Form 10-K
SECURITIES
AND EXCHANGE COMMISSION
450
Fifth Street, N.W.
Washington,
D.C. 20549
FORM
10-K
x
|
Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
|
For
the
Fiscal Year Ended December 31, 2006
OR
o
|
Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
|
For
the
transition period from _______________ to ______________________
Commission
File No. 000-51369
United
Financial Bancorp, Inc.
(Exact
name of registrant as specified in its charter)
Federal
|
|
83-0395247
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification Number)
|
95
Elm Street, West Springfield, Massachusetts
|
|
01089
|
(Address
of Principal Executive Offices)
|
|
Zip
Code
|
(413)
787-1700
(Registrant’s
telephone number)
Securities
Registered Pursuant to Section 12(b) of the Act:
Common
Stock, par value $0.01 per share
|
NASDAQ
Global Select Market
|
(Title
of Class)
|
Name
of exchange on which registered
|
Securities
Registered Pursuant to Section 12(g) of the Act: None
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding twelve months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such requirements
for
the past 90 days. YES x NO o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. x.
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.
Large
accelerated filer o
|
Accelerated
filer x
|
Non-accelerated
filer o
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES o NO x
Indicate
by check mark if the Registrant is not required to file reports pursuant
to
Section 13 or Section 15(d) of the Securities
Act. YES o NO x
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. YES o NO x
As
of
March 08, 2007, 17,129,379 shares of the Registrant’s Common Stock were
outstanding.
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant, computed by reference to the last sale price
on June 30, 2006, as reported by the NASDAQ Global Select Market, was
approximately $96.5 million.
DOCUMENTS
INCORPORATED BY REFERENCE
1.
Proxy
Statement for the Annual Meeting of Stockholders dated March 19, 2007 (Part
III)
PART
I
Forward
Looking Statements
This
Annual Report contains certain “forward-looking statements” that may be
identified by the use of words such as “believe,” “expect,” “anticipate,”
“should,” “planned,” “estimated” and “potential.” Examples of forward-looking
statements include, but are not limited to, estimates with respect to our
financial condition, results of operations and business that are subject to
various factors that could cause actual results to differ materially from these
estimates and most other statements that are not historical in nature. These
factors include, but are not limited to, general and local economic conditions,
changes in interest rates, deposit flows, demand for mortgage and other loans,
real estate values, competition, changes in accounting principles, policies,
or
guidelines, changes in legislation or regulation, and other economic,
competitive, governmental, regulatory, and technological factors affecting
our
operations, pricing, products and services.
United
Mutual Holding Company
United
Mutual Holding Company is a federally chartered mutual holding company and
currently owns 53.6% of the outstanding shares of common stock of United
Financial Bancorp, Inc. (the “Company”). United Mutual Holding Company has not
engaged in any significant business activity other than owning a majority of
the
outstanding shares of common stock of the Company, and does not intend to expand
its business activities. So long as United Mutual Holding Company exists, it
will own a majority of the voting stock of the Company. The executive office
of
United Mutual Holding Company is located at 95 Elm Street, West Springfield,
Massachusetts 01089, and its telephone number is (413) 787-1700. United Mutual
Holding Company is subject to comprehensive regulation and examination by the
Office of Thrift Supervision.
United
Financial Bancorp, Inc.
The
Company sold 7,671,973 shares of common stock in its 2005 subscription offering
for $10.00 per share. For a discussion of the initial public offering, see
the
Company's Prospectus as filed on May 31, 2005 with the Securities and Exchange
Commission pursuant to Rule 424(b)(3) of the Rules and Regulations of the
Securities Act of 1933 (File Number 333-123371).
Since
being formed in 2004, the Company’s only business activities has been the
holding of all of the issued and outstanding shares of the common stock of
United Bank and investing proceeds received from our initial public offering
that were not immediately contributed as capital in United Bank. The Company,
as
the holding company of United Bank, is authorized to pursue other business
activities permitted by applicable laws and regulations for savings and loan
holding companies, which may include the acquisition of banking and financial
services companies. At the present time we have no plans for any mergers or
acquisitions of other banks, or other diversification of the activities of
the
Company.
The
Company’s cash flow depends on earnings from the investment of the net proceeds
of the stock offering we retained, and any dividends received from United Bank.
The Company neither owns nor leases any property, but instead uses the premises,
equipment and furniture of United Bank. At the present time, we employ as
officers only certain persons who are also officers of United Bank. However,
we
use the support staff of United Bank from time to time. These persons are not
separately compensated by the Company. The Company may hire additional
employees, as appropriate, to the extent it expands its business in the
future.
United
Bank
General
Our
principal business consists of attracting retail deposits from the general
public in the areas surrounding our main office in West Springfield,
Massachusetts, and our twelve branch offices located in Feeding Hills, Holyoke,
Huntington, Indian Orchard, Longmeadow, Ludlow, Springfield, Northampton and
two
offices in Westfield, Massachusetts, and investing those deposits, together
with
funds generated from operations, in one- to four-family residential mortgage
loans as well as in home equity loans and lines of credit, commercial real
estate loans, construction loans, commercial and industrial loans, automobile
loans, other consumer loans, and investment securities. We originate loans
almost exclusively for investment. Occasionally, we will also enter into loan
participations. Our revenues are derived principally from interest on loans
and
securities. We also generate revenues from fees and service charges and other
income. Our primary sources of funds are deposits, borrowings and principal
and
interest payments on loans and securities.
Our
website address is www.bankatunited.com.
Information on our website should not be considered a part of this Annual
Report.
Market
Area
We
are
headquartered in West Springfield, Massachusetts. Our primary deposit gathering
area is concentrated in the communities surrounding our main office. We also
maintain two financial services facilities that offers insurance and investment
products and financial planning services; these facilities are located in West
Springfield and Northampton. Our primary lending area is significantly broader
that our deposit-gathering area and includes all of Hampden and Hampshire
Counties in Western Massachusetts and Northern Connecticut. At December 31,
2006, 95.69% of our mortgage loan portfolio consisted of loans secured by real
estate located in Hampden and Hampshire Counties, Massachusetts.
The
city
of West Springfield is largely suburban and is located in the Pioneer Valley
near the intersection of U.S. Interstates 90 (the Massachusetts Turnpike) and
91. Interstate 90 is the major east-west highway that transverses Massachusetts.
Interstate 91 is the major north-south highway that runs directly through the
heart of New England. West Springfield is located approximately 90 miles west
of
Boston, Massachusetts, 70 miles southeast of Albany, New York and 30 miles
north
of Hartford, Connecticut. According to a recent census report, West
Springfield’s estimated 2005 population was approximately 28,000 and the
estimated 2005 population
for Hampden and Hampshire Counties was 462,000 and 156,000, respectively. During
the past five years, the populations of Hampden and Hampshire Counties increased
by 1.2% and 2.8%, respectively, while the population of the Commonwealth of
Massachusetts increased by 1.2%. During the same period, the number of
households in Hampden and Hampshire Counties increased by 1.2% and 2.3%,
respectively.
The
economy in our primary market area has benefited from the presence of large
employers such as the University of Massachusetts, Baystate Health System,
MassMutual Financial Group, Big Y Foods, Inc., Yankee Candle, Friendly Ice
Cream
Corporation, Hasbro Games, Verizon and Top-Flite Golf Company. Other employment
and economic activity is provided by financial institutions, eight other
colleges and universities, five other hospitals and a variety of wholesale
and
retail trade businesses. In 2005, per capita income for Hampden and Hampshire
Counties was $22,925 and $24,188, respectively, and the median household income
was $44,944 and $51,132, respectively. The December 2005 unemployment rate
for
Hampden County of 5.5% was higher than the comparable Massachusetts rate and
higher than the United States rate, while the unemployment rate for Hampshire
County of 3.4% was lower than the comparable Massachusetts and United States
unemployment rates of 4.5% and 4.9%, respectively.
Competition
We
face
intense competition within our market area both in making loans and attracting
deposits. Our market area has a high concentration of financial institutions
including large money center and regional banks, community banks and credit
unions. Some of our competitors offer products and services that we currently
do
not offer, such as trust services and private banking. As of June 30, 2006,
the
latest date for which information is available, our market share of deposits
represented 8.94% and 0.95% of deposits in Hampden and Hampshire Counties,
Massachusetts, respectively.
Our
competition for loans and deposits comes principally from commercial banks,
savings and co-operative institutions, mortgage banking firms and credit unions.
We face additional competition for deposits from short-term money market funds,
brokerage firms, mutual funds and insurance companies. Our primary focus is
to
build and develop profitable customer relationships across all lines of business
while maintaining our role as a community bank.
Lending
Activities
Our
principal lending activities are the origination of first mortgage loans for
the
purchase or refinancing of one- to four-family residential real property, as
well as the origination of commercial real estate and commercial and industrial
loans. We do not originate loans for the purpose of reselling them in the
secondary market. No loans were held for sale at December 31, 2006 or 2005.
One-
to four-family residential real estate mortgage loans amounted to $319.1
million, or 41.87% of our total loan portfolio at December 31, 2006, and home
equity loans and lines of credit totaled $112.7 million or 14.79% of our loan
portfolio. In addition to mortgage real estate and home equity loans, we also
offer commercial real estate loans, construction loans, commercial and
industrial loans, automobile loans and other consumer loans. At December 31,
2006, commercial real estate loans totaled $175.6 million, or 23.04% of our
loan
portfolio, construction mortgage loans totaled $54.8 million, or 7.19% of our
loan portfolio, commercial and industrial loans totaled $69.8 million, or 9.15%
of our loan portfolio and automobile loans totaled $24.5 million, or 3.21%
of
our loan portfolio. We also originate other consumer loans, including secured
and unsecured personal loans, manufactured home, motorcycle and motor home
loans, boat loans and pool and spa loans. At December 31, 2006, such loans
totaled $5.7 million, or .75% of our loan portfolio.
Loan
Portfolio Composition.
The
following table sets forth the composition of our loan portfolio by type of
loan
as of the dates indicated.
|
|
At
December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
|
|
(Dollars
in thousands)
|
|
Types
of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to
four-family
|
|
$
|
319,108
|
|
|
41.87
|
%
|
$
|
285,236
|
|
|
44.86
|
%
|
$
|
256,134
|
|
|
44.62
|
%
|
$
|
233,131
|
|
|
46.50
|
%
|
$
|
208,911
|
|
|
44.69
|
%
|
Commercial
|
|
|
175,564
|
|
|
23.04
|
%
|
|
150,099
|
|
|
23.61
|
%
|
|
137,787
|
|
|
24.00
|
%
|
|
117,766
|
|
|
23.49
|
%
|
|
113,674
|
|
|
24.32
|
%
|
Construction
|
|
|
54,759
|
|
|
7.19
|
%
|
|
28,872
|
|
|
4.54
|
%
|
|
29,836
|
|
|
5.20
|
%
|
|
26,625
|
|
|
5.31
|
%
|
|
18,091
|
|
|
3.87
|
%
|
Home
equity
|
|
|
112,739
|
|
|
14.79
|
%
|
|
86,045
|
|
|
13.53
|
%
|
|
74,700
|
|
|
13.01
|
%
|
|
63,824
|
|
|
12.73
|
%
|
|
64,289
|
|
|
13.75
|
%
|
Commercial
and industrial
|
|
|
69,762
|
|
|
9.15
|
%
|
|
59,591
|
|
|
9.37
|
%
|
|
56,291
|
|
|
9.81
|
%
|
|
37,863
|
|
|
7.55
|
%
|
|
34,344
|
|
|
7.35
|
%
|
Automobile
|
|
|
24,456
|
|
|
3.21
|
%
|
|
22,054
|
|
|
3.47
|
%
|
|
17,460
|
|
|
3.04
|
%
|
|
20,943
|
|
|
4.18
|
%
|
|
27,001
|
|
|
5.78
|
%
|
Other
consumer
|
|
|
5,725
|
|
|
0.75
|
%
|
|
3,895
|
|
|
0.61
|
%
|
|
1,862
|
|
|
0.32
|
%
|
|
1,169
|
|
|
0.23
|
%
|
|
1,194
|
|
|
0.26
|
%
|
Total
loans receivable
|
|
$
|
762,113
|
|
|
100.00
|
%
|
$
|
635,792
|
|
|
100.00
|
%
|
$
|
574,070
|
|
|
100.00
|
%
|
$
|
501,321
|
|
|
100.00
|
%
|
$
|
467,504
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred loan costs and fees
|
|
|
1,285
|
|
|
|
|
|
1,148
|
|
|
|
|
|
923
|
|
|
|
|
|
852
|
|
|
|
|
|
802
|
|
|
|
|
Allowance
for loan losses
|
|
|
(7,218
|
)
|
|
|
|
|
(6,382
|
)
|
|
|
|
|
(5,750
|
)
|
|
|
|
|
(5,095
|
)
|
|
|
|
|
(4,924
|
)
|
|
|
|
Total
loans, net
|
|
$
|
756,180
|
|
|
|
|
$
|
630,558
|
|
|
|
|
$
|
569,243
|
|
|
|
|
$
|
497,078
|
|
|
|
|
$
|
463,382
|
|
|
|
|
Loan
Portfolio Maturities and Yields. The
following table summarizes the scheduled repayments of our loan portfolio at
December 31, 2006. Demand loans, loans having no stated repayment schedule
or
maturity, and overdraft loans are reported as being due in one year or less.
|
|
Residential
(1)
|
|
Commercial
Real Estate
|
|
Construction
|
|
Commercial
and Industrial
|
|
Consumer
and Other
|
|
Total
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
|
|
(Dollars
in thousands)
|
|
Due
during the years ending December
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
21,018
|
|
|
5.71
|
%
|
$
|
7,879
|
|
|
6.38
|
%
|
$
|
21,117
|
|
|
8.56
|
%
|
$
|
35,783
|
|
|
8.00
|
%
|
$
|
8,826
|
|
|
5.44
|
%
|
$
|
94,623
|
|
|
7.24
|
%
|
2008
to 2011
|
|
|
82,246
|
|
|
5.81
|
%
|
|
32,645
|
|
|
6.38
|
%
|
|
10,382
|
|
|
6.75
|
%
|
|
23,414
|
|
|
6.26
|
%
|
|
18,540
|
|
|
4.99
|
%
|
|
167,227
|
|
|
5.95
|
%
|
2012
and beyond
|
|
|
328,583
|
|
|
6.01
|
%
|
|
135,040
|
|
|
6.45
|
%
|
|
23,260
|
|
|
5.91
|
%
|
|
10,565
|
|
|
7.09
|
%
|
|
2,815
|
|
|
7.98
|
%
|
|
500,263
|
|
|
6.16
|
%
|
Total
|
|
$
|
431,847
|
|
|
5.96
|
%
|
$
|
175,564
|
|
|
6.43
|
%
|
$
|
54,759
|
|
|
7.09
|
%
|
$
|
69,762
|
|
|
7.28
|
%
|
$
|
30,181
|
|
|
5.40
|
%
|
$
|
762,113
|
|
|
6.25
|
%
|
____________________
(1)
|
Includes
one- to four-family loans and home equity loans and lines of
credit.
|
The
following table sets forth the scheduled repayments of fixed- and
adjustable-rate loans at December 31, 2006 that are contractually due after
December 31, 2007.
|
|
Due
After December 31, 2007
|
|
|
|
Fixed
|
|
Adjustable
|
|
Total
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
Residential
real estate (1)
|
|
$
|
341,716
|
|
$
|
69,113
|
|
$
|
410,829
|
|
Commercial
real estate
|
|
|
62,910
|
|
|
104,775
|
|
|
167,685
|
|
Construction
|
|
|
30,280
|
|
|
3,362
|
|
|
33,642
|
|
Commercial
and industrial
|
|
|
28,520
|
|
|
5,459
|
|
|
33,979
|
|
Consumer
and other
|
|
|
21,355
|
|
|
-
|
|
|
21,355
|
|
Total
loans
|
|
$
|
484,781
|
|
$
|
182,709
|
|
$
|
667,490
|
|
____________________
(1)
|
Includes
one- to four-family loans and home equity loans and lines of
credit.
|
One-
to Four-Family Residential Loans.
Our
primary lending activity consists of the origination of one- to four-family
residential mortgage loans substantially all of which are secured by properties
located in our primary market area. At December 31, 2006, $319.1 million, or
41.9% of our loan portfolio, consisted of one- to four-family residential
mortgage loans. We generally retain for our portfolio substantially all loans
that we originate. One- to four-family mortgage loan originations are generally
obtained from our in-house loan representatives, from existing or past
customers, through advertising, and through referrals from local builders,
real
estate brokers, and attorneys and are underwritten pursuant to United Bank’s
policies and standards. Generally, one- to four-family residential mortgage
loans are originated in amounts up to 80% of the lesser of the appraised value
or purchase price of the property, with private mortgage insurance required
on
loans with a loan-to-value ratio in excess of 80%. We generally will not make
loans with a loan-to-value ratio in excess of 95%.
Fixed-rate
mortgage loans are originated for terms of up to 30 years. Generally, fixed-rate
residential mortgage loans are underwritten according to Fannie Mae guidelines,
policies and procedures. We also offer adjustable-rate mortgage loans for one-
to four-family properties, with an interest rate based on the weekly average
yield on U.S. Treasuries adjusted to a constant maturity of one-year, which
adjust either annually or every three years from the outset of the loan or
which
adjusts annually after a five-, seven- or ten-year initial fixed-rate period.
We
originated $10.4 million of adjustable-rate one- to four-family residential
loans during the fiscal year ended December 31, 2006, as compared to total
originations of $71.2 million one- to four-family residential loans during
the
same period. Our adjustable-rate mortgage loans generally provide for maximum
rate adjustments of 2% per adjustment, with a lifetime maximum adjustment up
to
6%, regardless of the initial rate. Our adjustable-rate mortgage loans amortize
over terms of up to 30 years.
Adjustable
rate mortgage loans decrease the risk associated with changes in market interest
rates by periodically repricing, but involve other risks because, as interest
rates increase, the underlying payments by the borrower increase, thus
increasing the potential for default by the borrower. At the same time, the
marketability of the underlying collateral may be adversely affected by higher
interest rates. Upward adjustment of the contractual interest rate is also
limited by the maximum periodic and lifetime interest rate adjustments permitted
by our loan documents and, therefore, the effectiveness of adjustable-rate
mortgage loans may be limited during periods of rapidly rising interest rates.
At December 31, 2006, $33.2 million, or 10.4% of our one- to four-family
residential loans, had adjustable rates of interest.
In
an
effort to provide financing for low- and moderate-income home buyers, we offer
a
variety of programs to qualified borrowers. These programs include Veterans
Administration (VA), Federal Housing Administration (FHA), Massachusetts Housing
Financing Agency (MHFA) and several other programs that we have developed
in-house. These loans are offered with fixed rates of interest, terms of up
to
30 years and are secured by one-to four-family residential properties. All
of
these loans are originated using agency underwriting guidelines. These loans
may
be originated in amounts with loan-to-value ratios up to 100%. Private mortgage
insurance is required for loans with loan-to-value ratios of over 80%. We also
offer our own first-time homebuyer loans to qualified individuals. These loans
are offered with terms of up to 30 years and fixed or adjustable rates of
interest, which may be discounted, and the applicant may not be required to
pay
certain loan origination fees.
We
also
offer our employees who satisfy certain criteria and our general underwriting
standards fixed- or adjustable- rate loan products with reduced interest rates,
application and loan origination fees. Employee and insider loans adhere to
all
other terms and conditions contained in the loan policy.
All
residential mortgage loans that we originate include “due-on-sale” clauses,
which give us the right to declare a loan immediately due and payable in the
event that, among other things, the borrower sells or otherwise disposes of
the
real property subject to the mortgage and the loan is not repaid. Regulations
limit the amount that a savings bank may lend relative to the appraised value
of
the real estate securing the loan, as determined by an appraisal of the property
at the time the loan is originated. All borrowers are required to obtain title
insurance for the benefit of United Bank. We also require homeowner’s insurance
and fire and casualty insurance and, where circumstances warrant, flood
insurance on properties securing real estate loans.
Home
Equity Loans and Home Equity Lines of Credit.
We also
offer home equity loans and home equity lines of credit, both of which are
secured by one- to four-family residences, substantially all of which are
located in our primary market area. At December 31, 2006, home equity loans
and
equity lines of credit totaled $112.7 million, or 14.79% of total loans.
Additionally, at December 31, 2006, the unadvanced amounts of home equity lines
of credit totaled $97.2 million. The underwriting standards utilized for home
equity loans and equity lines of credit include a determination of the
applicant’s credit history, an assessment of the applicant’s ability to meet
existing obligations and payments on the proposed loan and the value of the
collateral securing the loan. The combined (first and second mortgage liens)
loan-to-value ratio for home equity loans and equity lines of credit is
generally limited to 80%. Home equity loans are offered with fixed and
adjustable rates of interest and with terms of up to 20 years. Our home equity
lines of credit have adjustable rates of interest, which are indexed to the
prime rate, as reported in The
Wall Street Journal.
We
originated $67.9 million of home equity lines of credit during the fiscal year
ended December 31, 2006, as compared to total originations of $51.4 million
home
equity lines of credit during the same period in 2005.
