performing according to their
      original terms at December 31, 2006.





4
 ***Index***





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.





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 20 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.





We
      consider loan sales as a part of our interest rate risk management efforts.
      We
      sell longer-term fixed-rate 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
      did
      not sell any loans in the years ended December 31, 2006 or 2005. 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 which must be a vice president
      or
      above, may approve loans up to $417,000 and a majority of the members of the
      Board loan committee must approve loans over $417,000. 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 $250,000 and up to $500,000. Unsecured business loans of $250,000
      or
      less must be approved by two members of the officers’ loan committee. Loans of
      $50,000 or less which are unsecured can be approved by one member of the
      officers’ loan committee and




5
 ***Index***
  later
        presented to the officers’ loan committee for ratification. For secured
        commercial loans and commercial construction loans, a majority of the members
        of
        the Board must approve loans over $1.2 million and two members of the Board
        of
        Directors loan committee must approve loans over $500,000 and up to $1.2
        million. Loans of $500,000 or less secured by real estate where the
        loan-to-value is 80% or less can be approved by two members of the officers’
loan committee and for $100,000 or less secured by real estate with an 80%
        loan-to-value one member of the officers’ loan committee can approve with a
        later ratification by the officers’ loan committee. The Board of Directors must
        approve all consumer loans over $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, 2006, our regulatory limit on loans to one borrower
      was **** $6.2
      million. **** At
      that
      date, our largest lending relationship was **** $5.7
      million and included a home mortgage loan, a home equity line of credit, two
      commercial mortgages and a commercial line of credit, all of which were
      performing according to the original repayment terms at December 31,
      2006.





***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
      60
      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 30 th 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 30 days. Management also provides detailed reporting of
      loans greater than 90 days delinquent, 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, 2006, our investment portfolio consisted of U.S. government and
      agency securities with maturities primarily less than three years,
      mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae
      with
      stated final maturities of 30 years or less, collateralized mortgage obligations
      with stated final maturities of 30 years or less, municipal securities with
      maturities of 15 years or less, preferred money market securities with terms
      of
      primarily 91 days or less, 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. During 2006 we
      enhanced overall portfolio yield by reducing our position in insured
      certificates of deposit and U.S. government and agency securities and increasing
      our position in mortgage-backed, municipal and preferred money market
      securities. **** 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




6
 ***Index***
  investment
        performance. Our Executive Vice President and our Controller are co-designated
        investment portfolio managers who are responsible for the daily investment
        activities and are authorized to make investment decisions consistent with
        our
        investment policy. The Asset/Liability Committee meets regularly with the
        Controller, the Executive Vice President and President and Chief Executive
        Officer in order to determine and review investment strategies and
        transactions.




**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, health savings 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, 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 Financial’s sole subsidiary is Naugatuck Valley Savings.





Naugatuck
      Valley Savings has one subsidiary, Naugatuck Valley Mortgage Servicing
      Corporation. Naugatuck Valley Mortgage Servicing, established in 1999 under
      Connecticut law as a subsidiary of Naugatuck Valley Savings, 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, 2006, Naugatuck Valley Mortgage Servicing had $224.7 million
      in
      assets.





**Personnel**





At
      December 31, 2006, we had 111 full-time employees and 16 part-time employees,
      none of whom is represented by a collective bargaining unit. We believe our
      relationship with our employees is good.




7
 ***Index***





**Regulation
      and Supervision**





**General**





Naugatuck
      Valley Savings 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 is a member of the Federal Home Loan Bank System and its deposit
      accounts are insured up to applicable limits by the Deposit Insurance Fund
      managed by the Federal Deposit Insurance Corporation. Naugatuck Valley Savings
      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 prior to 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’ safety and soundness and
      compliance with various regulatory requirements. This regulation and supervision
      establishes a comprehensive framework of activities in which an institution
      can
      engage and is intended primarily for the protection of the insurance fund and
      depositors. The regulatory structure also gives the regulatory authorities
      extensive discretion in connection with their supervisory and enforcement
      activities and examination policies, including policies with respect to the
      classification of assets and the establishment of adequate loan loss reserves
      for regulatory purposes. Any change in such policies, whether by the Office
      of
      Thrift Supervision, the Federal Deposit Insurance Corporation or Congress,
      could
      have a material adverse impact on Naugatuck Valley Financial, Naugatuck Valley
      Mutual and Naugatuck Valley Savings and their 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 must 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,
      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, 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 govern the activities of federal savings banks, such as
      Naugatuck Valley Savings. 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.