Commercial
Real Estate Loans. We
originate commercial real estate loans that are generally secured by five or
more unit apartment buildings, industrial properties and properties used for
business purposes such as small office buildings, hotels, motels, recreational
and retail facilities primarily located in our primary market area. At December
31, 2006, commercial real estate mortgage loans totaled $175.6 million, which
amounted to 23.04% of total loans. Our real estate underwriting policies
generally provide that such loans may be made in amounts of up to 85% of the
appraised value of the property, provided such loans comply with our loan policy
guidelines and with our current loans-to-one borrower limit for these types
of
loans which is generally 20% of our unimpaired capital and surplus and which,
at
December 31, 2006, was $22.2 million. Our commercial real estate loans may
be
made with terms of up to 25 years and are offered with interest rates that
are
fixed or adjust periodically and are generally indexed to the prime rate as
reported in The
Wall Street Journal.
In
reaching a decision on whether to make a commercial real estate loan, we
consider the net operating income of the property, the borrower’s expertise and
credit history, and the profitability of the underlying business and the value
of the underlying property. In addition, with respect to real estate rental
properties, we will also consider the term of the lease and the quality of
the
tenants. We generally require that the properties securing these real estate
loans have debt service coverage ratios (the ratio of earnings before debt
service to debt service) of at least 1.2 times. Environmental surveys are
generally required for commercial real estate loans. Generally, commercial
real
estate loans made to corporations, partnerships and other business entities
require personal guarantees by the principals.
A
commercial borrower’s financial information is monitored on an ongoing basis by
requiring periodic financial statement updates, payment history reviews and
periodic face-to-face meetings with the borrower. We require commercial
borrowers to provide annually updated financial statements and federal tax
returns. These requirements also apply to the individual principals of our
commercial borrowers when they are providing personal guarantees. We also
require borrowers with rental investment property to provide an annual report
of
income and expenses for the property, including a tenant list and copies of
leases, as applicable. The largest commercial real estate loan in our portfolio
at December 31, 2006 was a $6.3 million loan secured by commercial real estate
located in Northern Connecticut. This loan was performing according to its
terms
at December 31, 2006.
Loans
secured by commercial real estate, including multi-family properties, generally
involve larger principal amounts and a greater degree of risk than one- to
four-family residential mortgage loans. Because payments on loans secured by
commercial real estate are often dependent on successful operation or management
of the properties, repayment of such loans may be affected by adverse conditions
in the real estate market or the economy.
Construction
Loans. We
also
originate construction loans for the development of one- to four-family
residential properties located in our primary market area. Residential
construction loans are generally offered to experienced local developers
operating in our primary market area and to individuals for the construction
of
their personal residences. At December 31, 2006, residential construction loans
amounted to $13.5 million, or 1.77% of total loans. At December 31, 2006, the
additional unadvanced portion of these construction loans totaled $5.5
million.
Our
residential construction loans generally provide for the payment of interest
only during the construction phase, which is usually 12 months. In the case
of
construction loans to individuals for the construction of their primary
residences, our policies require that the loan convert to a permanent mortgage
loan at the end of the construction phase. Residential construction loans can
be
made with a maximum loan-to-value ratio of 90%, provided that the borrower
obtains private mortgage insurance on the loan if the loan balance exceeds
80%
of the appraised value or sales price, whichever is less, of the secured
property. Residential construction loans are generally made on the same terms
as
our one- to four-family mortgage loans.
We
also
make construction loans for commercial development projects. The projects
include multi-family, apartment, industrial, retail and office buildings. These
loans generally have an interest-only phase during construction and then convert
to permanent financing. We generally require that a commitment for permanent
financing be in place prior to closing the construction loan. The maximum
loan-to-value ratio limit applicable to these loans is generally 80%. At
December 31, 2006, commercial construction loans totaled $41.3 million, or
5.42%
of total loans. At December 31, 2006, the largest outstanding commercial
construction loan balance was for $6.1 million. It was secured by a retail
development project located in our primary market area. This loan was performing
according to its terms at December 31, 2006. At December 31, 2006, the
additional unadvanced portion of these construction loans totaled $29.2
million.
We
also
originate land loans to local individuals, contractors and developers for the
purpose of making improvements thereon, or for the purpose of developing the
land for sale. Loans to individuals are secured by a lien on the property,
have
loan-to-value ratios that are limited to 70% of the value of the land (based
on
the lower of the acquisition price or the appraised value of the land) and
are
written with a fixed interest rate. These loans are offered with a term of
up to
three years in which only interest is required to be paid each month. A balloon
payment for the principal plus any accrued interest is due at the end of the
three-year period. Land loans to developers are limited to a 65% loan-to-value
ratio. The interest rate can be fixed or floating and the term can be for up
to
three years. Our land loans are generally secured by property in our primary
market area. We require title insurance and, if applicable, a hazardous waste
survey reporting that the land is free of hazardous or toxic waste.
Before
making a commitment to fund a construction loan, we require an appraisal on
the
property by an independent licensed appraiser. We generally also review and
inspect each property before disbursement of funds during the terms of the
construction loan. Loan proceeds are disbursed after inspection based on the
percentage-of-completion method.
Construction
and development financing is generally considered to involve a higher degree
of
credit risk than long-term financing on improved, owner-occupied real estate.
Risk of loss on a construction loan depends largely upon the accuracy of the
initial estimate of the value of the property at completion of construction
compared to the estimated cost (including interest) of construction and other
assumptions. If the estimate of construction cost proves to be inaccurate,
we
may be required to advance funds beyond the amount originally committed in
order
to protect the value of the property. Additionally, if the estimate of value
proves to be inaccurate, we may be confronted with a project, when completed,
having a value that is insufficient to assure full repayment.
Commercial
and Industrial Loans. Commercial
and industrial loans have been a substantial part of our lending operations
for
a number of years. At December 31, 2006, we had $69.8 million in commercial
and
industrial loans, which amounted to 9.15% of total loans. We make commercial
and
industrial loans primarily in our market area to a variety of professionals,
sole proprietorships and small and mid-sized businesses. Commercial and
industrial lending products include term loans and revolving lines of credit.
The maximum amount of a commercial and industrial loan is limited by our
loans-to-one-borrower limit which is generally 20% of our unimpaired capital
and
surplus and which, at December 31, 2006, was $22.2 million. Such loans are
generally used for longer-term working capital purposes such as purchasing
equipment or furniture. Commercial and industrial loans are made with either
adjustable or fixed rates of interest with a maximum term of ten years. The
interest rates for commercial loans are based on the prime rate, as published
in
The
Wall Street Journal.
When
making commercial and industrial loans, we consider the financial strength
of
the borrower, our lending history with the borrower, the debt service
capabilities of the borrower, the projected cash flows of the business and
the
value and type of the collateral. Commercial and industrial loans are generally
secured by a variety of collateral, primarily accounts receivable, inventory,
equipment, savings instruments and readily marketable securities. In addition,
we usually require the business principals to execute personal guarantees.
Commercial
and industrial loans generally have greater credit risk than residential
mortgage loans. 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 and industrial loans generally are made
on
the basis of the borrower’s ability to repay the loan from the cash flow of the
borrower’s business. As a result, the availability of funds for the repayment of
commercial and industrial loans may depend substantially on the success of
the
business itself. Further, any collateral securing the loans may depreciate
over
time, may be difficult to appraise and may fluctuate in value. We seek to
minimize these risks through our underwriting standards. At December 31, 2006,
our largest commercial and industrial loan was a $1.8 million loan to a
contracting company and was secured by business assets and real estate located
in our primary market area. This loan was performing according to its terms
at
December 31, 2006.
Automobile
and Other Consumer Loans. We
offer
direct automobile loans with terms of up to 60 months. For new cars, our lending
policy provides that the amount financed should not exceed 100% of the gross
selling price of the vehicle. For used cars, our lending policy provides that
the amount of the loan should not exceed the “loan value” of the vehicle, as
established by industry guides. The interest rates offered are the same for
new
and used automobile loans. Full insurance coverage must be maintained on the
financed vehicle and United Bank must be named loss payee on the policy. At
December 31, 2006, we had $24.5 million in automobile loans, which amounted
to
3.21% of the total loans.
We
offer
a variety of other consumer loans, principally to United Bank customers residing
in our primary market area with acceptable credit ratings. Our other consumer
loans generally consist of secured and unsecured personal loans, motorcycle
and
motor home loans, manufactured housing, boat loans and pool and spa loans.
Other
consumer loans totaled $5.7 million, or 0.75% of our total loan portfolio at
December 31, 2006.
Consumer
loans entail greater risk than do residential mortgage loans, particularly
in
the case of loans that are unsecured or secured by rapidly depreciating assets
such as automobiles, motorcycles, motor homes and boats. In these cases, any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of the greater
likelihood of damage, loss or depreciation. In addition, consumer loan
collections depend on the borrower’s continuing financial stability, and thus
are more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy.
Loan
Originations, Sales, Participations and Servicing of Loans.
Lending
activities are conducted primarily by our loan personnel operating at our main
and branch office locations. All loans originated by us are underwritten
pursuant to our policies and procedures. We originate both fixed-rate and
adjustable-rate loans. Our ability to originate fixed or adjustable rate loans
is dependent upon relative customer demand for such loans, which is affected
by
current and expected future levels of market interest rates.
Generally,
we retain in our portfolio virtually all loans that we originate, although
we
have sold longer-term, fixed rate one- to four-family residential mortgage
loans
in the secondary market. No loans were held for sale at December 31, 2006 or
2005. Historically, we have retained the servicing rights on the mortgage loans
sold to Fannie Mae and the Massachusetts Housing Financing Authority.
From
time-to-time, we will also participate in loans, sometimes as the “lead lender.”
Whether we are the lead lender or not, we underwrite our participation portion
of the loan according to our own underwriting criteria and procedures. At
December 31, 2006, we had $2.0 million in loan participation interests in which
we were the lead bank and $8.8 million in loan participations in which we were
not the lead bank.
At
December 31, 2006, we were servicing loans sold in the amount of $36.9 million.
Loan servicing includes collecting and remitting loan payments, accounting
for
principal and interest, contacting delinquent mortgagors, supervising
foreclosures and property dispositions in the event of unremedied defaults,
making certain insurance and tax payments on behalf of the borrowers and
generally administering the loans.
The
following table shows our loan originations, sales and repayment activities
for
the years indicated.
|
|
Years
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(In
thousands)
|
|
Total
loans at beginning of period
|
|
$
|
635,792
|
|
$
|
574,070
|
|
$
|
501,321
|
|
Loan
originations:
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages (1)
|
|
|
142,617
|
|
|
118,449
|
|
|
107,844
|
|
Commercial
mortgage
|
|
|
51,141
|
|
|
37,185
|
|
|
55,553
|
|
Construction
|
|
|
59,719
|
|
|
43,672
|
|
|
51,841
|
|
Commercial
and industrial
|
|
|
85,105
|
|
|
73,006
|
|
|
67,087
|
|
Automobile
|
|
|
13,702
|
|
|
15,166
|
|
|
8,606
|
|
Other
consumer
|
|
|
4,712
|
|
|
2,621
|
|
|
1,314
|
|
Total
loans originated
|
|
|
356,996
|
|
|
290,099
|
|
|
292,245
|
|
Sales
and loan principal repayment deductions:
|
|
|
|
|
|
|
|
|
|
|
Principal
repayments
|
|
|
232,266
|
|
|
229,513
|
|
|
214,713
|
|
Loan
sales
|
|
|
190
|
|
|
170
|
|
|
5,218
|
|
Decrease
(increase) due to other items
|
|
|
(1,781
|
)
|
|
(1,306
|
)
|
|
(435
|
)
|
Total
deductions
|
|
|
230,675
|
|
|
228,377
|
|
|
219,496
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loan activity
|
|
|
126,321
|
|
|
61,722
|
|
|
72,749
|
|
Total
loans at end of period
|
|
$
|
762,113
|
|
$
|
635,792
|
|
$
|
574,070
|
|
____________________
(1)
|
Includes
one- to four-family loans and home equity loans and lines of
credit.
|
Loan
Approval Procedures and Authority.
United
Bank’s lending activities follow written, non-discriminatory underwriting
standards and loan origination procedures established by United Bank’s Board of
Directors. The loan approval process is intended to assess the borrower’s
ability to repay the loan, the viability of the loan, and the adequacy of the
value of the property that will secure the loan. To assess the borrower’s
ability to repay, we review the employment and credit history and information
on
the historical and projected income and expenses of borrowers.
United
Bank’s policies and loan approval limits are established by the Board of
Directors. The Board of Directors has delegated authority to United Bank’s Chief
Lending Officer to review and assign lending authorities to certain individuals
of United Bank (ranging from senior management to senior loan underwriter)
(the
“Designated Individuals”) to consider and approve loans within their designated
authority. Loans in amounts above the authorized limits of the Designated
Individuals and loans outside of the designated authority of the Designated
Individuals require the approval of United Bank’s Loan Committee. The Loan
Committee consists
of six of our directors, including our Chief Executive Officer. All loans that
are approved by the Designated Individuals are still reviewed and ratified
by
the Loan Committee and the Board of Directors on a monthly basis.
All
residential mortgage loans (one- to four-family loans, home equity loans, home
equity lines of credit and residential construction loans) may be approved
by
certain of the Designated Individuals in amounts up to the annually adjusted
Fannie Mae and Freddie Mac secondary market conforming loan limits (“Conforming
Loans”). Residential mortgage loans in excess of the Conforming Loan limit and
up to $1.0 million may be approved by any two of either United Bank’s Chief
Executive Officer, Chief Financial Officer or Senior Vice President of
Residential Lending. Residential loans in excess of $1.0 million must be
approved by any two of the senior executive officers listed above and United
Bank’s Loan Committee.
All
commercial real estate, commercial construction loans and commercial and
industrial loans in amounts up to $500,000 may be approved by certain of the
Designated Individuals. All such loans in excess of $500,000, or additional
extensions of credit to existing commercial borrowers that result in liability
in excess of $500,000, must be approved by United Bank’s Loan Committee. All
home equity loans and home equity lines of credit up to $350,000 may be approved
by certain of the Designated Individuals. All home equity loans and home equity
lines of credit in excess of $350,000 must be approved by the Loan
Committee.
All
consumer loans in amounts up to $100,000 may be approved by certain of the
Designated Individuals. All consumer loans in excess of $100,000 must be
approved by the Loan Committee.
We
generally require appraisals of all real property securing loans, except for
home equity loans and equity lines of credit, in which case we may use the
tax
assessed value of the property securing such loans. Appraisals are performed
by
independent licensed appraisers. All appraisers are approved by the Loan
Committee annually. We require fire and extended coverage insurance in amounts
at least equal to the principal amount of the loan.
Non-performing
and Problem Assets
We
commence collection efforts when a loan becomes ten days past due with
system-generated reminder notices. Subsequent late charge and delinquent notices
are issued and the account is monitored on a regular basis thereafter. Personal,
direct contact with the borrower is attempted early in the collection process
as
a courtesy reminder and later to determine the reason for the delinquency and
to
safeguard our collateral. When a loan is more than 60 days past due, the credit
file is reviewed and, if deemed necessary, information is updated or confirmed
and collateral re-evaluated. We make every effort to contact the borrower and
develop a plan of repayment to cure the delinquency. A summary report of all
loans 30 days or more past due is reported to the Board of Directors. If no
repayment plan is in process, the file is referred to counsel for the
commencement of foreclosure or other collection efforts.
Loans
are
generally placed on non-accrual status when they are more than 90 days
delinquent. When loans are placed on a non-accrual status, unpaid accrued
interest is fully reversed.
Non-Performing
Assets. The
table
below sets forth the amounts and categories of our non-performing assets at
the
dates indicated. At each date presented, we had no troubled debt restructurings
(loans for which a portion of interest or principal has been forgiven and loans
modified at interest rates materially less than current market rates).
|
|
At
December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
(Dollars
in thousands)
|
|
Non-accrual
loans:
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages (1)
|
|
$
|
20
|
|
$
|
1,016
|
|
$
|
1,383
|
|
$
|
772
|
|
$
|
132
|
|
Commercial
mortgages
|
|
|
1,144
|
|
|
141
|
|
|
1,376
|
|
|
455
|
|
|
363
|
|
Construction
|
|
|
-
|
|
|
113
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Commercial
and industrial
|
|
|
123
|
|
|
447
|
|
|
1,025
|
|
|
599
|
|
|
475
|
|
Automobile
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Other
consumer
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
non-accrual loans
|
|
|
1,288
|
|
|
1,717
|
|
|
3,784
|
|
|
1,826
|
|
|
970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing
loans 90 days or more past due
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing loans
|
|
|
1,288
|
|
|
1,717
|
|
|
3,784
|
|
|
1,826
|
|
|
970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
real estate owned
|
|
|
562
|
|
|
1,602
|
|
|
0
|
|
|
39
|
|
|
66
|
|
Total
non-performing assets
|
|
$
|
1,850
|
|
$
|
3,319
|
|
$
|
3,784
|
|
$
|
1,865
|
|
$
|
1,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing loans to total loans
|
|
|
0.17
|
%
|
|
0.27
|
%
|
|
0.66
|
%
|
|
0.36
|
%
|
|
0.21
|
%
|
Total
non-performing loans to total assets
|
|
|
0.13
|
%
|
|
0.19
|
%
|
|
0.49
|
%
|
|
0.25
|
%
|
|
0.16
|
%
|
(1) |
Includes
one- to four-family loans and home equity loans and lines of
credit.
|
As
noted
in the above table, non-accrual loans amounted to approximately $1.3 million
and
$1.7 million at December
31, 2006 and 2005,
respectively. Additional interest income of approximately $71,000, $158,000,
$110,000, $87,000 and $66,000 respectively, would have been recorded during
the
years ended December 31, 2006, 2005, 2004, 2003 and 2002 respectively, if the
loans had performed in accordance with their original terms.
A
loan is
considered impaired when, based on current information and events, it is
probable that the Company will be unable to collect the scheduled payments
of
principal or interest when due according to the contractual terms of the loan
agreement. Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired.
Impairment is measured on a loan-by-loan basis for commercial and construction
loans by either the present value of expected future cash flows discounted
at
the loan’s effective interest rate, the loan’s obtainable market price, or the
fair value of the collateral if the loan is collateral dependent.
At
December 31, 2006 and 2005, the recorded investment in impaired loans was $1,3
million and $700,000 respectively, all of which were accounted for on a
non-accrual basis. An allowance for loan losses was established on $1.3 million
and $700,000 of the impaired loans at December 31, 2006 and 2005, respectively,
which allowances amounted to $295,000 and $80,000 at the respective year-ends.
The average balance of impaired loans was $2.1 million, $2.1 million and $1.4
million for the years ended December 31, 2006, 2005 and 2004, respectively.
Interest income recognized on impaired loans during 2006, 2005 and 2004 was
not
significant.
Delinquent
Loans.
The
following table sets forth our loan delinquencies by type, by amount and by
percentage of total loans outstanding at the dates indicated.
|
|
Loans
Delinquent For
|
|
|
|
|
|
|
|
60
- 89 Days
|
|
90
Days and Over
|
|
Total
|
|
|
|
Number
|
|
Amount
|
|
Number
|
|
Amount
|
|
Number
|
|
Amount
|
|
|
|
(Dollars
in thousands)
|
|
At
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages (1)
|
|
|
19
|
|
$
|
1,354
|
|
|
1
|
|
$
|
20
|
|
|
20
|
|
$
|
1,374
|
|
Commercial
mortgage
|
|
|
6
|
|
|
524
|
|
|
7
|
|
|
1,144
|
|
|
13
|
|
|
1,668
|
|
Construction
|
|
|
1
|
|
|
108
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
108
|
|
Commercial
and industrial
|
|
|
6
|
|
|
93
|
|
|
4
|
|
|
123
|
|
|
10
|
|
|
216
|
|
Automobile
|
|
|
13
|
|
|
85
|
|
|
-
|
|
|
-
|
|
|
13
|
|
|
85
|
|
Other
consumer
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
Total
|
|
|
45
|
|
$
|
2,164
|
|
|
13
|
|
$
|
1,288
|
|
|
58
|
|
$
|
3,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages (1)
|
|
|
9
|
|
$
|
855
|
|
|
6
|
|
$
|
1,016
|
|
|
15
|
|
$
|
1,871
|
|
Commercial
mortgage
|
|
|
4
|
|
|
546
|
|
|
2
|
|
|
141
|
|
|
6
|
|
|
687
|
|
Construction
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
113
|
|
|
1
|
|
|
113
|
|
Commercial
and industrial
|
|
|
1
|
|
|
2
|
|
|
6
|
|
|
447
|
|
|
7
|
|
|
449
|
|
Automobile
|
|
|
1
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
1
|
|
Other
consumer
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
|
|
|
15
|
|
$
|
1,404
|
|
|
15
|
|
$
|
1,717
|
|
|
30
|
|
$
|
3,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages (1)
|
|
|
1
|
|
$
|
53
|
|
|
7
|
|
$
|
1,383
|
|
|
8
|
|
$
|
1,436
|
|
Commercial
mortgage
|
|
|
1
|
|
|
114
|
|
|
7
|
|
|
1,376
|
|
|
8
|
|
|
1,490
|
|
Construction
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Commercial
and industrial
|
|
|
9
|
|
|
330
|
|
|
10
|
|
|
1,025
|
|
|
19
|
|
|
1,355
|
|
Automobile
|
|
|
3
|
|
|
13
|
|
|
-
|
|
|
-
|
|
|
3
|
|
|
13
|
|
Other
consumer
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
|
|
|
14
|
|
$
|
510
|
|
|
24
|
|
$
|
3,784
|
|
|
38
|
|
$
|
4,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages (1)
|
|
|
15
|
|
$
|
863
|
|
|
7
|
|
$
|
772
|
|
|
22
|
|
$
|
1,635
|
|
Commercial
mortgage
|
|
|
5
|
|
|
438
|
|
|
2
|
|
|
455
|
|
|
7
|
|
|
893
|
|
Construction
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Commercial
and industrial
|
|
|
11
|
|
|
132
|
|
|
9
|
|
|
599
|
|
|
20
|
|
|
731
|
|
Automobile
|
|
|
11
|
|
|
57
|
|
|
-
|
|
|
-
|
|
|
11
|
|
|
57
|
|
Other
consumer
|
|
|
4
|
|
|
4
|
|
|
-
|
|
|
-
|
|
|
4
|
|
|
4
|
|
Total
|
|
|
46
|
|
$
|
1,494
|
|
|
18
|
|
$
|
1,826
|
|
|
64
|
|
$
|
3,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages (1)
|
|
|
26
|
|
$
|
1,001
|
|
|
4
|
|
$
|
132
|
|
|
30
|
|
$
|
1,133
|
|
Commercial
mortgage
|
|
|
8
|
|
|
1,112
|
|
|
3
|
|
|
363
|
|
|
11
|
|
|
1,475
|
|
Construction
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Commercial
and industrial
|
|
|
21
|
|
|
778
|
|
|
13
|
|
|
475
|
|
|
34
|
|
|
1,253
|
|
Automobile
|
|
|
38
|
|
|
201
|
|
|
-
|
|
|
-
|
|
|
38
|
|
|
201
|
|
Other
consumer
|
|
|
1
|
|
|
1
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
1
|
|
Total
|
|
|
94
|
|
$
|
3,093
|
|
|
20
|
|
$
|
970
|
|
|
114
|
|
$
|
4,063
|
|
____________________
(1)
|
Includes
one- to four-family loans and home equity loans and lines of
credit.
|
Other
Real Estate Owned.
Other
real estate acquired by us as a result of foreclosure or by deed in lieu of
foreclosure is classified as real estate owned until sold. When property is
acquired it is recorded at the lower of cost or fair market value
at the
date of foreclosure, establishing a new cost basis. Holding costs and declines
in fair value result in changes to expense after acquisition are expensed.
At
December 31, 2006, we had $562,000 of real estate owned.
Classified
Assets. Office
of
Thrift Supervision regulations provide that loans and other assets of lesser
quality should be classified as “substandard,” “doubtful” or “loss” assets. An
asset is considered “substandard” if it is inadequately protected by the current
net worth and paying capacity of the obligor or of the collateral pledged,
if
any. “Substandard” assets include those characterized by the “distinct
possibility” that we will sustain “some loss” if the deficiencies are not
corrected. Assets classified as “doubtful” have all of the weaknesses inherent
in those classified “substandard,” with the added characteristic that the
weaknesses present make “collection or liquidation in full,” on the basis of
currently existing facts, conditions, and values, “highly questionable and
improbable.” Assets classified as “loss” are those considered “uncollectible”
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. We classify an asset
as “special mention” if the asset has a potential weakness that warrants
management’s close attention. While such assets are not impaired, management has
concluded that if the potential weakness in the asset is not addressed, the
value of the asset may deteriorate, adversely affecting the repayment of the
asset.
We
establish general allowances for loan losses in an amount deemed prudent by
management for loans classified substandard or doubtful, as well as for other
problem loans. General allowances represent loss allowances which have been
established to recognize the inherent losses associated with lending activities,
but which, unlike specific allowances, have not been allocated to particular
problem assets. When we classify problem assets as “loss,” we are required
either to establish a specific allowance for losses equal to 100% of the amount
of the asset so classified or to charge off such amount. Our determination
as to
the classification of our assets and the amount of our valuation allowances
is
subject to review by the Office of Thrift Supervision, which can order the
establishment of additional general or specific loss allowances.
The
following table shows the aggregate amounts of our classified assets at the
date
indicated for both loans and foreclosed assets. The amount of assets classified
as “substandard” in the table includes 17 commercial lending relationships, 4 of
which are not current.
|
|
At
December 31,
|
|
At
December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
Residential
Real Estate (1):
|
|
|
|
|
|
Substandard
assets
|
|
$
|
1,252
|
(2)
|
$
|
1,693
|
|
|
|
|
|
|
|
|
|
All
Other Loans:
|
|
|
|
|
|
|
|
Special
mention assets
|
|
|
8,990
|
(3)
|
|
12,100
|
|
Substandard
assets
|
|
|
10,449
|
|
|
8,189
|
|
Doubtful
assets
|
|
|
1,290
|
|
|
1,153
|
|
Loss
assets
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Foreclosed
Assets:
|
|
|
|
|
|
|
|
Other
real estate owned
|
|
|
562
|
|
|
1,602
|
|
|
|
|
|
|
|
|
|
Total
classified assets
|
|
$
|
21,981
|
|
$
|
23,135
|
|
____________________
(1)
|
Includes
one- to four-family loans and home equity loans and lines of
credit.
|
(2)
|
Includes
thirteen residential loans, five of which are in foreclosure or
liquidation proceedings.
|
(3)
|
Includes
eleven commercial lending
relationships.
|
The
loan
portfolio is reviewed on a regular basis to determine whether any loans require
classification in accordance with applicable regulations. Not all classified
assets constitute non-performing assets.
Allowance
for Loan Losses
Our
allowance for loan losses is maintained at a level necessary to absorb loan
losses that are both probable and reasonably estimable. Management, in
determining the allowance for loan losses, considers the losses inherent in
our
loan portfolio and changes in the nature and volume of loan activities, along
with the general economic and real estate market conditions. A description
of
our methodology in establishing our allowance for loan losses is set forth
in
the section “Critical Accounting Policies—Allowance for Loan Losses.” The
allowance for loan losses as of December 31, 2006 was maintained at a level
that
represents management’s best estimate of losses inherent in the loan portfolio.
However, this analysis process is inherently subjective, as it requires us
to
make estimates that are susceptible to revisions as more information becomes
available. Although we believe that we have established the allowance at levels
to absorb probable and estimable losses, future additions or deductions may
be
necessary if economic or other conditions in the future differ from the current
environment.
In
addition, as an integral part of their examination process, the Office of Thrift
Supervision has authority to periodically review our allowance for loan losses.
Such agencies may require that we recognize additions to the allowance based
on
their judgments of information available to them at the time of their
examination.
Allowance
for Loan Losses.
The
following table sets forth activity in our allowance for loan losses for the
years indicated.
|
|
At
or for the Year Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$
|
6,382
|
|
$
|
5,750
|
|
$
|
5,094
|
|
$
|
4,923
|
|
$
|
4,700
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages (1)
|
|
|
10
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
11
|
|
Commercial
mortgage
|
|
|
-
|
|
|
60
|
|
|
-
|
|
|
-
|
|
|
46
|
|
Construction
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Commercial
and industrial
|
|
|
164
|
|
|
377
|
|
|
501
|
|
|
116
|
|
|
144
|
|
Automobile
|
|
|
1
|
|
|
15
|
|
|
46
|
|
|
44
|
|
|
59
|
|
Other
consumer
|
|
|
11
|
|
|
3
|
|
|
11
|
|
|
2
|
|
|
6
|
|
Total
charge-offs
|
|
|
186
|
|
|
455
|
|
|
558
|
|
|
162
|
|
|
266
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages (1)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1
|
|
Commercial
mortgage
|
|
|
1
|
|
|
-
|
|
|
175
|
|
|
24
|
|
|
3
|
|
Construction
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Commercial
and industrial
|
|
|
47
|
|
|
157
|
|
|
32
|
|
|
5
|
|
|
54
|
|
Automobile
|
|
|
2
|
|
|
6
|
|
|
21
|
|
|
-
|
|
|
15
|
|
Other
consumer
|
|
|
3
|
|
|
7
|
|
|
3
|
|
|
10
|
|
|
18
|
|
Total
recoveries
|
|
|
53
|
|
|
170
|
|
|
231
|
|
|
39
|
|
|
91
|
|
Net
charge-offs
|
|
|
(133
|
)
|
|
(285
|
)
|
|
(327
|
)
|
|
(123
|
)
|
|
(175
|
)
|
Provision
for loan losses
|
|
|
969
|
|
|
917
|
|
|
983
|
|
|
294
|
|
|
398
|
|
Balance
at end of period
|
|
$
|
7,218
|
|
$
|
6,382
|
|
$
|
5,750
|
|
$
|
5,094
|
|
$
|
4,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs to average loans outstanding
|
|
|
0.02
|
%
|
|
0.05
|
%
|
|
0.06
|
%
|
|
0.03
|
%
|
|
0.04
|
%
|
Allowance
for loan losses to non-performing loans at end of period
|
|
|
560.40
|
%
|
|
371.69
|
%
|
|
151.96
|
%
|
|
278.97
|
%
|
|
507.53
|
%
|
Allowance
for loan losses to total loans at end of period
|
|
|
0.95
|
%
|
|
1.00
|
%
|
|
1.00
|
%
|
|
1.02
|
%
|
|
1.05
|
%
|
Allocation
of Allowance for Loan Losses. The
following table sets forth the allowance for loan losses allocated by loan
category, the total loan balances by category, and the percent of loans in
each
category to total loans at the dates indicated. The allowance for loan losses
allocated to each category is not necessarily indicative of future losses in
any
particular category and does not restrict the use of the allowance to absorb
losses in other categories.
|
|
At
December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
Percent
of
|
|
|
|
Percent
of
|
|
|
|
Percent
of
|
|
|
|
|
|
Loans
in
|
|
|
|
Loans
in
|
|
|
|
Loans
in
|
|
|
|
|
|
Category
to
|
|
|
|
Category
to
|
|
|
|
Category
to
|
|
|
|
Amount
|
|
Total
Loans
|
|
Amount
|
|
Total
Loans
|
|
Amount
|
|
Total
Loans
|
|
|
|
(Dollars
in thousands)
|
|
At
end of period allocated to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages (1)
|
|
$
|
1,469
|
|
|
56.66
|
%
|
$
|
554
|
|
|
58.40
|
%
|
$
|
526
|
|
|
57.63
|
%
|
Commercial
mortgage
|
|
|
2,588
|
|
|
23.04
|
%
|
|
2,944
|
|
|
23.61
|
%
|
|
3,217
|
|
|
24.00
|
%
|
Construction
|
|
|
1,255
|
|
|
7.19
|
%
|
|
316
|
|
|
4.54
|
%
|
|
259
|
|
|
5.20
|
%
|
Commercial
and industrial
|
|
|
1,633
|
|
|
9.15
|
%
|
|
2,487
|
|
|
9.37
|
%
|
|
1,682
|
|
|
9.81
|
%
|
Automobile
|
|
|
220
|
|
|
3.21
|
%
|
|
78
|
|
|
3.47
|
%
|
|
60
|
|
|
3.04
|
%
|
Other
consumer
|
|
|
53
|
|
|
0.75
|
%
|
|
3
|
|
|
0.61
|
%
|
|
6
|
|
|
0.32
|
%
|
Total
allowance
|
|
$
|
7,218
|
|
|
100.00
|
%
|
$
|
6,382
|
|
|
100.00
|
%
|
$
|
5,750
|
|
|
100.00
|
%
|
|
|
At
December 31,
|
|
|
|
2003
|
|
2002
|
|
|
|
|
|
Percent
of
|
|
|
|
Percent
of
|
|
|
|
|
|
Loans
in
|
|
|
|
Loans
in
|
|
|
|
|
|
Category
to
|
|
|
|
Category
to
|
|
|
|
Amount
|
|
Total
Loans
|
|
Amount
|
|
Total
Loans
|
|
|
|
(Dollars
in thousands)
|
|
At
end of period allocated to:
|
|
|
|
|
|
|
|
|
|
Residential
mortgages (1)
|
|
$
|
974
|
|
|
59.23
|
%
|
$
|
1,466
|
|
|
58.44
|
%
|
Commercial
mortgage
|
|
|
2,304
|
|
|
23.49
|
%
|
|
2,134
|
|
|
24.32
|
%
|
Construction
|
|
|
170
|
|
|
5.31
|
%
|
|
205
|
|
|
3.87
|
%
|
Commercial
and industrial
|
|
|
1,483
|
|
|
7.55
|
%
|
|
835
|
|
|
7.35
|
%
|
Automobile
|
|
|
155
|
|
|
4.18
|
%
|
|
272
|
|
|
5.78
|
%
|
Other
consumer
|
|
|
8
|
|
|
0.23
|
%
|
|
11
|
|
|
0.26
|
%
|
Total
allowance
|
|
$
|
5,094
|
|
|
100.00
|
%
|
$
|
4,923
|
|
|
100.00
|
%
|
____________________
(1)
|
Includes
one- to four-family loans and home equity loans and lines of
credit.
|
Investments
United
Bank’s Board of Directors is responsible for adopting our investment policy. The
investment policy is reviewed annually by management and any changes to the
policy are recommended to and subject to the approval of the Board of Directors.
Authority to make investments under the approved investment policy guidelines
is
delegated to
appropriate officers. While general investment strategies are developed and
authorized by the Board of Directors, the execution of specific actions
primarily rests with United Bank’s Chief Financial Officer. He is both
responsible for ensuring that the guidelines and requirements included in the
investment policy are followed and that all securities are considered prudent
for investment. He and United Bank’s Treasurer or his/her designee, under
his/her direction is authorized to execute investment transactions (purchases
and sales) up to $5 million per transaction (up to $10 million, in the case
of
mutual fund transactions) without prior approval and
within the scope of the established investment policy. All investment
transactions are reviewed and ratified or approved (as the case may be) at
regularly scheduled meetings of the Board of Directors. Any investment that,
subsequent to its purchase, fails to meet the guidelines of the policy is
reported to the Board of Directors at its next meeting where the Board decides
whether to hold or sell the investment.
The
Company’s Board of Directors has adopted an investment policy which is
substantially identical to the Bank’s policy. Any references herein to “the
Bank” also apply to the Company.
Federally
chartered savings banks have authority to invest in various types of assets,
including U.S. Treasury obligations, securities of various federal agencies,
mortgage-backed securities, certain certificates of deposit of insured financial
institutions, overnight and short-term loans to other banks, corporate debt
instruments, and Fannie Mae and Freddie Mac equity securities. United Financial
Bancorp, Inc., as a federally chartered mid-tier stock holding company, may
invest in equity securities subject to certain limitations.
The
investment policy requires that all securities transactions be conducted in
a
safe and sound manner. Investment decisions must be based upon a thorough
analysis of each security instrument to determine its quality and inherent
risks, fit within United Bank’s overall asset/liability management objectives,
effect on its risk-based capital measurement and prospects for yield and/or
appreciation. The investment policy provides that United Bank may invest in
U.S.
treasury notes, U.S. and state agency securities, mortgage-backed securities,
corporate debt securities, commercial paper and other conservative investment
opportunities.
Our
investment portfolio at December 31, 2006, consisted of $77.4 million in federal
agency obligations, $3.3 million of corporate debt instruments, $285,000 of
equity securities, consisting of Fannie Mae and Freddie Mac common and preferred
stock, and $3.2 million of industrial revenue and municipal bonds. We also
invest in mortgage-backed securities, all of which are guaranteed by the United
States Government or agencies or government sponsored enterprises. At December
31, 2006, our mortgage-backed securities portfolio totaled $109.3 million.
Securities can be classified as held-to-maturity or available-for-sale at the
date of purchase. We generally classify our investment securities as
available-for-sale.
Government-Sponsored
Enterprises.
At
December 31, 2006, our U.S. Government Agency securities portfolio totaled
$77.4
million, all of which was classified as available-for-sale. While these
securities generally provide lower yields than other investments in our
securities investment portfolio, we maintain these investments, to the extent
appropriate, for liquidity purposes, as collateral for borrowings and for
prepayment protection.
Mortgage-Backed
Securities. We
purchase mortgage-backed securities insured or guaranteed by Fannie Mae, Freddie
Mac or Ginnie Mae. We invest in mortgage-backed securities to achieve positive
interest rate spreads with minimal administrative expense, and to lower our
credit risk as a result of the guarantees provided by Freddie Mac, Fannie Mae
or
Ginnie Mae. Our investment policy also authorizes the investment in
collateralized mortgage obligations (“CMOs”), also insured or issued by Freddie
Mac, Fannie Mae and Ginnie Mae.
Mortgage-backed
securities are created by the pooling of mortgages and the issuance of a
security with an interest rate that is less than the interest rate on the
underlying mortgages. Mortgage-backed securities typically represent a
participation interest in a pool of single-family or multi-family mortgages,
although we focus our investments on mortgage-backed securities backed by one-
to four-family mortgages. The issuers of such securities (generally U.S.
government agencies and government sponsored enterprises, including Fannie
Mae,
Freddie Mac and Ginnie Mae) pool and resell the participation interests in
the
form of securities to investors such as us, and guarantee the payment of
principal and interest to investors. Mortgage-backed securities generally yield
less than the loans that underlie such securities because of the cost of payment
guarantees and credit enhancements. However, mortgage-backed securities are
usually more liquid than individual mortgage loans and may be used to
collateralize our specific liabilities and obligations.
At
December 31, 2006, our mortgage-backed securities totaled $109.3 million, or
10.83% of total assets and 11.51% of interest earning assets. All of our
mortgage-backed securities at December 31, 2006 were classified as
available-for-sale. At December 31, 2006, 46.0% of the mortgage-backed
securities were backed by adjustable-rate mortgage loans and 54.0% were backed
by fixed-rate mortgage loans. The mortgage-backed securities portfolio had
a
weighted average yield of 4.34% at December 31, 2006. The estimated fair value
of our mortgage-backed securities at December 31, 2006 was $109.3 million,
which
was $2.2 million less than the amortized cost of $111.5 million. Investments
in
mortgage-backed securities involve a risk that actual prepayments may differ
from estimated prepayments over the life of the security, which may require
adjustments to the amortization of any premium or accretion of any discount
relating to such instruments thereby changing the net yield on such securities.
There is also reinvestment risk associated with the cash flows from such
securities or if such securities are redeemed by the issuer. In addition, the
market value of such securities may be adversely affected by changes in interest
rates.
Corporate
Bonds.
At
December 31, 2006, our corporate bond portfolio totaled $3.3 million, all of
which was classified as available-for-sale. The industries represented by our
corporate bond issuers include technology, services, consumer and financial.
Although corporate bonds may offer higher yields than U.S. Treasury or agency
securities of comparable duration, corporate bonds also have a higher risk
of
default due to possible adverse changes in the credit-worthiness of the issuer.
In order to mitigate this risk, our investment policy requires that corporate
debt obligations be rated in one of the four highest categories by a nationally
recognized rating service. We may invest up to 5% of consolidated assets in
corporate debt obligations and up to $1,000,000 in any one issuer.
Marketable
Equity Securities.
At
December 31, 2006, our equity securities portfolio totaled $285,000, or less
than 1% of our total assets, all of which were classified as available-for-sale.
The portfolio consisted of Fannie Mae and Freddie Mac common and preferred
stock. Investments in equity securities involve risk as they are not insured
or
guaranteed investments and are affected by stock market fluctuations. Such
investments are carried at their fair value and fluctuation in the fair value
of
such investments directly affects our net capital position.
Municipal
Obligations and Industrial Revenue Bonds.
Municipal obligations are securities issued by states, counties and
municipalities or their agencies. The industrial revenue bonds in our portfolio
are issued by the Massachusetts Health and Educational Facilities Authority,
an
independent public authority created by Massachusetts to assist nonprofit
organizations to borrow funds through tax-exempt bond issuances. Our investment
policy requires that the municipal obligations be rated within the first four
rating categories by Standard & Poor’s or Moody’s. At December 31, 2006, our
industrial revenue and municipal obligations portfolio totaled $3.2 million,
all
of which was classified as held-to-maturity.