***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.





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 generally defined as common stockholders’ equity (including
      retained




8
 ***Index***
  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 (Tier 2) 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, 2006 Naugatuck Valley Savings 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 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. Subject to certain
      exceptions, 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.***  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.





***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 stockholders of another institution in a cash-out merger.
      Under the regulations, an application to and 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, it is a subsidiary of a holding
      company. If Naugatuck Valley Savings’ 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,




9
 ***Index***
  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 nine months out of
      each twelve-month period. Legislation has expanded the extent to which education
      loans, credit card loans and small business loans may be considered “qualified
      thrift investments.”





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. As
      of
      December 31, 2006, Naugatuck Valley Savings maintained 94.65% of its portfolio
      assets in qualified thrift investments and, therefore, met the qualified thrift
      lender test.





***Transactions
      with Related Parties.***  Federal
      law permits Naugatuck Valley Savings to make loans to, and engage in certain
      other transactions (collectively, “covered transactions”), with “affiliates”
(i.e., generally, any company that controls or is under common control with
      an
      institution), including Naugatuck Valley Financial and 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 generally prohibits loans by Naugatuck Valley Financial
      to
      its executive officers and directors. However, the Sarbanes-Oxley Act contains
      a
      specific exemption from such prohibition for loans by Naugatuck Valley Savings
      to its executive officers and directors in compliance with federal banking
      regulations. Federal regulations require that all loans or extensions of credit
      to executive officers and directors of insured institutions must be made on
      substantially the same terms, including interest rates and collateral, as those
      prevailing at the time for comparable transactions with other persons and must
      not involve more than the normal risk of repayment or present other unfavorable
      features. Naugatuck Valley Savings is therefore prohibited from making any
      new
      loans or extensions of credit to executive officers and directors at different
      rates or terms than those offered to the general public. Notwithstanding this
      rule, federal regulations permit Naugatuck Valley Savings to make loans to
      executive officers and directors at reduced interest rates if the loan is made
      under a benefit program generally available to all other employees and does
      not
      give preference to any executive officer or director over any other
      employee.




In
      addition, loans made to a director or executive officer in an amount that,
      when
      aggregated with the amount of all other loans to the person and his or her
      related interests, are in excess of the greater of $25,000 or 5% of Naugatuck
      Valley Savings’ capital and surplus, up to a maximum of $500,000, must be
      approved in advance by a majority of the disinterested members of the board
      of
      directors.





***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 from the issuance of a capital
      directive or cease and desist order to removal of officers and/or directors
      to
      institution of receivership, conservatorship 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 be taken with
      respect to a particular savings institution. If action is not taken by the
      Director, the




10
 ***Index***
  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, financial condition and complexity of
      its
      portfolio. The Office of Thrift Supervision assessments paid by Naugatuck Valley
      Savings for the year ended December 31, 2006 totaled $86,074.