The
following table sets forth the amortized cost and fair value of our securities
portfolio at the dates indicated.
|
|
At
December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
|
|
|
(In
thousands)
|
|
Investment
securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored
enterprises
|
|
$
|
78,248
|
|
$
|
77,369
|
|
$
|
99,957
|
|
$
|
98,561
|
|
$
|
35,414
|
|
$
|
35,084
|
|
Mortgage-backed
securities
|
|
|
111,481
|
|
|
109,274
|
|
|
117,259
|
|
|
114,702
|
|
|
102,209
|
|
|
101,679
|
|
Corporate
debt obligations
|
|
|
3,415
|
|
|
3,309
|
|
|
13,011
|
|
|
12,930
|
|
|
15,094
|
|
|
15,291
|
|
Equity
securities
|
|
|
293
|
|
|
285
|
|
|
294
|
|
|
272
|
|
|
294
|
|
|
275
|
|
Total
available-for-sale
|
|
$
|
193,437
|
|
$
|
190,237
|
|
$
|
230,521
|
|
$
|
226,465
|
|
$
|
153,011
|
|
$
|
152,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRB
|
|
$
|
1,271
|
|
$
|
1,271
|
|
$
|
1,346
|
|
$
|
1,346
|
|
$
|
1,420
|
|
$
|
1,421
|
|
Municipal
bonds
|
|
|
1,970
|
|
|
1,956
|
|
|
1,979
|
|
|
1,952
|
|
|
1,078
|
|
|
1,077
|
|
Total
held-to-maturity
|
|
$
|
3,241
|
|
$
|
3,227
|
|
$
|
3,325
|
|
$
|
3,298
|
|
$
|
2,498
|
|
$
|
2,498
|
|
Portfolio
Maturities and Yields. The
composition and maturities of the investment securities portfolio at December
31, 2006 are summarized in the following table. Maturities are based on the
final contractual payment dates, and do not reflect the impact of prepayments
or
early redemptions that may occur.
|
|
|
|
More
than One Year
|
|
More
than Five Years
|
|
|
|
|
|
|
|
One
Year or Less
|
|
through
Five Years
|
|
through
Ten Years
|
|
More
than Ten Years
|
|
Total
Securities
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
Amortized
|
|
Average
|
|
Amortized
|
|
Average
|
|
Amortized
|
|
Average
|
|
Amortized
|
|
Average
|
|
Amortized
|
|
Average
|
|
Fair
|
|
|
|
Cost
|
|
Yield
|
|
Cost
|
|
Yield
|
|
Cost
|
|
Yield
|
|
Cost
|
|
Yield
|
|
Cost
|
|
Yield
|
|
Value
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored
enterprises
|
|
$
|
30,114
|
|
|
4.30
|
%
|
$
|
30,296
|
|
|
4.23
|
%
|
$
|
17,838
|
|
|
5.17
|
%
|
$
|
-
|
|
|
0.00
|
%
|
$
|
78,248
|
|
|
4.47
|
%
|
$
|
77,369
|
|
Mortgage-backed
securities
|
|
|
114
|
|
|
4.01
|
%
|
|
26,915
|
|
|
3.73
|
%
|
|
16,622
|
|
|
4.22
|
%
|
|
67,830
|
|
|
4.61
|
%
|
|
111,481
|
|
|
4.34
|
%
|
|
109,274
|
|
Corporate
debt obligations
|
|
|
1,470
|
|
|
4.93
|
%
|
|
497
|
|
|
4.34
|
%
|
|
497
|
|
|
4.13
|
%
|
|
950
|
|
|
4.96
|
%
|
|
3,414
|
|
|
4.73
|
%
|
|
3,309
|
|
Total
available-for-sale
|
|
$
|
31,698
|
|
|
4.33
|
%
|
$
|
57,708
|
|
|
4.00
|
%
|
$
|
34,957
|
|
|
4.70
|
%
|
$
|
68,780
|
|
|
4.61
|
%
|
$
|
193,143
|
|
|
4.40
|
%
|
$
|
189,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRB
|
|
$
|
-
|
|
|
0.00
|
%
|
$
|
421
|
|
|
5.00
|
%
|
$
|
-
|
|
|
0.00
|
%
|
$
|
850
|
|
|
4.00
|
%
|
$
|
1,271
|
|
|
4.33
|
%
|
$
|
1,271
|
|
Municipal
bonds
|
|
|
201
|
|
|
1.76
|
%
|
|
891
|
|
|
2.88
|
%
|
|
878
|
|
|
3.63
|
%
|
|
-
|
|
|
0.00
|
%
|
|
1,970
|
|
|
3.10
|
%
|
|
1,956
|
|
Total
held-to-maturity
|
|
$
|
201
|
|
|
1.76
|
%
|
$
|
1,312
|
|
|
3.56
|
%
|
$
|
878
|
|
|
3.63
|
%
|
$
|
850
|
|
|
4.00
|
%
|
$
|
3,241
|
|
|
3.58
|
%
|
$
|
3,227
|
|
Sources
of Funds
General.
Deposits
have traditionally been the primary source of funds for use in lending and
investment activities. We also use borrowings, primarily Federal Home Loan
Bank
advances, to supplement cash flow needs, to lengthen the maturities of
liabilities for interest rate risk management purposes and to manage the cost
of
funds. In addition, funds are derived from scheduled loan payments, investment
maturities, loan prepayments, retained earnings and income on other earning
assets. While scheduled loan payments and income on earning assets are
relatively stable sources of funds, deposit inflows and outflows can vary widely
and are influenced by prevailing interest rates, market conditions and levels
of
competition.
Deposits.
Our
deposits are generated primarily from residents and businesses within our
primary market area. We offer a selection of deposit accounts, including demand
accounts, NOW accounts, money market accounts, savings accounts, retirement
accounts and certificates of deposit. Deposit
account terms vary, with the principal differences being the minimum balance
required, the amount of time the funds must remain on deposit and the interest
rate. We currently do not accept brokered deposits, although we have the
authority to do so.
Interest
rates paid, maturity terms, service fees and withdrawal penalties are
established on a periodic basis. Deposit rates and terms are based primarily
on
current operating strategies and market rates, liquidity requirements, rates
paid by competitors and growth goals. Personalized customer service,
long-standing relationships with customers and an active marketing program
are
relied upon to attract and retain deposits.
The
flow
of deposits is influenced significantly by general economic conditions, changes
in money market and other prevailing interest rates and competition. The variety
of deposit accounts offered allows us to be competitive in obtaining funds
and
responding to changes in consumer demand. Based on experience, we believe that
our deposits are relatively stable. However, the ability to attract and maintain
deposits, and the rates paid on these deposits, have been and will continue
to
be significantly affected by market conditions. At December 31, 2006, $319.5
million, or 46.6% of our deposit accounts were certificates of deposit, of
which
$282.0 million had maturities of one year or less.
The
following table sets forth the distribution of total deposits by account type,
at the dates indicated.
|
|
At
December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
Percent
|
|
Rate
|
|
Balance
|
|
Percent
|
|
Rate
|
|
Balance
|
|
Percent
|
|
Rate
|
|
|
|
(Dollars
in thousands)
|
|
Deposit
type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
|
|
$
|
97,190
|
|
|
14.17
|
%
|
|
0.00
|
%
|
$
|
93,301
|
|
|
14.27
|
%
|
|
0.00
|
%
|
$
|
86,246
|
|
|
14.05
|
%
|
|
0.00
|
%
|
NOW
|
|
|
37,523
|
|
|
5.47
|
%
|
|
0.57
|
%
|
|
39,922
|
|
|
6.11
|
%
|
|
0.25
|
%
|
|
39,917
|
|
|
6.50
|
%
|
|
0.25
|
%
|
Regular
savings
|
|
|
65,475
|
|
|
9.55
|
%
|
|
0.83
|
%
|
|
87,253
|
|
|
13.35
|
%
|
|
0.83
|
%
|
|
139,754
|
|
|
22.77
|
%
|
|
0.65
|
%
|
Money
market
|
|
|
164,463
|
|
|
23.99
|
%
|
|
3.20
|
%
|
|
154,177
|
|
|
23.59
|
%
|
|
2.93
|
%
|
|
94,586
|
|
|
15.41
|
%
|
|
1.48
|
%
|
Retirement
|
|
|
55,368
|
|
|
8.07
|
%
|
|
4.11
|
%
|
|
52,694
|
|
|
8.06
|
%
|
|
3.38
|
%
|
|
48,496
|
|
|
7.90
|
%
|
|
2.71
|
%
|
Certificates
of deposit
|
|
|
265,667
|
|
|
38.74
|
%
|
|
4.59
|
%
|
|
226,264
|
|
|
34.62
|
%
|
|
3.59
|
%
|
|
204,673
|
|
|
33.35
|
%
|
|
2.70
|
%
|
Total
deposits
|
|
$
|
685,686
|
|
|
100.00
|
%
|
|
2.99
|
%
|
$
|
653,611
|
|
|
100.00
|
%
|
|
2.54
|
%
|
$
|
613,672
|
|
|
100.00
|
%
|
|
1.51
|
%
|
As
of
December 31, 2006, the aggregate amount of outstanding certificates of deposit
in amounts greater than or equal to $100,000 was approximately $103.3 million.
The following table sets forth the maturity of those certificates as of December
31, 2006.
|
|
At
December 31,
|
|
|
|
2006
|
|
|
|
(In
thousands)
|
|
Three
months or less
|
|
$
|
34,924
|
|
Over
three months through six months
|
|
|
38,264
|
|
Over
six months through one year
|
|
|
20,554
|
|
Over
one year to three years
|
|
|
6,196
|
|
Over
three years
|
|
|
3,383
|
|
|
|
|
|
|
Total
|
|
$
|
103,321
|
|
Borrowings.
Our
borrowings consist of advances from the Federal Home Loan Bank of Boston and
collateralized repurchase agreements with securities brokers and our customers.
As of December 31, 2006, we had Federal Home Loan Bank advances in the amount
of
$169.8 million, which represented 19.5% of total liabilities with a weighted
average maturity of 4.5 years and a weighted average rate of 4.73%. As a member
of the Federal Home Loan Bank of Boston, we can currently borrow up to
approximately $319 million from the Federal Home Loan Bank.
The
following table sets forth information concerning balances and interest rates
on
our Federal Home Loan Bank advances at and for the periods shown:
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Amount
|
|
Average
Rate
|
|
Amount
|
|
Average
Rate
|
|
Amount
|
|
Average
Rate
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
1 year
|
|
$
|
65,000
|
|
|
5.16
|
%
|
$
|
13,799
|
|
|
3.40
|
%
|
$
|
16,000
|
|
|
2.35
|
%
|
Over
1 year to 2 years
|
|
|
16,411
|
|
|
5.06
|
%
|
|
10,000
|
|
|
4.37
|
%
|
|
12,000
|
|
|
3.23
|
%
|
Over
2 years to 3 years
|
|
|
13,000
|
|
|
5.13
|
%
|
|
19,393
|
|
|
4.95
|
%
|
|
-
|
|
|
|
|
Over
3 years to 4 years
|
|
|
16,111
|
|
|
3.20
|
%
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
Over
4 years to 5 years
|
|
|
39,184
|
|
|
4.60
|
%
|
|
20,318
|
|
|
3.19
|
%
|
|
22,247
|
|
|
4.87
|
%
|
Over
5 years
|
|
|
20,100
|
|
|
4.32
|
%
|
|
38,370
|
|
|
4.02
|
%
|
|
36,447
|
|
|
3.32
|
%
|
|
|
$
|
169,806
|
|
|
4.73
|
%
|
$
|
101,880
|
|
|
3.98
|
%
|
$
|
86,694
|
|
|
3.53
|
%
|
Securities
sold under agreements to repurchase are funds borrowed from customers on an
overnight basis that are secured by U.S. Government agency obligations. The
amount of securities collateralizing the agreements to repurchase remains in
securities and the obligation to repurchase securities sold is reflected as
a
liability on our consolidated balance sheets. The following table summarizes
our
repurchase agreements at and for the periods shown:
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
Balance
at year-end
|
|
$
|
10,425
|
|
$
|
8,434
|
|
$
|
4,317
|
|
Average
amount outstanding during year
|
|
|
5,546
|
|
|
5,572
|
|
|
4,064
|
|
Interest
expense incurred during year
|
|
|
167
|
|
|
90
|
|
|
39
|
|
Maximum
amount outstanding at any month-end
|
|
|
10,425
|
|
|
8,675
|
|
|
6,015
|
|
Average
interest rate during the year
|
|
|
3.01
|
%
|
|
1.62
|
%
|
|
0.96
|
%
|
Weighted
average interest rate on year-end balances
|
|
|
3.38
|
%
|
|
2.12
|
%
|
|
1.19
|
%
|
Subsidiary
Activities
UCB
Securities, Inc. is a wholly owned subsidiary of United Bank established in
1998
as a Massachusetts security corporation for the purpose of buying, selling
and
holding investment securities on its own behalf. The income earned on UCB
Securities, Inc.’s investment securities is subject to a significantly lower
rate of state tax than that assessed on income earned on investment securities
maintained at United Bank. At December 31, 2006, UCB Securities, Inc. had total
assets of $60.2 million, all of which were qualifying securities under the
applicable regulations.
United
Financial Services Group
United
Bank, through its division, United Financial Services Group, has a partnership
with a registered broker-dealer, NFP Securities, Inc. In 2006, United Bank
acquired Levine Financial Group in an effort to expand its customer base with
increased opportunities to grow our market share and expand the financial
services portion of business in the Northampton market. Together they offer
United Bank customers a complete range of non-deposit investment products and
financial planning services, including mutual funds, debt, equity and government
securities, insurance products, fixed and variable annuities, financial planning
for individual and commercial customers and estate planning services. United
Bank receives a portion of the commissions generated by United Financial
Services from sales to customers.
Expense
and Tax Allocation
United
Bank has entered into an agreement with United Financial Bancorp, Inc. and
United Mutual Holding Company to provide them with certain administrative
support services for compensation not less than the fair value of the services
provided. In addition, United Bank and United Financial Bancorp, Inc. have
entered into an agreement to establish a method for allocating and for
reimbursing the payment of their consolidated tax liability.
Personnel
As
of
December 31, 2006, we had 163 full-time employees and 35 part-time employees.
Our employees are not represented by any collective bargaining group. Management
believes that we have good relations with our employees.
SUPERVISION
AND REGULATION
General
United
Bank is examined and supervised by the Office of Thrift Supervision and is
subject to examination by the Federal Deposit Insurance Corporation. This
regulation and supervision establishes a comprehensive framework of activities
in which an institution may engage and is intended primarily for the protection
of the Federal Deposit Insurance Corporation’s deposit insurance funds and
depositors. Under this system of federal regulation, financial institutions
are
periodically examined to ensure that they satisfy applicable standards with
respect to their capital adequacy, assets, management, earnings, liquidity
and
sensitivity to market interest rates. Following completion of its examination,
the federal agency critiques the institution’s operations and assigns its rating
(known as an institution’s CAMELS rating). Under federal law, an institution may
not disclose its CAMELS rating to the public. United Bank also is a member
of
and owns stock in the Federal Home Loan Bank of Boston, which is one of the
twelve regional banks in the Federal Home Loan Bank System. United Bank also
is
regulated to a lesser extent by the Board of Governors of the Federal Reserve
System, governing reserves to be maintained against deposits and other matters.
The Office of Thrift Supervision examines United Bank and prepares reports
for
the consideration of its Board of Directors on any operating deficiencies.
United Bank’s relationship with its depositors and borrowers also is regulated
to a great extent by federal law and, to a much lesser extent, state law,
especially in matters concerning the ownership of deposit accounts and the
form
and content of United Bank’s mortgage documents.
Any
change in these laws or regulations, whether by the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision or Congress, could have a material
adverse impact on United Financial Bancorp, Inc. and United Bank and their
operations.
Federal
Banking Regulation
Business
Activities. A
federal
savings bank derives its lending and investment powers from the Home Owners’
Loan Act, as amended, and the regulations of the Office of Thrift Supervision.
Under these laws and regulations, United Bank may invest in mortgage loans
secured by residential real estate without limitations as a percentage of assets
and non-residential real estate loans which may not in the aggregate exceed
400%
of capital, commercial business loans up to 20% of assets in the aggregate
and
consumer loans up to 35% of assets in the aggregate, certain types of debt
securities and certain other assets. United Bank also may establish subsidiaries
that may engage in activities not otherwise permissible for United Bank,
including real estate investment and securities and insurance
brokerage.
Capital
Requirements.
Offices
of Thrift Supervision regulations require savings banks to meet three minimum
capital standards: a 4% core capital ratio, a 4% leverage ratio (3% for savings
banks receiving the highest rating on the CAMELS rating system) and an 8%
risk-based capital ratio.
The
risk-based capital standard for savings banks requires the maintenance of 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, are multiplied by a risk-weight factor of 0% to 100%,
assigned by the Office of Thrift Supervision, based on the risks believed
inherent in the type of asset. Core capital is defined as common stockholders’
equity (including retained earnings), certain noncumulative perpetual preferred
stock and related surplus and minority interests in equity accounts of
consolidated subsidiaries, less intangibles other than certain mortgage
servicing rights and credit card relationships. The components of supplementary
capital currently include cumulative preferred stock, long-term perpetual
preferred stock, mandatory convertible securities, subordinated debt and
intermediate preferred stock, the allowance for loan and lease losses limited
to
a maximum of 1.25% of risk-weighted assets and up to 46% of net unrealized
gains
on available-for-sale equity securities with readily determinable fair values.
Overall, the amount of supplementary capital included as part of total capital
cannot exceed 100% of core capital. Additionally, a savings bank that retains
credit risk in connection with an asset sale may be required to maintain
additional regulatory capital because of the recourse back to the savings bank.
United Bank does not typically engage in asset sales.
At
December 31, 2006, United Bank’s capital exceeded all applicable
requirements.
Loans-to-One
Borrower.
Generally, a federal savings bank may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of unimpaired capital
and
surplus. In the case of United Bank and in connection with its charter
conversion to a federally chartered savings bank, the Office of Thrift
Supervision has permitted United Bank to maintain a loans-to-one borrower limit
of 20% of unimpaired capital and surplus, subject to certain conditions and
annual review by the Office of Thrift Supervision. An additional amount may
be
loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured
by readily marketable collateral, which generally does not include real estate.
As of December 31, 2006, United Bank was in compliance with the loans-to-one
borrower limitations.
Qualified
Thrift Lender Test. As
a
federal savings bank, United Bank must satisfy the qualified thrift lender,
or
“QTL,” test. Under the QTL test, United Bank must maintain at least 65% of its
“portfolio assets” in “qualified thrift investments” in at least nine of the
most recent 12-month period. “Portfolio assets” generally means total assets of
a savings institution, less the sum of specified liquid assets up to 20% of
total assets, goodwill and other intangible assets, and the value of property
used in the conduct of the savings bank’s business.
“Qualified
thrift investments” include various types of loans made for residential and
housing purposes, investments related to such purposes, including certain
mortgage-backed and related securities, and loans for personal, family,
household and certain other purposes up to a limit of 20% of portfolio assets.
“Qualified thrift investments” also include 100% of an institution’s credit card
loans, education loans and small business loans. United Bank also may satisfy
the QTL test by qualifying as a “domestic building and loan association” as
defined in the Internal Revenue Code.
A
savings
bank that fails the qualified thrift lender test must either convert to a bank
charter or operate under specified restrictions. At December 31, 2006, United
Bank satisfied this test.
Capital
Distributions. Office
of
Thrift Supervision regulations govern capital distributions by a federal savings
bank, which include cash dividends, stock repurchases and other transactions
charged to the capital account. A savings banks must file an application for
approval of a capital distribution if:
|
·
|
the
total capital distributions for the applicable calendar year exceed
the
sum of the association’s net income for that year to date plus the
association’s retained net income for the preceding two years;
|
|
·
|
the
association would not be at least adequately capitalized following
the
distribution;
|
|
·
|
the
distribution would violate any applicable statute, regulation, agreement
or Office of Thrift Supervision-imposed condition; or
|
|
·
|
the
association is not eligible for expedited treatment of its
filings.
|
Even
if
an application is not otherwise required, every savings bank that is a
subsidiary of a holding company must still file a notice with the Office of
Thrift Supervision at least 30 days before the Board of Directors declares
a
dividend or approves a capital distribution.
The
Office of Thrift Supervision may disapprove a notice or application
if:
|
·
|
the
association would be undercapitalized following the
distribution;
|
|
·
|
the
proposed capital distribution raises safety and soundness concerns;
or
|
|
·
|
the
capital distribution would violate a prohibition contained in any
statute,
regulation or agreement.
|
In
addition, the Federal Deposit Insurance Act provides that an insured depository
institution shall not make any capital distribution, if after making such
distribution the institution would be undercapitalized.
Liquidity.
A
federal savings bank is required to maintain a sufficient amount of liquid
assets to ensure its safe and sound operation.
Community
Reinvestment Act and Fair Lending Laws.
All
savings banks have a responsibility under the Community Reinvestment Act and
related regulations of the Office of Thrift Supervision to help meet the credit
needs of their communities, including low- and moderate-income neighborhoods.
In
connection with its examination of a federal savings bank, the Office of Thrift
Supervision is required to assess the association’s record of compliance with
the Community Reinvestment Act. In addition, the Equal Credit Opportunity Act
and the Fair Housing Act prohibit lenders from discriminating in their lending
practices on the basis of characteristics specified in those statutes. An
association’s failure to comply with the provisions of the Community
Reinvestment Act could, at a minimum, result in denial of certain corporate
applications such as branches or mergers, or in restrictions on its activities.
The failure to comply with the Equal Credit Opportunity Act and the Fair Housing
Act could result in enforcement actions by the Office of Thrift Supervision,
as
well as other federal regulatory agencies and the Department of Justice. United
Bank received a “satisfactory” Community Reinvestment Act rating in its most
recent federal examination.
Privacy
Standards.
Effective July 2001, financial institutions, including United Bank, became
subject to FDIC regulations implementing the privacy protection provisions
of
the Gramm-Leach-Bliley Act. These regulations require United Bank to disclose
its privacy policy, including identifying with whom it shares “non-public
personnel information” to customers at the time of establishing the customer
relationship and annually thereafter.
The
regulations also require United Bank to provide its customers with initial
and
annual notices that accurately reflect its privacy policies and practices.
In
addition, United Bank is required to provide its customers with the ability
to
“opt-out” of having United Bank share their non-public personal information with
unaffiliated third parties before it can disclose such information, subject
to
certain exceptions. The implementation of these regulations did not have a
material adverse effect on United Bank. The Gramm-Leach-Bliley Act also provides
for the ability of each state to enact legislation that is more protective
of
consumers’ personal information. We cannot predict whether Massachusetts may
enact such legislation or what impact, if any, it would have if
enacted.
In
February 2001, the FDIC and other federal banking agencies adopted guidelines
establishing standards for safeguarding customer information to implement
certain provisions of the Gramm-Leach-Bliley Act. The guidelines describe the
agencies’ expectations for the creation, implementation and maintenance of an
information security program, which would include administrative, technical
and
physical safeguards appropriate to the size and complexity of the institution
and the nature and scope of its activities. The standards set forth in the
guidelines are intended to ensure the security and confidentiality of customer
records and information, protect against any anticipated threats or hazards
to
the security or integrity of such records and protect against unauthorized
access to or use of such records or information that could result in substantial
harm or inconvenience to any customer. United Bank has implemented these
guidelines and such implementation did not have a material adverse effect on
our
operations.
Transactions
with Related Parties.
A
federal savings bank’s authority to engage in transactions with its affiliates
is limited by Office of Thrift Supervision regulations and by Sections 23A
and
23B of the Federal Reserve Act and its implementing Regulation W. An affiliate
is a company that controls, is controlled by, or is under common control with
an
insured depository institution such as United Bank. United Financial Bancorp,
Inc. is an affiliate of United Bank. In general, loan transactions between
an
insured depository institution and its affiliate are subject to certain
quantitative and collateral requirements. In this regard, transactions between
an insured depository institution and its affiliate are limited to 10% of the
institution’s unimpaired capital and unimpaired surplus for transactions with
any one affiliate and 20% of unimpaired capital and unimpaired surplus for
transactions in the aggregate with all affiliates. Collateral in specified
amounts ranging from 100% to 130% of the amount of the transaction must usually
be provided by affiliates in order to receive loans from the association. In
addition, Office of Thrift Supervision regulations prohibit a savings bank
from
lending to any of its affiliates that are engaged in activities that are not
permissible for bank holding companies and from purchasing the securities of
any
affiliate, other than a subsidiary. Finally, transactions with affiliates must
be consistent with safe and sound banking practices, not involve low-quality
assets and be on terms that are as favorable to the institution as comparable
transactions with non-affiliates. The Office of Thrift Supervision requires
savings banks to maintain detailed records of all transactions with
affiliates.
United
Bank’s authority to extend credit to its directors, executive officers and 10%
shareholders, as well as to entities controlled by such persons, is currently
governed by the requirements of Sections 22(g) and 22(h) of the FRA and
Regulation O of the Federal Reserve Board. Among other things, these provisions
require that extensions of credit to insiders (i) be made on terms that are
substantially the same as, and follow credit underwriting procedures that are
not less stringent than, those prevailing for comparable transactions with
unaffiliated persons and that do not involve more than the normal risk of
repayment or present other unfavorable features, and (ii) not exceed certain
limitations on the amount of credit extended to such persons, individually
and
in the aggregate, which limits are based, in part, on the amount of United
Bank’s capital. In addition, extensions of credit in excess of certain limits
must be approved by United Bank’s Board of Directors.
Enforcement.
The
Office of Thrift Supervision has primary enforcement responsibility over federal
savings institutions and has the authority to bring enforcement action against
all “institution-affiliated parties,” including stockholders, and 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 by the Office of Thrift Supervision may range from the
issuance of a capital directive or cease and desist order, to removal of
officers and/or directors of the institution and the appointment of a receiver
or conservator. Civil penalties cover a wide range of violations and actions,
and range up to $25,000 per day, unless a finding of reckless disregard is
made,
in which case penalties may be as high as $1 million per day. The Federal
Deposit Insurance Corporation also has the authority to terminate deposit
insurance or 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 Federal Deposit
Insurance Corporation has authority to take action under specified
circumstances.
Standards
for Safety and Soundness.
Federal
law requires each federal banking agency to prescribe certain standards for
all
insured depository institutions. These standards relate to, among other things,
internal controls, information systems and audit systems, loan documentation,
credit underwriting, interest rate risk exposure, asset growth, compensation,
and other operational and managerial standards as the agency deems appropriate.
The federal banking agencies adopted Interagency Guidelines Prescribing
Standards for Safety and Soundness to implement the safety and soundness
standards required under federal law. The guidelines set forth the safety and
soundness standards that the federal banking agencies use to identify and
address problems at insured depository institutions before capital becomes
impaired. The guidelines address internal controls and information systems,
internal audit systems, credit underwriting, loan documentation, interest rate
risk exposure, asset growth, compensation, fees and benefits. If the appropriate
federal banking agency determines that an institution fails to meet any standard
prescribed by the guidelines, the agency may require the institution to submit
to the agency an acceptable plan to achieve compliance with the standard. If
an
institution fails to meet these standards, the appropriate federal banking
agency may require the institution to submit a compliance plan.
Prompt
Corrective Action Regulations.
Under
the prompt corrective action regulations, the Office of Thrift Supervision
is
required and authorized to take supervisory actions against undercapitalized
savings banks. For this purpose, a savings bank is placed in one of the
following five categories based on the association’s capital:
|
·
|
well-capitalized
(at least 5% leverage capital, 6% Tier 1 risk-based capital and 10%
total
risk-based capital);
|
|
·
|
adequately
capitalized (at least 4% leverage capital, 4% Tier 1 risk-based capital
and 8% total risk-based capital);
|
|
·
|
undercapitalized
(less than 8% total risk-based capital, 4% Tier 1 risk-based capital
or 3%
leverage capital);
|
|
·
|
significantly
undercapitalized (less than 6% total risk-based capital, 3% Tier
1
risk-based capital or 3% leverage capital);
and
|
|
·
|
critically
undercapitalized (less than 2% tangible
capital).
|
Generally,
the banking regulator is required to appoint a receiver or conservator for
an
association that is “critically undercapitalized” within specific time frames.
The regulations also provide that a capital restoration plan must be filed
with
the Office of Thrift Supervision within 45 days of the date an association
receives notice that it is “undercapitalized,” “significantly undercapitalized”
or “critically undercapitalized.” The criteria for an acceptable capital
restoration plan include, among other things, the establishment of the
methodology and assumptions for attaining adequately capitalized status on
an
annual basis, procedures for ensuring compliance with restrictions imposed
by
applicable federal regulations, the identification of the types and levels
of
activities the savings bank will engage in while the capital restoration plan
is
in effect, and assurances that the capital restoration plan will not appreciably
increase the current risk profile of the savings bank. Any holding company
for
the savings bank required to submit a capital restoration plan must guarantee
the lesser of: an amount equal to 5% of savings bank’s assets at the time it was
notified or deemed to be under capitalized by the Office of Thrift Supervision,
or the amount necessary to restore the savings bank to adequately capitalized
status. This guarantee remains in place until the Office of Thrift Supervision
notifies the savings bank that it has maintained adequately capitalized status
for each of four consecutive calendar quarters, and the Office of Thrift
Supervision has the authority to require payment and collect payment under
the
guarantee. Failure by a holding company to provide the required guarantee will
result in certain operating restrictions on the savings bank, such as
restrictions on the ability to declare and pay dividends, pay executive
compensation and management fees, and increase assets or expand operations.
The
Office of Thrift Supervision may also take any one of a number of discretionary
supervisory actions against undercapitalized associations, including the
issuance of a capital directive and the replacement of senior executive officers
and directors.
At
December 31, 2006, United Bank met the criteria for being considered
“well-capitalized.”
Insurance
for Deposit Accounts. Deposit
accounts in United Bank are insured by the Federal Deposit Insurance
Corporation, generally up to a maximum of $100,000 per separately insured
depositor. United Bank’s deposits therefore are subject to Federal Deposit
Insurance Corporation deposit insurance assessments. The Federal Deposit
Insurance Corporation has adopted a risk-based system for determining deposit
insurance assessments. The Federal Deposit Insurance Corporation is authorized
to raise the assessment rates as necessary to maintain the required ratio of
reserves to insured deposits of 1.25%. In addition, all Federal Deposit
Insurance Corporation-insured institutions must pay assessments to the Federal
Deposit Insurance Corporation at an annual rate of approximately .02% of insured
deposits to fund interest payments on bonds maturing in 2017 issued by a federal
agency to recapitalize the predecessor to the Savings Association Insurance
Fund.
The
Federal Deposit Insurance Reform Act of 2005 (Reform Act), enacted in February
2006, increased the deposit insurance limit for certain retirement plan deposit
accounts from $100,000 to $250,000. The basic insurance limit for other
depositors - individuals, joint accountholders, businesses, government entities,
and trusts - remains at $100,000. The Federal Deposit Insurance Corporation
(FDIC) issued an interim rule to implement this increase in coverage and other
provisions of the Reform Act pertaining to deposit insurance coverage effective
April 1, 2006. The Federal Deposit Insurance Corporation (FDIC) issued a final
rule effective January 1, 2007 implementing the aforementioned coverage increase
and maintaining the required ratio of reserves to insured deposits at
1.25%.
Prohibitions
Against Tying Arrangements.
Federal
savings banks are prohibited, subject to some exceptions, from extending credit
to or offering any other service, or fixing or varying the consideration for
such extension of credit or service, on the condition that the customer obtain
some additional service from the institution or its affiliates or not obtain
services of a competitor of the institution.
Federal
Home Loan Bank System.
United
Bank is a member of the Federal Home Loan Bank System, which consists of 12
regional Federal Home Loan Banks. The Federal Home Loan Bank System provides
a
central credit facility primarily for member institutions. As a member of the
Federal Home Loan Bank of Boston (FHLBB), United Bank was required to
invest
in
stock of the FHLBB, until April 2004, in an amount which was the greater of
.3%
of its total assets, 1% of its outstanding home loans or 5% of its outstanding
advances from the FHLBB. In April 2004, the FHLBB amended its capital structure
at which time the Bank’s FHLBB stock was converted to Class B stock. Such stock
is redeemable at par value five years after filing for a redemption or upon
termination of membership. The FHLBB may, but is not obligated to, repurchase
Class B stock prior to expiration of the five year redemption notice. Under
the new capital structure, the Bank’s stock investment requirement is an amount
equal to the sum of .35% of certain specified assets plus 4.5% of the Bank’s
advances and certain other specified items.
Federal
Reserve System
The
Federal Reserve Board regulations require savings banks to maintain
noninterest-earning reserves against their transaction accounts, such as
negotiable order of withdrawal and regular checking accounts. At December 31,
2006, United Bank was in compliance with these reserve
requirements.
The
USA PATRIOT Act
The
USA
PATRIOT Act gives the federal government new powers to address terrorist threats
through enhanced domestic security measures, expanded surveillance powers,
increased information sharing and broadened anti-money laundering requirements.
Certain provisions of the Act impose affirmative obligations on a broad range
of
financial institutions, including savings banks, like United Bank. These
obligations include enhanced anti-money laundering programs, customer
identification programs and regulations relating to private banking accounts
or
correspondence accounts in the United States for non-United States persons
or
their representatives (including foreign individuals visiting the United
States). The Act also requires the federal banking regulators to take into
consideration the effectiveness of controls designed to combat money-laundering
activities in determining whether to approve a merger or other acquisition
application of an FDIC-insured institution. As such, if the Company or United
Bank were to engage in a merger or other acquisition, the effectiveness of
its
anti-money-laundering controls would be considered as part of the application
process. United Bank has established policies, procedures and systems to comply
with the applicable requirements of the law.
The
federal banking agencies have begun to implement regulations pursuant to the
USA
PATRIOT Act. These regulations would require financial institutions to adopt
the
policies and procedures contemplated by the USA PATRIOT Act.
Sarbanes-Oxley
Act of 2002
The
Sarbanes-Oxley Act of 2002 (the “Act”), which implemented legislative reforms
intended to address corporate and accounting fraud, was enacted in July 2002.
In
addition to the establishment of a new accounting oversight board that enforces
auditing, quality control and independence standards and is funded by fees
from
all publicly traded companies, the Act places certain restrictions on the scope
of services that may be provided by accounting firms to their public company
audit clients. Any non-audit services being provided to a public company audit
client will require preapproval by the company’s audit committee. In addition,
the Act makes certain changes to the requirements for partner rotation after
a
period of time. The Act requires chief executive officers and chief financial
officers, or their equivalent, to certify to the accuracy of periodic reports
filed with the Securities and Exchange Commission, subject to civil and criminal
penalties if they knowingly or willingly violate this certification requirement.
In addition, under the Act, counsel will be required to report evidence of
a
material violation of the securities laws or a breach of fiduciary duty by
a
company to its chief executive officer or its chief legal officer, and, if
such
officer does not appropriately respond, to report such evidence to the audit
committee or other similar committee of the Board of Directors or the board
itself.
Under
the
Act, longer prison terms will apply to corporate executives who violate federal
securities laws; the period during which certain types of suits can be brought
against a company or its officers is extended; and bonuses issued to top
executives prior to restatement of a company’s financial statements are now
subject to disgorgement if such restatement was due to corporate misconduct.
Executives are also prohibited from insider trading during retirement plan
“blackout” periods, and loans to company executives (other than loans by
financial institutions permitted by federal rules and regulations) are
restricted. In addition, a provision directs that civil penalties levied by
the
Securities and Exchange Commission as a result of any judicial or administrative
action under the Act be deposited to a fund for the benefit of harmed investors.
The Federal Accounts for Investor Restitution provision also requires the
Securities and Exchange Commission to develop methods of improving collection
rates. The legislation accelerates the time frame for disclosures by public
companies, as they must immediately disclose any material changes in their
financial condition or operations. Directors and executive officers must also
provide information for most changes in ownership in a company’s securities
within two business days of the change.
The
Act
also increases the oversight of, and codifies certain requirements relating
to
audit committees of public companies and how they interact with the company’s
“registered public accounting firm.” Audit Committee members must be independent
and are absolutely barred from accepting consulting, advisory or other
compensatory fees from the issuer. In addition, companies must disclose whether
at least one member of the committee is a “financial expert” (as such term is
defined by the Securities and Exchange Commission) and if not, why not. Under
the Act, a company’s registered public accounting firm is prohibited from
performing statutorily mandated audit services for a company if such company’s
chief executive officer, chief financial officer, comptroller, chief accounting
officer or any person serving in equivalent positions had been employed by
such
firm and participated in the audit of such company during the one-year period
preceding the audit initiation date. The Act also prohibits any officer or
director of a company or any other person acting under their direction from
taking any action to fraudulently influence, coerce, manipulate or mislead
any
independent accountant engaged in the audit of the company’s financial
statements for the purpose of rendering the financial statements materially
misleading. The Act also requires the Securities and Exchange Commission to
prescribe rules requiring inclusion of any internal control report and
assessment by management in the annual report to shareholders. The Act requires
the company’s registered public accounting firm that issues the audit report to
attest to and report on management’s assessment of the company’s internal
controls.
Holding
Company Regulation
General.
United
Mutual Holding Company and United Financial Bancorp, Inc. are non-diversified
savings and loan holding companies within the meaning of the Home Owners’ Loan
Act. As such, United Mutual Holding Company and United Financial Bancorp, Inc.
are registered with the Office of Thrift Supervision and subject to Office
of
Thrift Supervision regulations, examinations, supervision and reporting
requirements. In addition,
the
Office of Thrift Supervision has enforcement authority over United Financial
Bancorp, Inc. and United Mutual Holding Company, and their 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
the
subsidiary savings institution. As federal corporations, United Financial
Bancorp, Inc. and United Mutual Holding Company are generally not subject to
state business organization laws.
Permitted
Activities.
Pursuant to Section 10(o) of the Home Owners’ Loan Act and Office of Thrift
Supervision regulations and policy, a mutual holding company and a federally
chartered mid-tier holding company such as United Financial Bancorp, Inc. may
engage in the following activities: (i) investing in the stock of a
savings
bank;
(ii)
acquiring a mutual association through the merger of such association into
a
savings
bank subsidiary
of such holding company or an interim savings
bank subsidiary
of such holding company; (iii) merging with or acquiring another holding
company, one of whose subsidiaries is a savings
bank;
(iv)
investing in a corporation, the capital stock of which is available for purchase
by a savings
bank under
federal law or under the law of any state where the subsidiary savings
bank or
banks
share their home offices; (v) furnishing or performing management services
for a
savings
bank subsidiary
of such company; (vi) holding, managing or liquidating assets owned or acquired
from a savings subsidiary of such company; (vii) holding or managing properties
used or occupied by a savings
bank subsidiary
of such company; (viii) acting as trustee under deeds of trust; (ix) any other
activity (A) that the Federal Reserve Board, by regulation, has determined
to be
permissible for bank holding companies under Section 4(c) of the Bank Holding
Company Act of 1956, unless the Director, by regulation, prohibits or limits
any
such activity for savings and loan holding companies; or (B) in which multiple
savings and loan holding companies were authorized (by regulation) to directly
engage on March 5, 1987; (x) any activity permissible for financial holding
companies under Section 4(k) of the Bank Holding Company Act, including
securities and insurance underwriting; and (xi) purchasing, holding, or
disposing of stock acquired in connection with a qualified stock issuance if
the
purchase of such stock by such savings and loan holding company is approved
by
the Director. If a mutual holding company acquires or merges with another
holding company, the holding company acquired or the holding company resulting
from such merger or acquisition may only invest in assets and engage in
activities listed in (i) through (xi) above, and has a period of two years
to
cease any nonconforming activities and divest any nonconforming
investments.
The
Home
Owners’ Loan Act prohibits a savings and loan holding company, including United
Financial Bancorp, Inc. and United Mutual Holding Company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5%
of
another savings institution or holding company thereof, without prior written
approval of the Office of Thrift Supervision. It also prohibits the acquisition
or retention of, with certain exceptions, more than 5% of a nonsubsidiary
company engaged in activities other than those permitted by the Home Owners’
Loan Act, or acquiring or retaining control of an institution that is not
federally insured. In evaluating applications by holding companies to acquire
savings institutions, the Office of Thrift Supervision must consider the
financial and managerial resources, future prospects of the company and
institution involved, the effect of the acquisition on the risk to the federal
deposit insurance fund, 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
institutions in more than one state, subject to two exceptions: (i) the approval
of interstate supervisory acquisitions by savings and loan holding companies;
and (ii) the acquisition of a savings institution in another state if the laws
of the state of the target savings institution specifically permit such
acquisitions. The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.
Waivers
of Dividends by United Mutual Holding Company.
Office
of Thrift Supervision regulations require United Mutual Holding Company to
notify the Office of Thrift Supervision of any proposed waiver of its receipt
of
dividends from United Financial Bancorp, Inc. 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
subsidiary 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. Under Office of Thrift
Supervision regulations, our public stockholders would not be diluted because
of
any dividends waived by United Mutual Holding Company (and waived dividends
would not be considered in determining an appropriate exchange ratio) in the
event United Mutual Holding Company converts to stock form.
Conversion
of United Mutual Holding Company to Stock Form.
Office
of Thrift Supervision regulations permit United Mutual Holding Company to
convert from the mutual form of organization to the capital stock form of
organization (a “Conversion Transaction”). There can be no assurance when, if
ever, a Conversion Transaction will occur, and the Board of Directors has no
current intention or plan to undertake a Conversion Transaction. In a Conversion
Transaction a new stock holding company would be formed as the successor to
United Financial Bancorp, Inc. (the “New Holding Company”), United Mutual
Holding Company’s corporate existence would end, and certain depositors of
United Bank 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 United Mutual Holding Company (“Minority
Stockholders”) would be automatically converted into a number of shares of
common stock of the New Holding Company determined pursuant to an exchange
ratio
that ensures that Minority Stockholders own the same percentage of common stock
in the New Holding Company as they owned in United Financial Bancorp, Inc.
immediately prior to the Conversion Transaction. Under Office of Thrift
Supervision regulations, Minority Stockholders would not be diluted because
of
any dividends waived by United Mutual Holding Company (and waived dividends
would not be considered in determining an appropriate exchange ratio), in the
event United Mutual Holding Company converts to stock form. The total number
of
shares held by Minority Stockholders after a Conversion Transaction also would
be increased by any purchases by Minority Stockholders in the offering conducted
as part of the Conversion Transaction.
Any
Conversion Transaction would require the approval of a majority of the
outstanding shares of United Financial Bancorp,
Inc.
common stock held by Minority Stockholders and approval of a majority of the
votes held by depositors of United Bank, with depositors entitled to cast one
vote per $100 on deposit at United Bank (up to a maximum of 1,000 votes).
Federal
Securities Laws
United
Financial Bancorp, Inc. common stock is registered with the Securities and
Exchange Commission under the Securities Exchange Act of 1934. United Financial
Bancorp, Inc. is subject to the information, proxy solicitation, insider trading
restrictions and other requirements under the Securities Exchange Act of
1934.
The
registration under the Securities Act of 1933 of shares of common stock issued
in the Company’s initial public offering does not cover the resale of those
shares. Shares of common stock purchased by persons who are not affiliates
of
United Financial Bancorp, Inc. may be resold without registration. Shares
purchased by an affiliate of United Financial Bancorp, Inc. will be subject
to
the resale restrictions of Rule 144 under the Securities Act of 1933. If United
Financial Bancorp, Inc. meets the current public information requirements of
Rule 144 under the Securities Act of 1933, each affiliate of United Financial
Bancorp, Inc. that complies with the other conditions of Rule 144, including
those that require the affiliate’s sale to be aggregated with those of other
persons, would be able to sell in the public market, without registration,
a
number of shares not to exceed, in any three-month period, the greater of 1%
of
the outstanding shares of United Financial Bancorp, Inc., or the average weekly
volume of trading in the shares during the preceding four calendar weeks. In
the
future, United Financial Bancorp, Inc. may permit affiliates to have their
shares registered for sale under the Securities Act of 1933.
TAXATION
Federal
Taxation
General.