***Insurance
      of Deposit Accounts.*** ****** Deposits
      of Naugatuck Valley Savings are insured by the Deposit Insurance Fund of the
      Federal Deposit Insurance Corporation. The FDIC determines insurance premiums
      based on a number of factors, primarily the risk of loss that insured
      institutions pose to the Deposit Insurance Fund. Recent legislation eliminated
      the minimum 1.25% reserve ratio for the insurance funds, the mandatory
      assessments when the ratio fall below 1.25% and the prohibition on assessing
      the
      highest quality banks when the ratio is above 1.25%. The FDIC has the ability
      to
      adjust the new insurance fund’s reserve ratio between 1.15% and 1.5%, depending
      on projected losses, economic changes and assessment rates at the end of a
      calendar year. The FDIC has adopted regulations that set assessment rates that
      took effect at the beginning of 2007. The new assessment rates for most banks
      vary between five cents and seven cents for every $100 of deposits. A change
      in
      insurance premiums could have an adverse effect on the operating expenses and
      results of operations of Naugatuck Valley Savings. We cannot predict what
      insurance assessment rates will be in the future. Assessment credits have been
      provided to institutions that paid high premiums in the past. As a result,
      Naugatuck Valley Savings will have credits that offset all of its premiums
      in
      2007.




Insurance
      of deposits may be terminated by the FDIC 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 FDIC or the Office of Thrift Supervision.
      We
      do not know of any practice, condition or violation that might lead to
      termination of deposit insurance.




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 a predecessor deposit insurance fund. During the year ended
      December 31, 2006, Financing Corporation payments for Naugatuck Valley Savings
      averaged 1.3 basis points of assessable deposits. At December 31, 2006,
      Naugatuck Valley Savings had paid all fees and assessments for deposit
      insurance.





***Federal
      Home Loan Bank System.*** ****** Naugatuck
      Valley Savings is a member of the Federal Home Loan Bank System, which consists
      of twelve regional Federal Home Loan Banks. The Federal Home Loan Bank provides
      a central credit facility primarily for member institutions. Naugatuck Valley
      Savings, 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.
      Naugatuck Valley Savings was in compliance with this requirement with an
      investment in Federal Home Loan Bank stock at December 31, 2006 of $3.9 million.
      Federal Home Loan Bank advances must be secured by specified types of
      collateral.





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.





**Federal
      Reserve System.**





The
      Federal Reserve Board regulations require savings institutions to maintain
      noninterest earning reserves against their transaction accounts (primarily
      Negotiable Order of Withdrawal (NOW) and regular checking accounts). The
      regulations generally provide that reserves be maintained against aggregate
      transaction accounts as follows: a 3% reserve ratio is assessed on net
      transaction accounts up to and including $45.8 million; a 10% reserve ratio
      is
      applied above $45.8 million. The first $8.5 million of otherwise reservable
      balances are exempted from the reserve requirements. The amounts are adjusted
      annually. Naugatuck Valley Savings complies with the foregoing requirements.





11
 ***Index***





**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.





***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 a bank; (2) acquiring a mutual
      association through the merger of such association into a bank subsidiary of
      such holding company or an interim bank subsidiary of such holding company;
      (3)
      merging with or acquiring another holding company, one of whose subsidiaries
      is
      a bank; and (4) any activity approved by the Federal Reserve Board for a bank
      holding company or financial holding company or previously approved by the
      Office of Thrift Supervision for multiple savings and loan holding companies.
      In
      addition, mutual holding companies may engage in activities permitted for
      financial holding companies. Financial holding companies may engage in a broad
      array of financial service 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
      association, 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 more than 5% of a company engaged in activities
      other than those authorized for savings and loan holding companies by federal
      law, or 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 associations, 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.





The
      Office of Thrift Supervision is prohibited from approving any acquisition that
      would result in a multiple savings and loan holding company controlling savings
      associations 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 association 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 association subsidiary of a savings and loan holding company fails
      to
      meet the qualified thrift lender test, the holding company must register with
      the Federal Reserve Board as a bank holding company within one year of the
      savings association’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. Naugatuck Valley
      Financial is the stock holding company subsidiary of Naugatuck Valley Mutual.
      Naugatuck Valley Financial is 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 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; and (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.





12
 ***Index***





***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 of 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 the successor to Naugatuck Valley Financial, Naugatuck Valley
      Mutual’s corporate existence would end, and certain depositors of Naugatuck
      Valley Savings 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 Naugatuck Valley
      Financial immediately before conversion. The total number of shares held by
      stockholders other than Naugatuck Valley Mutual after a conversion transaction
      would be increased by any purchases by such stockholders in the stock offering
      conducted as part of the conversion transaction.