United
Financial Bancorp, Inc. and United Bank are subject to federal income taxation
in the same general manner as other corporations, with some exceptions discussed
below. Neither United Financial Bancorp, Inc.’s nor United Bank’s federal tax
returns are currently under audit, and neither entity has been audited during
the past five years. The following discussion of federal taxation is intended
only to summarize certain pertinent federal income tax matters and is not a
comprehensive description of the tax rules applicable to United Financial
Bancorp, Inc. or United Bank.
Method
of Accounting.
For
federal income tax purposes, United Financial Bancorp, Inc. currently reports
its income and expenses on the accrual method of accounting and uses a tax
year
ending December 31 for filing its federal and state income tax returns.
Bad
Debt Reserves.
Historically,
United Bank has been subject to special provisions in the tax law regarding
allowable tax bad debt deductions and related reserves. Tax law changes were
enacted in 1996, pursuant to the Small Business Protection Act of 1996 (the
“1996 Act”), that eliminated the use of the percentage of taxable income method
for tax years after 1995 and required recapture into taxable income over a
six
year period all bad debt reserves accumulated after 1988. United Bank recaptured
its reserves accumulated after 1988 over the six-year period ended December
31,
2001.
Currently,
the United Financial Bancorp, Inc. consolidated group uses the specific charge
off method to account for bad debt deductions for income tax purposes.
Taxable
Distributions and Recapture.
Prior
to
the 1996 Act, bad debt reserves created prior to November 1, 1988 were subject
to recapture into taxable income should United Bank fail to meet certain thrift
asset and definitional tests.
At
December 31, 2006, our total federal pre-base year reserve was approximately
$2.6 million. However, under current law, base-year reserves remain subject
to
recapture should United Bank make certain non-dividend distributions, repurchase
any of its stock, pay dividends in excess of tax earnings and profits, or cease
to maintain a bank charter.
Alternative
Minimum Tax.
The
Internal Revenue Code of 1986, as amended (the “Code”) imposes an alternative
minimum tax (“AMT”) at a rate of 20% on a base of regular taxable income plus
certain tax preferences (“alternative minimum taxable income” or “AMTI”). The
AMT is payable to the extent such AMTI is in excess of an exemption amount
and
the AMT exceeds the regular income tax. Net operating losses can offset no
more
than 90% of AMTI. Certain payments of alternative minimum tax may be used as
credits against regular tax liabilities in future years. United Financial
Bancorp, Inc. and United Bank have not been subject to the alternative minimum
tax and have no such amounts available as credits for carryover.
Net
Operating Loss Carryovers.
A
financial institution may carry back net operating losses to the preceding
two
taxable years and forward to the succeeding 20 taxable years. At December 31,
2006, United Bank had no net operating loss carryforwards for federal income
tax
purposes.
Corporate
Dividends-Received Deduction.
United
Financial Bancorp, Inc. may exclude from its federal taxable income 100% of
dividends received from United Bank as a wholly owned subsidiary. The corporate
dividends-received deduction is 80% when the dividend is received from a
corporation having at least 20% of its stock owned by the recipient corporation.
A 70% dividends-received deduction is available for dividends received from
corporations owning less than 20% by the recipient corporation.
State
Taxation
For
Massachusetts income tax purposes, a consolidated tax return cannot be filed.
Instead, United Financial Bancorp, Inc., United Bank, and each of their
subsidiaries file separate annual income tax returns. United Bank’s state tax
returns, as well as those of its subsidiaries, are not currently under audit,
and have not been audited during the past five years.
United
Bank files Massachusetts financial institution income tax returns and is subject
to an annual Massachusetts tax at a rate of 10.5% of its net income.
Massachusetts net income is defined as gross income, other than 95% of dividends
received in any taxable year beginning on or after January 1, 1999 from or
on
account of the ownership of any class of stock if the institution owns 15%
or
more of the voting stock of the institution paying the dividend, less the
deductions, but not the credits allowable under the provisions of the Internal
Revenue Code, as amended and in effect for the taxable year. The dividends
must
meet the qualifications under Massachusetts law. Deductions with respect to
the
following items, however, shall be allowed except as otherwise provided: (a)
dividends received, except as otherwise provided; (b) losses sustained in other
taxable years; (c) taxes on or measured by income, franchise taxes measured
by
net income, franchise taxes for the privilege of doing business and capital
stock taxes imposed by any state; or (d) the deduction allowed by section 168(k)
of the Code.
United
Financial Bancorp, Inc. is required to file a Massachusetts income tax return
and is generally subject to a state income tax rate that is the same rate as
the
tax rate for financial institutions in Massachusetts.
United
Bank’s subsidiary, UCB Securities, Inc., is taxed as a Massachusetts security
corporation, and is subject to a state tax rate of 1.32% of its gross income.
Future
Changes in Interest Rates Could Reduce Our Profits
Our
ability to make a profit largely depends on our net interest income, which
could
be negatively affected by changes in interest rates. Net interest income is
the
difference between:
|
·
|
the
interest income we earn on our interest-earning assets, such as loans
and
securities; and
|
|
·
|
the
interest expense we pay on our interest-bearing liabilities, such
as
deposits and borrowings.
|
The
rates
we earn on our assets and the rates we pay on our liabilities are generally
fixed for a contractual period of time. Like many savings institutions, our
liabilities generally have shorter contractual maturities than our assets.
This
imbalance can create significant earnings volatility, because market interest
rates change over time. In a period of rising interest rates, the interest
income earned on our assets may not increase as rapidly as the interest paid
on
our liabilities. In a period of declining interest rates, the interest income
earned on our assets may decrease more rapidly than the interest paid on our
liabilities, as borrowers prepay mortgage loans, and mortgage-backed securities
and callable investment securities are called or prepaid thereby requiring
us to
reinvest those cash flows at lower interest rates. See “Management’s Discussion
and Analysis of Financial Condition and Results of Operations — Management of
Market Risk.”
In
addition, changes in interest rates can affect the average life of loans and
mortgage-backed and related securities. A reduction in interest rates results
in
increased prepayments of loans and mortgage-backed and related securities,
as
borrowers refinance their debt in order to reduce their borrowing costs. This
creates reinvestment risk, which is the risk that we may not be able to reinvest
prepayments at rates that are comparable to the rates we earned on the prepaid
loans or securities. Additionally, increases in interest rates may decrease
loan
demand and/or make it more difficult for borrowers to repay adjustable-rate
loans.
Changes
in interest rates also affect the current fair value of our interest-earning
securities portfolio. Generally, the value of securities moves inversely with
changes in interest rates. At December 31, 2006, the fair value of our agency
securities, mortgage-backed securities and corporate debt obligations, all
classified as available for sale, totaled $190.0 million. Unrealized net losses
on these available-for-sale securities totaled $3.2 million at December 31,
2006
and are reported as a separate component of stockholder’s equity. Further
decreases in the fair value of securities available for sale in future periods
would have an adverse effect on stockholders’ equity.
We
evaluate interest rate sensitivity using income simulation models that estimates
the change in United Bank’s net interest income over a range of interest rate
scenarios. Net income at risk measures the risk of a decline in earnings due
to
potential short-term and long term changes in interest rates. At December 31,
2006, the latest date for which such information is available, in the event
of
an immediate 200 basis point increase in interest rates, the model projects
that
we would experience a 10.9% decrease in net interest income.
Because
We Intend to Increase Our Commercial Real Estate, Commercial Construction and
Commercial and Industrial Loan Originations, Our Lending Risk Will Increase
and
Downturns in the Real Estate Market or Local Economy Could Adversely Affect
Our
Earnings.
At
December 31, 2006, our portfolio of commercial real estate loans totaled $175.6
million, or 23.04% of our total loans, our portfolio of commercial construction
loans totaled $41.3 million, or 5.41% of our total loans and our portfolio
of
commercial and industrial loans totaled $69.8 million, or 9.15% of our total
loans. These loans have increased as a percentage of our total loan portfolio
in
recent years. These loans generally have more risk than one- to four-family
residential mortgage loans. Because the repayment of commercial real estate,
commercial construction and commercial and industrial loans depends on the
successful management and operation of the borrower’s properties or related
businesses, repayment of such loans can be affected by adverse conditions in
the
real estate market or the local economy. Many of our borrowers also have more
than one commercial real estate or commercial and industrial loan outstanding
with us. Consequently, an adverse development with respect to one loan or one
credit relationship can expose us to significantly greater risk of loss compared
to an adverse development with respect to a one- to four-family residential
mortgage loan. Finally, if we foreclose on a commercial real estate, commercial
construction or commercial and industrial loan, our holding period for the
collateral, if any, typically is longer than for one- to four-family residential
mortgage loans because there are fewer potential purchasers of the collateral.
Because we plan to continue to increase our originations of these loans, it
may
be necessary to increase the level of our allowance for loan losses because
of
the increased risk characteristics associated with these types of loans. Any
such increase to our allowance for loan losses would adversely affect our
earnings.
If
Economic Conditions Deteriorate, Our Results of Operations and Financial
Condition Could Be Adversely Affected as Borrowers’ Ability to Repay Loans
Declines and the Value of the Collateral Securing Our Loans
Decreases.
Our
financial results may be adversely affected by changes in prevailing economic
conditions, including decreases in real estate values, changes in interest
rates
which may cause a decrease in interest rate spreads, adverse employment
conditions, the monetary and fiscal policies of the federal government and
other
significant external events. Particularly, in recent years, the prices of real
estate have significantly increased in our market area. Because we originate
a
significant number of mortgage loans secured by residential real estate,
decreases in real estate values could adversely affect the value of property
used as collateral for such loans. At December 31, 2006, loans secured by
residential real estate, including home equity loans and lines of credit,
represented 56.66% of our total loans. Adverse changes in the economy also
may
have a negative effect on the ability of our borrowers to make timely repayments
of their loans, which would have an adverse impact on our earnings. As of
December 31, 2005, the unemployment rates in Hampden and Hampshire Counties,
Massachusetts were 5.5% and 3.4%, respectively. At that same date, the
Massachusetts unemployment rate was 4.5%.
Strong
Competition Within Our Market Area May Limit Our Growth and
Profitability.
Competition
in the banking and financial services industry is intense. In our market area,
we compete with commercial banks, savings and cooperative institutions, mortgage
brokerage firms, credit unions, finance companies, mutual funds, insurance
companies, and brokerage and investment banking firms operating locally and
elsewhere. Some of our competitors have substantially greater resources and
lending limits than we have, have greater name recognition and market presence
that benefit them in attracting business, and offer certain services that we
do
not or cannot provide. In addition, larger competitors may be able to price
loans and deposits more aggressively than we do. Our profitability depends
upon
our continued ability to successfully compete in our market area. The greater
resources and deposit and loan products offered by some of our competitors
may
limit our ability to increase our interest-earning assets.
If
Our Allowance for Loan Losses is Not Sufficient to Cover Actual Loan Losses,
Our
Earnings Could Decrease.
We
make
various assumptions and judgments about the collectibility of our loan
portfolio, including the creditworthiness of our borrowers and the value of
the
real estate and other assets serving as collateral for the repayment of many
of
our loans. In determining the amount of the allowance for loan losses, we review
our loans and our loss and delinquency experience, and we evaluate economic
conditions. If our assumptions are incorrect, our allowance for loan losses
may
not be sufficient to cover losses inherent in our loan portfolio, resulting
in
additions to our allowance. Our allowance for loan losses was .95% of total
loans and 560.40% of non-performing loans at December 31, 2006. Material
additions to our allowance could materially decrease our net income.
In
addition, bank regulators periodically review our allowance for loan losses
and
may require us to increase our provision for loan losses or recognize further
loan charge-offs. Any increase in our allowance for loan losses or loan
charge-offs as required by these regulatory authorities may have a material
adverse effect on our financial condition and results of
operations.
Public
Stockholders Own a Minority of United Financial Bancorp, Inc.’s Common Stock and
Are Not Able to Exercise Voting Control Over Most Matters Put to a Vote of
Stockholders.
Public
stockholders own a minority of the outstanding shares of United Financial
Bancorp, Inc.’s common stock. As a result, stockholders other than United Mutual
Holding Company are not able to exercise voting control over most matters put
to
a vote of stockholders. United Mutual Holding Company owns a majority of United
Financial Bancorp, Inc.’s 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 certain officers
who manage United Financial Bancorp, Inc. and United Bank also manage United
Mutual Holding Company. Further, these same directors and officers own an
aggregate of 0.81% of the shares of United Financial Bancorp, Inc.’s common
stock, thereby further reducing the voting control of public stockholders who
own a minority of the outstanding shares. The only matters as to which
stockholders other than United Mutual Holding Company are able to exercise
voting control include any proposal to implement a stock-based incentive plan
or
for a second-step stock conversion. In addition, United Mutual Holding Company
may exercise its voting control to prevent a sale or merger transaction in
which
stockholders could receive a premium for their shares.
Office
of Thrift Supervision Policy on Remutualization Transactions Could Prohibit
Acquisition of United Financial Bancorp, Inc., Which May Lower Our Stock
Price.
Current
Office of Thrift Supervision regulations permit a mutual holding company
subsidiary to be acquired by a mutual institution or a mutual holding company
in
a so-called “remutualization” transaction. The possibility of a remutualization
transaction and the successful completion of a small number of remutualization
transactions where significant premiums have been paid to minority stockholders
has resulted in some takeover speculation for mutual holding companies, which
may be reflected in the per share price of mutual holding companies' common
stock. 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 the mutual
interests of the mutual holding company and as raising issues concerning the
effect on the mutual interests of the acquiring entity. Under certain
circumstances, the Office of Thrift Supervision intends to give these issues
special scrutiny and to reject applications providing 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 per-share stock price may be adversely
affected.
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS Not
applicable.
|
The
following table provides certain information as of December 31, 2006 with
respect to our main office located in West Springfield and our twelve other
full
service branch offices, our drive-up facility and our financial services
facilities:
Location
|
|
Leased
or Owned
|
|
Year
Acquired or Leased
|
|
Square
Footage
|
|
Net
Book Value of Real Property
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
Main
Office:
|
|
|
|
|
|
|
|
|
|
95
Elm Street
|
|
|
Owned
|
|
|
1999
|
|
|
46,147
|
|
$
|
1,363
|
|
West
Springfield, MA 01089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
Service Branches:
|
|
|
|
|
|
|
|
|
|
115
State Street
|
|
|
Leased
|
|
|
(1
|
)
|
|
3,401
|
|
|
112
|
|
Springfield,
MA 01103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1077
St. James Avenue
|
|
|
Owned
|
|
|
2003
|
|
|
8,354
|
|
|
637
|
|
Springfield,
MA 01104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
459
Main Street
|
|
|
Leased
|
|
|
(2
|
)
|
|
2,000
|
|
|
—
|
|
Indian
Orchard, MA 01151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
528-530
Center Street
|
|
|
Owned
|
|
|
2002
|
|
|
3,000
|
|
|
637
|
|
Ludlow,
MA 01056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1930
Wilbraham Road
|
|
|
Owned
|
|
|
2001
|
|
|
2,304
|
|
|
647
|
|
Springfield,
MA 01129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
670
Bliss Road
|
|
|
Leased
|
|
|
(3
|
)
|
|
1,652
|
|
|
—
|
|
Longmeadow,
MA 01106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1325
Springfield Street
|
|
|
Leased
|
|
|
(4
|
)
|
|
2,400
|
|
|
—
|
|
Feeding
Hills, MA 01030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180
Main Street
|
|
|
Leased
|
|
|
(5
|
)
|
|
2,800
|
|
|
254
|
|
Northampton,
MA 01060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Elm Street
|
|
|
Owned
|
|
|
1981
|
|
|
8,500
|
|
|
17
|
|
Westfield,
MA 01085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
Southampton Road
|
|
|
Leased
|
|
|
(6
|
)
|
|
2,890
|
|
|
—
|
|
Westfield,
MA 01085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Russell Road
|
|
|
Owned
|
|
|
2001
|
|
|
720
|
|
|
137
|
|
Huntington,
MA 01050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1830
Northampton Street
|
|
|
Owned
|
|
|
1994
|
|
|
6,409
|
|
|
305
|
|
Holyoke,
MA 01040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
Van Deene Avenue
|
|
|
Owned
|
|
|
2005
|
(7)
|
|
547
|
|
|
720
|
|
West
Springfield, MA 01089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Westfield Street
|
|
|
Owned
|
|
|
2002
|
(8)
|
|
1,720
|
|
|
1,232
|
|
West
Springfield, MA 01089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140
Main Street
|
|
|
Leased
|
|
|
2006
|
(8,9)
|
|
1,875
|
|
|
—
|
|
Northampton,
MA 01060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_______________
(1)
|
United
Bank has a lease for a five-year period expiring in June 2010 with
a
renewal option for five additional
years.
|
(2)
|
United
Bank has a lease for a five-year period expiring in May 2008 with
two
five-year renewal options.
|
(3)
|
United
Bank has a lease for a five-year period expiring in September 2011
with a
renewal option for five additional years.
|
(4)
|
United
Bank has a lease for a five-year period expiring in September 2010
with a
renewal option for five additional
years.
|
(5)
|
United
Bank has a lease for a ten-year period expiring in April 2016 with
two
five-year renewal options.
|
(6)
|
United
Bank has a lease for a twenty-five year period expiring in March
2031 with
two five-year renewal options.
|
(7)
|
This
office is a drive-up facility only.
|
(8)
|
This
financial services facility offers insurance and investment products
and
financial planning services.
|
(9)
|
United
Bank has a lease for a two-year period expiring in November 2008
with two
two-year renewal options.
|
The
net
book value of our premises, land and equipment was $8.8 million at December
31,
2006.
ITEM
3.
|
LEGAL
PROCEEDINGS
|
The
Company and its subsidiaries are subject to various legal actions arising in
the
normal course of business. At December 31, 2006, we were not involved in any
legal proceedings that were material to the Company’s financial condition or
results of operations.
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
During
the fourth quarter of the fiscal year covered by this report, the Company did
not submit any matters to the vote of security holders.
PART
II
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY
SECURITIES
|
(a)
Our
shares of common stock are traded on the Nasdaq Global Select Market under
the
symbol “UBNK”. The approximate number of holders of record of United Financial
Bancorp, Inc.’s common stock as of March 5, 2007 was 3,976 including beneficial
owners. The following table presents quarterly market information for United
Financial Bancorp, Inc.’s common stock for the years ended December 31, 2006 and
2005. United Financial Bancorp, Inc. began trading on the Nasdaq Global Select
Market on July 13, 2005. Accordingly, no information prior to this date is
available. The following information was provided by the Nasdaq Stock
Market.
Quarter
|
|
|
|
|
|
|
|
Ended
|
|
High
|
|
Low
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
March
31, 2006
|
|
$
|
12.46
|
|
$
|
11.33
|
|
$
|
0.05
|
|
June
30, 2006
|
|
|
13.31
|
|
|
11.53
|
|
|
0.05
|
|
September
30, 2006
|
|
|
14.23
|
|
|
12.11
|
|
|
0.05
|
|
December
31, 2006
|
|
|
14.97
|
|
|
12.63
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2005
|
|
|
12.61
|
|
|
11.06
|
|
|
-
|
|
December
31, 2005
|
|
|
12.00
|
|
|
11.53
|
|
|
-
|
|
Set
forth
hereunder is a stock performance graph comparing (a) the cumulative total return
on the Common Stock for the period beginning on July 13, 2005 through December
31, 2006, (b) the cumulative total return on stocks included in the SNL Thrift
Index over such period, (c) the cumulative total return on stocks included
in
the Russell 2000 Index over such period, and (d) the cumulative total return
on
stocks included in the SNL MHC Thrift Index over such period.
The
cumulative total return on the Common Stock was computed assuming the
reinvestment of cash dividends during the period and is expressed in dollars
based on an assumed initial investment of $100.
|
|
Period
Ended
|
|
Index
|
|
07/13/05
|
|
12/31/05
|
|
03/31/06
|
|
06/30/06
|
|
09/30/06
|
|
12/31/05
|
|
United
Financial Bancorp, Inc.
|
|
|
100.00
|
|
|
98.13
|
|
|
102.82
|
|
|
114.23
|
|
|
111.40
|
|
|
119.32
|
|
Russell
2000
|
|
|
100.00
|
|
|
101.41
|
|
|
115.54
|
|
|
109.74
|
|
|
110.22
|
|
|
120.04
|
|
SNL
MHC Thrift Index
|
|
|
100.00
|
|
|
100.48
|
|
|
109.31
|
|
|
113.85
|
|
|
124.47
|
|
|
137.60
|
|
SNL
Thrift Index
|
|
|
100.00
|
|
|
100.76
|
|
|
104.28
|
|
|
108.60
|
|
|
109.98
|
|
|
117.45
|
|
On
January 18, 2007, the Board of Directors of United Financial Bancorp, Inc.
declared a cash dividend of $0.06 per share. The dividend will be payable on
February 26, 2007 to shareholders of record as of February 12, 2007.
Dividend
payments by United Financial Bancorp, Inc. are dependent primarily on cash
flows
from the investment portfolio and debt service payments from United Bank in
connection with its loan to the Employee Stock Ownership Plan.
For
a
discussion of United Bank’s ability to pay dividends, see “Supervision and
Regulation—Federal Banking Regulation.”