***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.





**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.





**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:




**Name**
              
              **Position**John
                  C. Roman
              
              President
                  and Chief Executive Officer of Naugatuck Valley Financial, Naugatuck
                  Valley Mutual and Naugatuck Valley SavingsDominic
                  J. Alegi, Jr.
              
              Executive
                  Vice President of Naugatuck Valley Financial, Naugatuck Valley
                  Mutual and
                  Naugatuck Valley SavingsJane
                  H. Walsh
              
              Senior
                  Vice President of Naugatuck Valley Financial, Naugatuck Valley
                  Mutual and
                  Naugatuck Valley SavingsWilliam
                  C. Nimons
              
              Senior
                  Vice President of Naugatuck Valley Financial, Naugatuck Valley
                  Mutual and
                  Naugatuck Valley SavingsMark
                  S. Graveline
              
              Senior
                  Vice President of Naugatuck Valley Financial and Naugatuck Valley
                  Mutual,
                  Senior Vice President and Chief Lending Officer of Naugatuck Valley
                  SavingsLee
                  R. Schlesinger
              
              Vice
                  President, Treasurer and Principal Financial Officer of Naugatuck
                  Valley
                  Financial, Naugatuck Valley Mutual and Naugatuck Valley
                  Savings




13
 ***Index***





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,
      2006.





***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 since 1989. Mr. Alegi has served with Naugatuck
      Valley Savings since 1970. Age 60.





***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 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 60.





***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 since February 2005. Mr. Graveline previously was
      a
      Vice President of Banknorth-Connecticut and a Vice President of North American
      Bank and Trust. Age 50.




***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 from 2003
      to
      2004 and as Assistant Vice President and Controller of Naugatuck Valley Savings
      from 2000 to 2003. Mr. Schlesinger has served with Naugatuck Valley Savings
      since 1983. Age 46.





**ITEM
                1A.**
            **RISK
                FACTORS.**





**Rising
      interest rates may hurt our profits and asset value.**





Interest
      rates have recently been at historically low levels. However, between June
      30,
      2004 and June 30, 2006, the U.S. Federal Reserve increased its target for the
      federal funds rate 17 times in 25 basis point increments from 1.00% to 5.25%.
      The increase in the federal funds rate has had the affect of increasing
      short-term market interest rates. While short-term market interest rates (which
      we use as a guide to price our deposits) have increased, longer-term market
      interest rates (which we use as a guide to price our longer-term loans) have
      not. This “flattening” of the market yield curve has had a negative impact on
      our interest rate spread and net interest margin, which has reduced our
      profitability. If short-term interest rates continue to rise, and if rates
      on
      our deposits continue to reprice upwards faster than the rates on our long-term
      loans and investments, we would continue to 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 office in Seymour, Connecticut in January 2005 and three new branch
      offices in Waterbury, Southbury and Cheshire in the third 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.





**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, 2001, our commercial real estate, commercial business and
      residential construction loan portfolio has increased $74.9 million, or 514.2%,
      and at December 31, 2006, $89.5 million, or 28.6%, of our




14
 ***Index***
  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 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.





**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, 2006 was 2.79%.
      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.





**Expenses
      from operating as a public company and from new stock-based benefit plans will
      continue to adversely affect our profitability.**





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





**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 be in favor of or a second-step
      conversion by Naugatuck Valley Mutual.**




15
 ***Index***


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.





**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.





**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.





**ITEM
                1B.**
            **UNRESOLVED
                STAFF COMMENTS.**





None.