The
following table provides certain information at December 31, 2006 with regard
to
compensation plans under which equity securities of the registrant are
authorized for issuance:
Plan
Category
|
Number
of securities to be issued upon 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 column
(a))
|
|
(a)
|
(b)
|
(c)
|
Equity
compensation plans approved by security holders
|
756,500
|
$12.88
|
86,593
|
Equity
compensation plans not approved by security holders
|
-
|
-
|
-
|
Total
|
756,500
|
$12.88
|
86,593
|
|
(c)
|
The
following table provides certain information with regard to shares
repurchased by the Company in the fourth quarter of
2006.
|
Period
|
|
(a)
Total
Number of Shares (or Units) Purchased
|
|
(b)
Average
Price Paid Per Share (or Unit)
|
|
(c)
Total
Number of Shares (or Units) Purchased as Part of Publicly Announced
Plans
or Programs (1)
|
|
(d)
Maximum
Number (or Approximate Dollar Value) of Shares (or Units) that May
Yet Be
Purchased Under the Plans or Programs
|
|
|
|
|
|
|
|
|
|
|
|
October
1 -31, 2006
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
|
858,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
1 - 30, 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
858,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
1 -31, 2006
|
|
|
1,945
|
|
|
13.76
|
|
|
1,945
|
|
|
856,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,945
|
|
$
|
13.76
|
|
|
1,945
|
|
|
NA
|
|
ITEM
6.
|
SELECTED
FINANCIAL DATA
|
The
summary information presented below at or for each of the fiscal years presented
is derived in part from the consolidated financial statements of United
Financial Bancorp, Inc. The following information is only a summary, and should
be read in conjunction with our consolidated financial statements and notes
included elsewhere in this Annual Report.
|
|
At
December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
(In
thousands)
|
|
Selected
Financial Condition Data:
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
1,009,433
|
|
$
|
906,513
|
|
$
|
772,008
|
|
$
|
737,424
|
|
$
|
623,563
|
|
Cash
and cash equivalents
|
|
|
25,419
|
|
|
15,843
|
|
|
23,233
|
|
|
16,144
|
|
|
38,779
|
|
Investment
securities available-for-sale
|
|
|
80,963
|
|
|
111,763
|
|
|
50,650
|
|
|
73,191
|
|
|
36,617
|
|
Investment
securities held-to-maturity
|
|
|
3,241
|
|
|
3,325
|
|
|
2,498
|
|
|
2,175
|
|
|
737
|
|
Mortgage-backed
securities available-for-sale
|
|
|
109,274
|
|
|
114,702
|
|
|
101,679
|
|
|
123,774
|
|
|
60,889
|
|
Loans,
net (1)
|
|
|
756,180
|
|
|
630,558
|
|
|
569,243
|
|
|
497,078
|
|
|
463,383
|
|
Deposits
|
|
|
685,686
|
|
|
653,611
|
|
|
613,672
|
|
|
594,748
|
|
|
533,704
|
|
FHLB
advances
|
|
|
169,806
|
|
|
101,880
|
|
|
86,694
|
|
|
76,820
|
|
|
29,889
|
|
Repurchase
agreements
|
|
|
10,425
|
|
|
8,434
|
|
|
4,317
|
|
|
4,218
|
|
|
1,146
|
|
Stockholders'
equity
|
|
|
137,711
|
|
|
137,005
|
|
|
62,255
|
|
|
57,050
|
|
|
52,612
|
|
Non-performing
assets (2)
|
|
|
1,850
|
|
|
3,319
|
|
|
3,784
|
|
|
1,865
|
|
|
1,036
|
|
|
|
Years
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
(In
thousands)
|
|
Selected
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and dividend income
|
|
$
|
52,202
|
|
$
|
43,233
|
|
$
|
36,532
|
|
$
|
33,776
|
|
$
|
36,009
|
|
Interest
expense
|
|
|
24,647
|
|
|
16,206
|
|
|
12,148
|
|
|
11,583
|
|
|
14,703
|
|
Net
interest income before provision for loan losses
|
|
|
27,555
|
|
|
27,027
|
|
|
24,384
|
|
|
22,193
|
|
|
21,306
|
|
Provision
for loan losses
|
|
|
969
|
|
|
917
|
|
|
983
|
|
|
294
|
|
|
398
|
|
Net
interest income after provision for loan losses
|
|
|
26,586
|
|
|
26,110
|
|
|
23,401
|
|
|
21,899
|
|
|
20,908
|
|
Non-interest
income
|
|
|
5,392
|
|
|
5,020
|
|
|
5,134
|
|
|
5,703
|
|
|
4,522
|
|
Non-interest
expense
|
|
|
24,036
|
|
|
24,112
|
|
|
19,179
|
|
|
17,785
|
|
|
16,971
|
|
Income
before taxes
|
|
|
7,942
|
|
|
7,018
|
|
|
9,356
|
|
|
9,817
|
|
|
8,459
|
|
Income
tax expense
|
|
|
3,018
|
|
|
2,649
|
|
|
3,828
|
|
|
3,917
|
|
|
3,270
|
|
Net
income
|
|
$
|
4,924
|
|
$ |
4,369
|
^ |
$
|
5,528
|
|
$
|
5,900
|
|
$
|
5,189
|
|
|
|
At
or For the Years Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
Selected
Financial Ratios and Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Ratios (3):
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets
|
|
|
0.51
|
%
|
|
0.51
|
%* |
|
0.73
|
%
|
|
0.86
|
%
|
|
0.84
|
%
|
Return
on average equity
|
|
|
3.59
|
%
|
|
4.45
|
%* |
|
9.25
|
%
|
|
10.72
|
%
|
|
10.47
|
%
|
Average
equity to average assets
|
|
|
14.35
|
%
|
|
11.42
|
%
|
|
7.87
|
%
|
|
8.07
|
%
|
|
8.03
|
%
|
Equity
to total assets at end of period (3)
|
|
|
13.64
|
%
|
|
15.11
|
%
|
|
8.06
|
%
|
|
7.74
|
%
|
|
8.44
|
%
|
Interest
rate spread (4)
|
|
|
2.23
|
%
|
|
2.77
|
%
|
|
3.03
|
%
|
|
3.12
|
%
|
|
3.23
|
%
|
Net
interest margin (5)
|
|
|
2.97
|
%
|
|
3.27
|
%
|
|
3.33
|
%
|
|
3.41
|
%
|
|
3.65
|
%
|
Average
interest-earning assets to average interest-bearing
liabilitites
|
|
|
128.10
|
%
|
|
125.61
|
%
|
|
118.30
|
%
|
|
116.42
|
%
|
|
116.77
|
%
|
Total
non-interest expense to average total assets
|
|
|
2.51
|
%
|
|
2.81
|
%* |
|
2.53
|
%
|
|
2.61
|
%
|
|
2.75
|
%
|
Efficiency
ratio (6)
|
|
|
72.95
|
%
|
|
75.25
|
%* |
|
64.98
|
%
|
|
63.75
|
%
|
|
65.71
|
%
|
Dividend
payout ratio
|
|
|
5.74
|
%
|
|
NA
|
|
|
NA
|
|
|
NA
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
Bank Regulatory Capital Ratios (3,
7):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I (core) capital
|
|
|
14.83
|
%
|
|
17.21
|
%
|
|
11.67
|
%
|
|
12.33
|
%
|
|
12.23
|
%
|
Tier
I (leverage) capital
|
|
|
10.82
|
%
|
|
11.71
|
%
|
|
8.11
|
%
|
|
7.76
|
%
|
|
8.25
|
%
|
Total
capital
|
|
|
15.86
|
%
|
|
18.28
|
%
|
|
12.76
|
%
|
|
13.43
|
%
|
|
13.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
Quality Ratios (3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing
assets as a percent of total assets (2)
|
|
|
0.18
|
%
|
|
0.37
|
%
|
|
0.49
|
%
|
|
0.25
|
%
|
|
0.17
|
%
|
Non-performing
loans as a percent of total loans (2)
|
|
|
0.17
|
%
|
|
0.27
|
%
|
|
0.66
|
%
|
|
0.36
|
%
|
|
0.21
|
%
|
Allowance
for loan losses as a percent of total loans
|
|
|
0.95
|
%
|
|
1.00
|
%
|
|
1.00
|
%
|
|
1.02
|
%
|
|
1.05
|
%
|
Allowance
for loan losses as a percent of non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
performing
loans
|
|
|
560.40
|
%
|
|
371.69
|
%
|
|
151.96
|
%
|
|
278.97
|
%
|
|
507.53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of full service customer facilities
|
|
|
13
|
|
|
11
|
|
|
11
|
|
|
11
|
|
|
11
|
|
(1)
|
The
allowance for loan losses at December 31, 2006, 2005, 2004, 2003
and 2002
was $7.2 million, $6.4 million, $5.8 million, $5.1 million and $4.9
million, respectively.
|
(2)
|
Non-performing
assets consist of non-performing loans and foreclosed real estate
owned
(“REO”). Non-performing loans consist of non-accrual and accruing loans
90
days or more overdue, while REO consists of real estate acquired
through
foreclosure and real estate acquired by acceptance of a deed-in-lieu
of
foreclosure.
|
(3)
|
Asset
Quality Ratios and Regulatory Capital Ratios and the “equity to total
assets” ratio are end of period ratios. With the exception of end of
period ratios, all ratios are based on average monthly balances during
the
indicated periods and are annualized where
appropriate.
|
(4)
|
The
interest rate spread represents the difference between weighted-average
yield on interest-earning assets and the weighted-average cost of
interest-bearing liabilities.
|
(5)
|
The
net interest margin represents net interest income as a percent of
average
interest-earning assets.
|
(6)
|
The
efficiency ratio represents non-interest expense divided by the sum
of net
interest income and non-interest
income.
|
(7)
|
Regulatory
Capital Ratios are reported for the Bank only and do not include
the
consolidating effect of United Financial Bancorp,
Inc.
|
^
|
Excluding
the effect of a $3,591 charitable contribution ($2,199 after taxes)
to
fund the newly-formed United Charitable Foundation, net income in
2005
would have amounted to $6,568.
|
*
|
Exclusive
of the contribution to the United Charitable Foundation in 2005,
return on
average assets, return on average equity, total non- interest expense
to
average total assets, and efficiency ratio would have been 0.76%,
6.70%,
2.43% and 64.41%, respectively.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Overview
Our
results of operations depend primarily on our net interest income. Net interest
income is the difference between the interest income we earn on our
interest-earning assets, consisting primarily of loans, investment securities
(including mortgage-backed securities, other securities and corporate and
municipal bonds) and other interest-earning assets (primarily cash and cash
equivalents), and the interest paid on our interest-bearing liabilities,
consisting primarily of savings accounts, money market accounts, transaction
accounts, certificates of deposit and Federal Home Loan Bank advances. Net
interest income before provision for loan losses increased $528,000, or 2.2%,
to
$27.6 million for the year ended December 31, 2006 from $27.0 million for the
year ended December 31, 2005. The primary reason for the improvement in our
net
interest income was a $97.7 million, or 11.4%, increase in our average interest
earning assets, to $926.3 million for the year ended December 31, 2006,
reflecting strong growth in loans. The favorable impact of the expansion in
earning assets was offset to some extent by net interest margin compression
of
30 basis points to 2.97% for the year ended December 31, 2006 compared to 3.27%
in the same period last year.
Our
results of operations are also affected by our provision for loan losses,
non-interest income and non-interest expense. Non-interest income consists
primarily of deposit account fees, financial services fees, increases in cash
value-insurance, gains and losses on the sale of securities and miscellaneous
other income. Non-interest expense consists primarily of compensation and
employee benefits, data processing, occupancy, marketing and public relations,
professional services, printing and office supplies, and other operating
expenses. Our results of operations also may be affected significantly by
general and local economic and competitive conditions, changes in market
interest rates, governmental policies and actions of regulatory
authorities.
Critical
Accounting Policies
Critical
accounting policies are those that involve significant judgments and assumptions
by management and that have, or could have, a material impact on our income
or
the carrying value of our assets. Our critical accounting policies are those
related to our allowance for loan losses and valuation allowances associated
with deferred tax assets.
Allowance
for Loan Losses. The
allowance for loan losses is the amount estimated by management as necessary
to
cover credit losses inherent in the loan portfolio at the balance sheet date.
The allowance is established through the provision for loan losses which is
charged against income. The methodology for determining the allowance for loan
losses is considered a critical accounting policy by management due to the
high
degree of judgment involved, the subjectivity of the assumptions utilized and
the potential for changes in the economic environment that could result in
adjustments to the amount of the recorded allowance for loan
losses.
As
a
substantial amount of our loan portfolio is collateralized by real estate,
appraisals of the underlying value of property securing loans and discounted
cash flow valuations of properties are critical in determining the amount of
the
allowance required for specific loans. Assumptions for appraisals and discounted
cash flow valuations are instrumental in determining the value of properties.
Overly optimistic assumptions or negative changes to assumptions could
significantly affect the valuation of a property securing a loan and the related
allowance determined. The assumptions supporting such appraisals and discounted
cash flow valuations are reviewed by management to determine that the resulting
values reasonably reflect amounts realizable on the related loans.
Management
performs a quarterly evaluation of the adequacy of the allowance for loan
losses. We consider a variety of factors in establishing this estimate
including, but not limited to, current economic conditions, delinquency
statistics, geographic and industry concentrations, the adequacy of the
underlying collateral, the financial strength of the borrower, results of
internal loan reviews and other relevant factors. This evaluation is inherently
subjective as it requires material estimates by management that may be
susceptible to significant change based on changes in economic and real estate
market conditions.
The
evaluation has a specific and general component. The specific component relates
to loans that are delinquent or otherwise identified as problem loans through
the application of our loan review process and our loan grading system. All
such
loans are evaluated individually, with principal consideration given to the
value of the collateral securing the loans. Specific allowances are established
as required by this analysis. The general component is determined by segregating
the remaining loans by type of loan, risk weighting (if applicable) and payment
history. We also analyze historical loss experience, delinquency trends, general
economic conditions and geographic and industry concentrations. This analysis
establishes factors that are applied to the loan groups to determine the amount
of the general component of the allowance for loan losses.
Actual
loan losses may be significantly more than the allowances we have established
which could have a material negative effect on our financial results.
Valuation
Allowance for deferred tax assets.
The
assessment of whether a valuation allowance for the Company’s deferred tax
assets is required is also a critical accounting estimate. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of such assets will not be realized.
This assessment is made each reporting period based upon an estimate of future
taxable income during the periods in which existing temporary differences become
deductible.
Business
Strategy
Our
business strategy is to operate as a well-capitalized and profitable community
bank dedicated to providing exceptional personal service to our individual
and
business customers. Over the past several years, we have emphasized the
origination of commercial and industrial loans and loans secured by commercial
real estate, and we intend to increase our origination of these loans in the
future. In addition, we intend to expand our branch network in our primary
market area, which consists of Hampden and Hampshire Counties, Massachusetts.
We
also intend to evaluate opportunities to expand into new markets, including
Northern Connecticut. We cannot assure you that we will successfully implement
our business strategy.
Highlights
of our business strategy are as follows:
Remaining
a Community-Oriented Financial Institution.
We were
established in 1882 and have been operating continuously since that time,
growing through internal growth and a series of five mutual-to-mutual business
combinations that occurred between 1960 and 1994. We have been, and continue
to
be, committed to meeting the financial needs of the communities in which we
operate, and we are dedicated to providing quality personal service to our
customers. We provide a broad range of individualized consumer and business
financial services from our main office, 12 branch offices, two offsite ATMs
and
one drive-up facility.
Expanding
our Branch Network.
We
currently operate from 13 full-service banking offices and a drive-up only
facility. We also maintain two financial services facilities that offer
insurance and investment products and financial planning services. We intend
to
evaluate new branch expansion opportunities, through acquisitions and
de
novo branching,
to expand our presence within and outside our primary market area, including
Northern Connecticut, and our current business plan calls for the acquisition
and establishment of additional branch offices. In addition, we intend to
evaluate acquisitions of other financial institutions, as opportunities present
themselves.
Increasing
our Commercial Real Estate and Commercial and Industrial
Lending.
We
intend to continue to increase our origination of higher-yielding commercial
real estate and commercial and industrial loans as a means of increasing our
interest income and improving our net interest margin. These loans also are
generally originated with rates that are fixed for five years or less, which
assists us in managing our interest rate risk. In support of this initiative
we
have supplemented our existing staff of commercial loan officers, increased
our
credit analysis resources and enhanced the outside loan review process. We
originated $108.3 million of commercial real estate and $28.9 million of
commercial and industrial loans during the year ended December 31, 2006. At
December 31, 2006, our commercial real estate and commercial and industrial
loans totaled $175.6 million and $69.8 million, respectively. The additional
capital raised from our initial public offering in 2005 has increased our
commercial lending capacity by enabling us to originate more loans and loans
with larger balances. Originating more commercial real estate and commercial
and
industrial loans exposes us to increased risks, as discussed in the Risk Factors
section of this Form 10-K.
Maintaining
High Asset Quality.
We have
emphasized maintaining strong asset quality by following conservative
underwriting criteria and by originating loans secured primarily by real estate.
We will continue to focus on maintaining high asset quality as we seek to expand
our commercial lending activities. Our non-performing assets at December 31,
2006 were $1.9 million, or 0.18% of total assets, and our net charge-offs were
0.02% of our average loans outstanding for the year ended December 31, 2006.
Increasing
our Share of Lower-Cost Deposits.
We
remain committed to gathering lower cost and more stable core deposits. We
attract and retain core deposits with competitive products and rates, excellent
customer service, a comprehensive marketing program and a well-established
incentive-based cross-sales program. Our efforts to attract and retain core
deposits have resulted in an increase in the total number of accounts. However,
the increased number of accounts has not translated into increased balances
during 2005 and 2006 as many customers have elected to shift transaction,
savings and money market balances to higher yielding certificates of deposits.
At December 31, 2006, consumer and commercial demand deposits comprised 14.17%
of our total deposits, compared to 14.27% of our total deposits at December
31,
2005.
Increasing
and Diversifying our Sources of Non-interest Income.
In order
to reduce our reliance on net interest income and the impact of market rates
on
our financial results, we have sought to diversify our revenue stream. In
connection with our success in growing our deposit base, our fee income derived
from deposits has increased. Through our Financial Services Group, a division
of
United Bank, we offer United Bank customers and others a complete range of
non-deposit investment products and financial planning services, including
mutual funds, debt, equity and government securities, insurance products, fixed
and variable annuities, financial planning for individual and commercial
customers and estate planning services. In 2006 United Bank purchased Levine
Securities in Northampton, Massachusetts in order to expand our market and
capitalize on the establishment of a new branch. United Financial Services
Group
offers these services through its partnership with NFP Securities, Inc. We
have
also invested in bank-owned life insurance for certain executive officers and
directors, providing another source of non-interest income through the
recognition of the growing cash surrender value of this insurance over time.
Comparison
of Financial Condition at December 31, 2006 and 2005
Total
assets increased $102.9 million, or 11.4%, to $1.0 billion at December 31,
2006
from $906.5 million at December 31, 2005. The increase reflected substantial
growth in net loans, partially offset by a decrease in securities available
for
sale. The growth in assets was partially funded by cash flows from the
investment portfolio and increases in both deposits ($32.1 million) and Federal
Home Loan Bank of Boston advances ($67.9 million). Securities available for
sale
decreased $36.2 million, or 15.8%, to $190.2 million at December 31, 2006 from
$226.5 million at December 31, 2005 as management elected to use cash flows
from
the investment portfolio to fund loan growth. Total cash and cash equivalents
increased $9.6 million, to $25.4 million at December 31, 2006, reflecting
routine fluctuations in cash balances and the intentional accumulation of funds
to support future loan growth.
Net
loans
increased $125.6 million, or 19.9%, to $756.2 million at December 31, 2006
from
$630.6 million at December 31, 2005. One- to four-family residential mortgage
loans increased $33.9 million, or 11.9%, to $319.1 million at December 31,
2006,
reflecting continued strong demand in our primary market area given the stable
real estate market and the relatively low interest rate environment. The
increase was due to management’s decision to retain substantially all
originations of residential mortgage loans in portfolio. Commercial real estate
and commercial and industrial loans increased $25.5 million, or 17.0%, to $175.6
million and $10.2 million, or 18.0%, to $69.8 million, respectively, as a result
of stable economic conditions in our primary market area, competitive pricing,
attractive products and services, established relationships, successful business
development efforts and the hiring of additional commercial lenders to diversify
our lending activities. Construction loans increased $25.9 million, or 89.7%,
to
$54.8 million due to strong demand for commercial and residential funding,
successful business development efforts, the solid real estate market and the
relatively low interest rate environment. A significant portion of these loans
mature in less than two years and will either covert to permanent financing
or
pay-off in full. We continued to focus our efforts on growing the commercial
real estate, commercial and industrial, and construction loan portfolios in
order to improve net interest rate spread by increasing our origination of
these
generally higher-yielding loans. Home equity loans increased $26.7 million,
or
31.0%, reflecting strong consumer demand, a solid economy, an attractive product
offering and competitive rates.
Total
deposits increased $32.1 million, or 4.9%, to $685.7 million at December 31,
2006 mainly due to an increase of $39.4 million in certificate of deposit
balances. During the period, customer demand for deposits shifted from savings
towards higher-yielding certificates of deposit accounts. Demand deposits grew
$3.9 million, or 4.2%, due to increased marketing and promotional activity
in an
effort to attract new customers and retain existing funds. Money market account
balances expanded $10.3 million, or 6.7%, reflecting strong customer demand,
attractive products and competitive pricing. At December 31, 2006, core deposits
totaled $364.7 million, or 49.3% of deposits.