16
 ***Index***





**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, 2006.





**Location**
            
            **Year**
              **Opened/**
              **Acquired**
            
            **Net
                Book Value at**
              **December
                31, 2006**
            
            **Square**
              **Footage**
            
            **Owned/**
              **Leased**
            
            **Date
                of Lease**
              **Expiration****(Dollars
                in thousands)****Main
                Office:**333
                Church Street
              Naugatuck,
                CT 06770
            
            1996
            
            $2,754
            
            23,000
            
            Owned
            
            —**Branches:**1009
                New Haven Road
              Naugatuck,
                CT 06770
            
            2001
            
            1,291
            
            3,300
            
            Owned
            
            —127
                South Main Street
              Beacon
                Falls, CT 06403
            
            1997
            
            199
            
            960
            
            Owned
            
            —49
                Pershing Drive
              Derby,
                CT 06418
            
            2003
            
            185
            
            1,950
            
            Leased
            
            2013
                (1)249
                West Street (2)
              Seymour,
                CT 06483
            
            2002
            
            2,336
            
            9,500
            
            Owned
            
            —504
                Bridgeport Avenue
              Shelton,
                CT 06484
            
            2004
            
            558
            
            3,000
            
            Leased
            
            2020
                (3)1699
                Highland Avenue, Cheshire, CT 06410
            
            2006
            
            123
            
            3,000
            
            Leased
            
            2011
                (4)1570
                Southford Road (5)
              Southbury,
                CT 06488
            
            2006
            
            1,816
            
            3,383
            
            Owned
            
            —1030
                Hamilton Avenue Waterbury, CT 06706
            
            2006
            
            26
            
            1,239
            
            Leased
            
            2011
                (6)**Other
                Properties:**1007
                New Haven Road
              Naugatuck,
                CT 06770
            
            1974
            
            31
            
            1,725
            
            Leased
            
            2014
                (7)135
                South Main Street (8)
              Beacon
                Falls, CT 06403
            
            2003
            
            159
            
            N/A
            
            Owned
            
            —


_________________________


(1)
            We
                have an option to renew this lease for three additional five-year
                periods.


(2)
            This
                branch occupies 3,500 square feet of this building. The building
                also
                includes 5,698 square feet of rentable space of which 4,535 square
                feet is
                currently leased until 2013. The tenant has an option to renew this
                lease
                for three additional five year periods. 1,163 square feet remains
                available for lease.


(3)
            We
                have the option to renew this lease for five additional five-year
                periods.


(4)
            We
                have an option to renew this lease for three additional five-year
                periods.


(5)
            This
                branch occupies 3,383 square feet of this building. The building
                also
                includes 1,440 square feet of rental space, none of which was rented
                as of
                this date.


(6)
            We
                have an option to renew this lease for four additional five-year
                periods.


(7)
            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 2011.


(8)
            This
                property is designated for future parking, additional access and
                possible
                future expansions of our Beacon Falls branch.





17
 ***Index***





**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 REGISTRANT’S 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 2005 Annual Report to Stockholders at “Investor and Corporate
      Information.”





The
      following table presents information regarding Naugatuck Valley Financial stock
      repurchases during the three months ended December 31, 2006.


Period
                          
                          Total
                              Number of
                            Shares
                              Purchased
                          
                          Average
                              Price Paid
                            per
                              Share
                          
                          Total
                              Number of Shares
                            Purchased
                              as Part of Publicly
                            Announced
                              Plans or Programs
                          
                          Maximum
                              Number of Shares that
                            May
                              Yet Be Purchased Under
                            thePlans
                              or ProgramsOctober
                          
                          
                          25,000
                          
                          
                          $
                          11.20
                          
                          
                          
                          25,000
                          
                          
                          
                          249,868November
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          249,868December
                          
                          
                          800
                          
                          
                          
                          12.31
                          
                          
                          
                          800
                          
                          
                          
                          249,068**Total**
                          
                          ****
                          **25,800**
                          
                          
                          ****
                          **11.23**
                          
                          
                          ****
                          **25,800**
                          
                          
                          ****
                          **249,068**




On
      May 2,
      2006, the Company announced that the Board of Directors authorized the Company
      to repurchase up to 380,218 shares, or approximately 5%, of the outstanding
      shares held by persons other than Naugatuck Valley Mutual Holding Company.
      The
      repurchases will be conducted through open-market purchases or privately
      negotiated transactions and will be made from time to time depending on market
      conditions and other factors. No time limit was placed on the duration of the
      share repurchase program. Any repurchased shares will be held as treasury stock
      and will be available for general corporate purposes.





**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 2006
      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 2006 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 2006 Annual Report to
      Stockholders.





18
 ***Index***





**ITEM
                8.**
            **FINANCIAL
                STATEMENTS AND SUPPLEMENTAL DATA.**





The
      information regarding financial statements is incorporated herein by reference
      to Naugatuck Valley Financial’s 2006 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.**





Not
      applicable.





**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.**





Not
      applicable.





**PART
      III**





**ITEM
                10.**
            **DIRECTORS,
                EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.**





The
      information relating to the directors and officers and committees of the board
      of directors 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 2007 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 2007 Annual Meeting of
      Stockholders.





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





(a)
            Security
                Ownership of Certain Beneficial
                Owners





Information
      required by this item is incorporated herein by reference to the section
      captioned “Stock Ownership” in Naugatuck Valley Financial’s Proxy Statement for
      the 2007 Annual Meeting of Stockholders.





(b)
            Security
                Ownership of Management





Information
      required by this item is incorporated herein by reference to the section
      captioned “Stock Ownership” in Naugatuck Valley Financial’s Proxy Statement for
      the 2007 Annual Meeting of Stockholders.





19
 ***Index***





(c)
            Changes
                in Control





Management
      of Naugatuck Valley Financial knows of no arrangements, including any pledge
      by
      any person or securities of Naugatuck Valley Financial, the operation of which
      may at a subsequent date result in a change in control of the
      registrant.





(d)
            Equity
                Compensation Plan Information





The
      following table sets forth information as of December 31, 2006 about Company
      common stock that may be issued under the Naugatuck Valley Financial Corporation
      2005 Equity Incentive Plan. The plan was approved by the Company’s
      stockholders.





**PLAN
                            CATEGORY**
                        
                        **Number
                            of securities**
                          **to
                            be issued upon**
                          **the
                            exercise of**
                          **outstanding
                            options,**
                          **warrants
                            and rights**
                        
                        **Weighted-average**
                          **exercise
                            price of**
                          **outstanding
                            options,**
                          **warrants
                            and rights**
                        
                        **Number
                            of securities**
                          **remaining
                            available**
                          **for
                            future issuance under equity compensation plans (excluding
                            securities
                            reflected in the first column)**Equity
                            compensation plansapproved
                            by security holders
                        
                        
                        353,730
                        
                        
                        $
                        11.10
                        
                        
                        
                        26,617Equity
                            compensation plansnot
                            approved by security holders
                        
                        
                        n/a
                        
                        
                        
                        n/a
                        
                        
                        
                        n/aTotal
                        
                        
                        353,730
                        
                        
                        $
                        11.10
                        
                        
                        
                        26,617








**ITEM
                13.**
            **CERTAIN
                RELATIONSHIPSAND RELATED TRANSACTIONS, AND
                DIRECTOR INDEPENCENCE.**





The
      information relating to certain relationships and related transactions, and
      director independence is incorporated herein by reference to Naugatuck Valley
      Financial’s Proxy Statement for the 2007 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 2007 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 2006 Annual Report to
                Stockholders:





●
            Report
                of Independent Registered Public Accounting
                Firm





●
            Consolidated
                Statements of Financial Condition as of December 31, 2006 and
                2005





●
            Consolidated
                Statements of Income for the Years Ended December 31, 2006, 2005
                and
                2004





20
 ***Index***


●
            Consolidated
                Statements of Changes in Capital Accounts for the Years Ended December
                31,
                2006, 2005 and 2004





●
            Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2006, 2005
                and
                2004





●
            Notes
                to Consolidated Financial
                Statements





(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.




21
 ***Index***





(3)
            Exhibits





Exhibit
                No.
            
            Description3.1
            
            Charter
                of Naugatuck Valley Financial Corporation (1)3.2
            
            Bylaws
                of Naugatuck Valley Financial Corporation (1)4.0
            
            Specimen
                Stock Certificate of Naugatuck Valley Financial Corporation
                (2)10.1
            
            Naugatuck
                Valley Financial Corporation and Naugatuck Valley Savings Employment
                Agreement with John C. Roman (1)*10.2
            
            Naugatuck
                Valley Savings Change in Control Agreement with Jane H. Walsh
                (1)*10.3
            
            Naugatuck
                Valley Savings Change in Control Agreement with Dominic J. Alegi,
                Jr.
                (4)*10.4
            
            Naugatuck
                Valley Savings Directors’ Retirement Plan (2)*10.5
            
            Form
                of Naugatuck Valley Savings Employee Severance Compensation Plan
                (2)*10.6
            
            Naugatuck
                Valley Savings Death Benefit Agreement with John C. Roman, as amended
                (4)*10.7
            
            Naugatuck
                Valley Savings Death Benefit Agreement with Dominic J. Alegi, Jr.
                (2)*10.8
            
            Naugatuck
                Valley Financial Corporation 2005 Equity Incentive Plan
                (3)*10.9
            
            Naugatuck
                Valley Savings Change in Control Agreement with William C. Nimons
                (5)*10.10
            
            Naugatuck
                Valley Savings Change in Control Agreement with Lee R.
                Schlesinger*13.0
            
            Annual
                Report to Stockholders14.0
            
            Code
                of Ethics and Business Conduct (4)21.0
            
            List
                of Subsidiaries (4)23.0
            
            Consent
                of Whittlesey & Hadley, P.C.31.1
            
            Rule
                13a-14(a)/15d-14(a) Certification of Chief Executive
                Officer31.2
            
            Rule
                13a-14(a)/15d-14(a) Certification of Chief Financial
                Officer32.0
            
            Section
                1350 Certification of Chief Executive Officer and Chief Financial
                Officer


______________________________


*Management
      contract or compensation plan arrangement


(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.


(3)
            Incorporated
                by reference to Appendix C to the Proxy Statement for the 2005 Annual
                Meeting of Stockholders filed on April 1,
                2005.


(4)
            Incorporated
                by reference to the Company’s Form 10-K for the fiscal year ended December
                31, 2004.


(5)
            Incorporated
                by reference to the Company’s Form 10-K for the fiscal year ended December
                31, 2005.





22
 ***Index***




**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 14, 2007
            By:
            /s/
                John C. RomanJohn
                C. RomanPresident
                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.





Name
            
            Title
            
            Date/s/
                John C. Roman
            
            President,
                Chief Executive Officer
            
            March
                14, 2007John
                C. Roman
            
            and
                Director(principal
                executive officer)/s/
                Lee R. Schlesinger
            
            Vice
                President and Treasurer
            
            March
                14, 2007Lee
                R. Schlesinger
            
            (principal
                accounting andfinancial
                officer)/s/
                Ronald D. Lengyel
            
            Director
            
            March
                14, 2007Ronald
                D. Lengyel/s/
                Carlos S. Batista
            
            Director
            
            March
                14, 2007Carlos
                S. Batista/s/
                Richard M. Famiglietti
            
            Director
            
            March
                14, 2007Richard
                M. Famiglietti/s/
                James A. Mengacci
            
            Director
            
            March
                14, 2007James
                A. Mengacci/s/
                Michael S. Plude
            
            Director
            
            March
                14, 2007Michael
                S. Plude/s/
                Camilo P. Vieira
            
            Director
            
            March
                14, 2007Camilo
                P. Vieira/s/
                Jane H. Walsh
            
            Director
            
            March
                14, 2007Jane
                H. Walsh






23