Federal
Home Loan Bank advances increased $67.9 million, or 66.7%, to $169.8
million at December 31, 2006 from $101.9 million at December 31, 2005
to fund balance sheet growth. We have used a portion of such advances to “match
fund” certain fixed-rate residential and commercial real estate loans in order
to reduce our interest rate risk. Repurchase agreements increased $2.0 million
to $10.4 million at December 31, 2006 from $8.4 million at
December 31, 2005, reflecting routine fluctuations in these overnight
accounts.
Total
stockholders’ equity increased $706,000, or 0.5%, to $137.7 million at December
31, 2006 from $137.0 million at December 31, 2005. This increase
reflected net income of $4.9 million for the year ended December 31, 2006,
the
equity offset to the recognition of $1.1 million in ESOP and stock-based
compensation expenses and a $514,000 decrease in the net unrealized loss on
securities available for sale. These items were offset to a large extent by
share repurchases totaling $4.4 million and payment of cash dividends
aggregating $1.5 million.
Comparison
of Operating Results for the Years Ended December 31, 2006 and
2005
Net
Income.
Net
income increased $555,000, or 12.7%, to $4.9 million for the year ended December
31, 2006 from $4.4 million for the year ended December 31, 2005. The results
for
2006 reflected growth in average earning assets and non-interest income,
somewhat mitigated by net interest margin compression and higher non-interest
expenses, excluding the impact of a $3.6 million expense related to the
contribution to fund the United Charitable Foundation in 2005. Excluding the
effect of the charitable contribution, net income would have amounted to $6.6
million in 2005.
Average
balances and yields.
The
following table sets forth average balance sheets, average yields and costs,
and
certain other information for the periods indicated. No tax-equivalent yield
adjustments were made, as the effect thereof was not material. All average
balances are daily average balances. Non-accrual loans were included in the
computation of average balances, but have been reflected in the table as loans
carrying a zero yield.
|
|
Years
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Average
|
|
and
|
|
Yield/
|
|
Average
|
|
and
|
|
Yield/
|
|
|
|
Balance
|
|
Dividends
|
|
Cost
|
|
Balance
|
|
Dividends
|
|
Cost
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
410,340
|
|
$
|
23,817
|
|
|
5.80
|
%
|
$
|
362,208
|
|
$
|
20,168
|
|
|
5.57
|
%
|
Commercial
real estate
|
|
|
189,694
|
|
|
12,485
|
|
|
6.58
|
%
|
|
158,820
|
|
|
9,781
|
|
|
6.16
|
%
|
Commercial
and industrial
|
|
|
64,164
|
|
|
4,595
|
|
|
7.16
|
%
|
|
54,954
|
|
|
3,525
|
|
|
6.41
|
%
|
Consumer
and other
|
|
|
29,005
|
|
|
1,441
|
|
|
4.97
|
%
|
|
21,004
|
|
|
1,066
|
|
|
5.08
|
%
|
Total
loans
|
|
|
693,203
|
|
|
42,338
|
|
|
6.11
|
%
|
|
596,986
|
|
|
34,540
|
|
|
5.79
|
%
|
Investment
securities
|
|
|
213,430
|
|
|
8,843
|
|
|
4.14
|
%
|
|
207,301
|
|
|
7,970
|
|
|
3.84
|
%
|
Other
interest-earning assets
|
|
|
19,641
|
|
|
1,021
|
|
|
5.20
|
%
|
|
23,076
|
|
|
723
|
|
|
3.13
|
%
|
Total
interest-earning assets
|
|
|
926,274
|
|
|
52,202
|
|
|
5.64
|
%
|
|
827,363
|
|
|
43,233
|
|
|
5.23
|
%
|
Noninterest-earning
assets
|
|
|
30,280
|
|
|
|
|
|
|
|
|
31,458
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
956,554
|
|
|
|
|
|
|
|
$
|
858,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
accounts
|
|
$
|
76,688
|
|
|
638
|
|
|
0.83
|
%
|
$
|
93,550
|
|
|
594
|
|
|
0.63
|
%
|
Money
market
|
|
|
165,101
|
|
|
5,125
|
|
|
3.10
|
%
|
|
148,297
|
|
|
3,099
|
|
|
2.09
|
%
|
NOW
accounts
|
|
|
36,050
|
|
|
103
|
|
|
0.29
|
%
|
|
37,770
|
|
|
200
|
|
|
0.53
|
%
|
Certificates
of deposit
|
|
|
309,784
|
|
|
12,829
|
|
|
4.14
|
%
|
|
274,002
|
|
|
8,407
|
|
|
3.07
|
%
|
Total
interest-bearing deposits
|
|
|
587,623
|
|
|
18,695
|
|
|
3.18
|
%
|
|
553,619
|
|
|
12,300
|
|
|
2.22
|
%
|
FHLB
advances
|
|
|
127,397
|
|
|
5,621
|
|
|
4.41
|
%
|
|
96,743
|
|
|
3,671
|
|
|
3.79
|
%
|
Other
interest-bearing liabilities
|
|
|
8,049
|
|
|
331
|
|
|
4.11
|
%
|
|
8,339
|
|
|
235
|
|
|
2.82
|
%
|
Total
interest-bearing liabilities
|
|
|
723,069
|
|
|
24,647
|
|
|
3.41
|
%
|
|
658,701
|
|
|
16,206
|
|
|
2.46
|
%
|
Demand
deposits
|
|
|
92,644
|
|
|
|
|
|
|
|
|
91,896
|
|
|
|
|
|
|
|
Other
noninterest-bearing liabilities
|
|
|
3,618
|
|
|
|
|
|
|
|
|
10,106
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
819,331
|
|
|
|
|
|
|
|
|
760,703
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
137,223
|
|
|
|
|
|
|
|
|
98,118
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
956,554
|
|
|
|
|
|
|
|
$
|
858,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
$
|
27,555
|
|
|
|
|
|
|
|
$
|
27,027
|
|
|
|
|
Interest
rate spread(1)
|
|
|
|
|
|
|
|
|
2.23
|
%
|
|
|
|
|
|
|
|
2.77
|
%
|
Net
interest-earning assets(2)
|
|
$
|
203,205
|
|
|
|
|
|
|
|
$
|
168,662
|
|
|
|
|
|
|
|
Net
interest margin(3)
|
|
|
|
|
|
|
|
|
2.97
|
%
|
|
|
|
|
|
|
|
3.27
|
%
|
Average
interest-bearing assets to average interest-bearing
liabilities
|
|
|
|
|
|
|
|
|
128.10
|
%
|
|
|
|
|
|
|
|
125.61
|
%
|
____________________
(1)
|
Net
interest rate spread represents the difference between the yield
on
average interest-earning assets and the cost of average interest-bearing
liabilities.
|
(2)
|
Net
interest-earning assets represents total interest-earning assets
less
total interest-bearing liabilities.
|
(3)
|
Net
interest margin represents net interest income divided by average
total
interest-earning assets.
|
Rate/Volume
Analysis. The
following table presents the effects of changing rates and volumes on our net
interest income for the periods indicated. The rate column shows the effects
attributable to changes in rate (changes in rate multiplied by prior volume).
The volume column shows the effects attributable to changes in volume (changes
in volume multiplied by prior rate). The net column represents the sum of the
prior columns. For purposes of this table, changes attributable to both rate
and
volume, which cannot be segregated, have been allocated proportionately, based
on the changes due to rate and the changes due to volume.
|
|
Years
ended December 31,
2006
vs. 2005
|
|
|
|
Increase
(Decrease) Due to
|
|
|
|
Volume
|
|
Rate
|
|
Net
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
2,766
|
|
$
|
883
|
|
$
|
3,649
|
|
Commercial
real estate
|
|
|
1,998
|
|
|
706
|
|
|
2,704
|
|
Commercial
and industrial
|
|
|
631
|
|
|
439
|
|
|
1,070
|
|
Consumer
and other
|
|
|
397
|
|
|
(22
|
)
|
|
375
|
|
Total
loans
|
|
|
5,792
|
|
|
2,006
|
|
|
7,798
|
|
Investment
securities
|
|
|
241
|
|
|
632
|
|
|
873
|
|
Other
interest-earning assets
|
|
|
(87
|
)
|
|
385
|
|
|
298
|
|
Total
interest-earning assets
|
|
|
5,946
|
|
|
3,023
|
|
|
8,969
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Savings
accounts
|
|
|
(119
|
)
|
|
163
|
|
|
44
|
|
Money
market accounts
|
|
|
299
|
|
|
1,727
|
|
|
2,026
|
|
NOW
accounts
|
|
|
(10
|
)
|
|
(87
|
)
|
|
(97
|
)
|
Certificates
of deposit
|
|
|
869
|
|
|
3,553
|
|
|
4,422
|
|
Total
interest-bearing deposits
|
|
|
1,039
|
|
|
5,356
|
|
|
6,395
|
|
FHLB
advances
|
|
|
1,288
|
|
|
662
|
|
|
1,950
|
|
Other
interest-bearing liabilities
|
|
|
(8
|
)
|
|
104
|
|
|
96
|
|
Total
interest-bearing liabilities
|
|
|
2,319
|
|
|
6,122
|
|
|
8,441
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in net interest income
|
|
$
|
3,627
|
|
$
|
(3,099
|
)
|
$
|
528
|
|
Net
Interest Income Before Provision for Loan Losses. Net
interest income before provision for loan losses increased $528,000, or 2.0%,
to
$27.6 million for the year ended December 31, 2006 from $27.0 million for
the comparable 2005 period reflecting growth in average earning assets,
substantially offset by net interest margin compression. Net interest margin
contracted 30 basis points to 2.97% for the year ended December 31, 2006
compared to 3.27% for the same period in 2005. Net interest margin was affected
by the flat yield curve, the increasingly competitive pricing conditions for
loans and deposits, a shift in deposit demand towards higher-yielding money
market and time deposit accounts, and the impact of increased short-term market
interest rates on the cost to fund earning assets.
Interest
Income.
Interest
income increased $9.0 million, or 20.7%, to $52.2 million for the year ended
December 31, 2006 from $43.2 million for the prior year period reflecting
expansion in total average interest-earning asset balances and an increase
in
the yield on average interest-earning assets. Total average interest-earning
asset balances increased $98.9 million, or 12.0%, to $926.3 million for the
year ended December 31, 2006 due in large part to strong loan growth, mainly
funded by proceeds from the Company’s initial public offering in July 2005,
deposit growth and additional FHLB advances. Total average loans increased
$96.2
million, or 16.1%, to $693.2 million for the year ended December 31, 2006 as
a
result of solid origination activity, partially offset by prepayments and normal
amortization. The yield on average interest-earning assets increased 41 basis
points to 5.64% for the year ended December 31, 2006 due to the higher interest
rate environment. The increase in market rates contributed to the repricing
of a
portion of the Company’s existing assets and to increased rates for new assets.
Since a significant amount of the Company’s average interest earning assets are
fixed rate and the impact of Federal Reserve Board actions was less pronounced
on the long end of the yield curve, the effect of the increase in market rates
was constrained.
Interest
Expense. Interest
expense increased $8.4 million, or 52.1%, to $24.6 million for the year
ended December 31, 2006 from $16.2 million for the prior year period due an
increase in average interest-bearing liabilities and an increase in the rate
paid for such liabilities. Average interest-bearing liabilities increased
$64.4 million, or 9.8%, to $723.1 million for the year ended December
31, 2006 reflecting growth in interest-bearing deposits and FHLB advances.
Total
average interest-bearing deposits increased $34.0 million, or 6.1%, to $587.6
million for the year ended December 31, 2006 mainly attributable to growth
in
money market and certificate of deposit balances, partially offset by a
reduction in savings balances. The decline in savings deposits was mainly
attributable to a shift in market demand to money market and certificates of
deposit products to take advantage of more attractive rates. Total average
FHLB
advances increased $30.7 million, or 33.4%, to $127.4 million to support loan
growth. The average rate paid on interest-bearing liabilities increased 95
basis
points to 3.41% for the year ended December 31, 2006 reflecting interest rate
increases initiated by the Federal Reserve Board. Since a large portion of
the
Company’s interest-bearing liabilities are short-term, the impact of the
increase in market rates was significant.
Provision
for Loan Losses. We
establish provisions for loan losses, which are charged to operations, at a
level necessary to absorb known and inherent losses that are both probable
and
reasonably estimable at the date of the financial statements. In evaluating
the
level of the allowance for loan losses, management considers historical loss
experience, the types of loans and the amount of loans in the loan portfolio,
adverse situations that may affect the borrower’s ability to repay, the
estimated value of any underlying collateral, peer group information and
prevailing economic conditions. This evaluation is inherently subjective as
it
requires estimates that are susceptible to significant revision as more
information becomes available or as future events occur. The provision for
loan
losses was $969,000 for the year ended December 31, 2006, as compared to a
$917,000 provision for the year ended December 31, 2005. The modest increase
in
the provision in 2006 as compared to 2005 was due primarily to increases in
substandard and doubtful classified loans and commercial real estate non-accrual
loans, offset to some extent by decreases in residential and commercial
non-accrual loans and net charge-offs. The allowance for loan losses was $7.2
million, or 0.95% of loans outstanding at December 31, 2006, as compared to
$6.4
million, or 1.00% of loans outstanding at December 31, 2005.
Determining
the amount of the allowance for loan losses necessarily involves a high degree
of judgment. Management reviews the level of the allowance on a quarterly
basis, and
establishes the provision for loan losses based on the factors set forth in
the
preceding paragraph. Historically, our loan portfolio has primarily consisted
of
one- to four-family residential mortgage loans. However, our current business
plan calls for increases in commercial real estate and commercial and industrial
loans. As management evaluates the allowance for loan losses, the increased
risk
associated with larger non-homogenous commercial real estate and commercial
and
industrial loans may result in larger additions to the allowance for loan losses
in future periods.
Although
we believe that we use the best information available to establish the allowance
for loan losses, future additions to the allowance may be necessary, based
on
estimates that are susceptible to change as a result of changes in economic
conditions and other factors. In addition, the Office of Thrift Supervision,
as
an integral part of its examination process, will periodically review our
allowance for loan losses. Such agency may require us to recognize adjustments
to the allowance, based on its judgments about information available to it
at
the time of its examination.
Non-interest
Income.
Non-interest income increased $372,000, or 7.4%, to $5.4 million for the
year ended December 31, 2006 from $5.0 million for the same period last year
reflecting growth in fee income on depositors’ accounts and financial services
income, partially offset by a $222,000 loss from sales of investment securities
in 2006. Fee income on depositors’ accounts rose $446,000 as a result of growth
in transaction account balances and activity. Financial services income expanded
$145,000 in connection with the purchase of the Levine business in the first
quarter of 2006 and new accounts opened due to successful business development
efforts. The sales of securities in the third quarter of 2006 were consummated
to improve the yield on the portfolio and provide additional liquidity.
Non-interest
Expense.
Non-interest expense in the prior year period was higher due in part to the
$3.6
million contribution to fund the United Charitable Foundation, non-interest
expense increased $3.5 million, or 17.1%, to $24.0 million for the year
ended December 31, 2006 from $20.5 million for the prior year period. Total
salaries and benefits increased $1.7 million, or 15.4%, reflecting the cost
of
restricted stock and stock option grants awarded in 2006 under the Company’s
Stock Based Incentive Plan, new employees hired to support the growth of the
Company and two new branches opened in 2006, expenses totaling $198,000 incurred
in connection with the separation package for the Company’s former Chief
Financial Officer, and annual wage increases. Occupancy costs grew $298,000,
or
19.9%, principally attributable to two new branches opened in 2006 and new
office space leased in connection with the acquisition of the Levine financial
services business in the first quarter of 2006. Professional services costs
increased $416,000, or 56.8%, mainly due to expenses related to being a public
company, including compliance with Sarbanes-Oxley
Section 404,
audit
and accounting, legal, consulting, investor-relations and NASDAQ listing
expenses. Other non-interest expense expanded $954,000, or 30.1%, primarily
due
to increased costs associated with a larger loan, deposit and financials
services account base, including printed materials, supplies, branch
merchandising and postage, as well as new branches opened in 2006.
Income
Tax Expense.
Income tax
expense increased $369,000 to $3.0 million for the year ended December 31,
2006
as compared
to $2.6 million for the same period in 2005, primarily attributable to higher
income before taxes. The effective tax rate for the year ended December 31,
2006
was 38.0% compared to 37.8% in 2005.
Comparison
of Operating Results for the Years Ended December 31, 2005 and
2004
Net
Income.
Net
income decreased $1.2 million, or 21.0%, to $4.4 million for the year ended
December 31, 2005 from $5.5 million for the year ended December 31, 2004. The
decrease primarily resulted from a
one-time after-tax expense of $2.2 million, which was incurred to establish
and
fund the newly formed United Charitable Foundation. Excluding
the effect of the charitable contribution, net income would have amounted to
$6.6 million or 19% greater than 2004. This increase was attributable largely
to
the investment of the proceeds of the initial public offering during the last
six months of 2005.
Average
balances and yields.
The
following table sets forth average balance sheets, average yields and costs,
and
certain other information for the periods indicated. No tax-equivalent yield
adjustments were made, as the effect thereof was not material. All average
balances are daily average balances. Non-accrual loans were included in the
computation of average balances, but have been reflected in the table as loans
carrying a zero yield.
|
|
Years
Ended December 31,
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Average
|
|
and
|
|
Yield/
|
|
Average
|
|
and
|
|
Yield/
|
|
|
|
Balance
|
|
Dividends
|
|
Cost
|
|
Balance
|
|
Dividends
|
|
Cost
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
362,208
|
|
$
|
20,168
|
|
|
5.57
|
%
|
$
|
328,157
|
|
$
|
17,627
|
|
|
5.37
|
%
|
Commercial
real estate
|
|
|
158,820
|
|
|
9,781
|
|
|
6.16
|
%
|
|
144,434
|
|
|
8,478
|
|
|
5.87
|
%
|
Commercial
and industrial
|
|
|
54,954
|
|
|
3,525
|
|
|
6.41
|
%
|
|
45,527
|
|
|
2,417
|
|
|
5.31
|
%
|
Consumer
and other
|
|
|
21,004
|
|
|
1,066
|
|
|
5.08
|
%
|
|
20,453
|
|
|
1,160
|
|
|
5.67
|
%
|
Total
loans
|
|
|
596,986
|
|
|
34,540
|
|
|
5.79
|
%
|
|
538,571
|
|
|
29,682
|
|
|
5.51
|
%
|
Investment
securities
|
|
|
207,301
|
|
|
7,970
|
|
|
3.84
|
%
|
|
179,036
|
|
|
6,582
|
|
|
3.68
|
%
|
Other
interest-earning assets
|
|
|
23,076
|
|
|
723
|
|
|
3.13
|
%
|
|
14,764
|
|
|
268
|
|
|
1.82
|
%
|
Total
interest-earning assets
|
|
|
827,363
|
|
|
43,233
|
|
|
5.23
|
%
|
|
732,371
|
|
|
36,532
|
|
|
4.99
|
%
|
Noninterest-earning
assets
|
|
|
31,458
|
|
|
|
|
|
|
|
|
27,040
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
858,821
|
|
|
|
|
|
|
|
$
|
759,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
accounts
|
|
$
|
93,550
|
|
|
594
|
|
|
0.63
|
%
|
$
|
93,955
|
|
|
698
|
|
|
0.74
|
%
|
Money
market
|
|
|
148,297
|
|
|
3,099
|
|
|
2.09
|
%
|
|
151,159
|
|
|
1,710
|
|
|
1.13
|
%
|
NOW
accounts
|
|
|
37,770
|
|
|
200
|
|
|
0.53
|
%
|
|
36,505
|
|
|
90
|
|
|
0.25
|
%
|
Certificates
of deposit
|
|
|
274,002
|
|
|
8,407
|
|
|
3.07
|
%
|
|
245,395
|
|
|
6,497
|
|
|
2.65
|
%
|
Total
interest-bearing deposits
|
|
|
553,619
|
|
|
12,300
|
|
|
2.22
|
%
|
|
527,014
|
|
|
8,995
|
|
|
1.71
|
%
|
FHLB
advances
|
|
|
96,743
|
|
|
3,671
|
|
|
3.79
|
%
|
|
85,413
|
|
|
2,960
|
|
|
3.47
|
%
|
Other
interest-bearing liabilities
|
|
|
8,339
|
|
|
235
|
|
|
2.82
|
%
|
|
6,729
|
|
|
193
|
|
|
2.87
|
%
|
Total
interest-bearing liabilities
|
|
|
658,701
|
|
|
16,206
|
|
|
2.46
|
%
|
|
619,156
|
|
|
12,148
|
|
|
1.96
|
%
|
Demand
deposits
|
|
|
91,896
|
|
|
|
|
|
|
|
|
78,713
|
|
|
|
|
|
|
|
Other
noninterest-bearing liabilities
|
|
|
10,106
|
|
|
|
|
|
|
|
|
1,761
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
760,703
|
|
|
|
|
|
|
|
|
699,630
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
98,118
|
|
|
|
|
|
|
|
|
59,781
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
858,821
|
|
|
|
|
|
|
|
$
|
759,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
$
|
27,027
|
|
|
|
|
|
|
|
$
|
24,384
|
|
|
|
|
Interest
rate spread(1)
|
|
|
|
|
|
|
|
|
2.77
|
%
|
|
|
|
|
|
|
|
3.03
|
%
|
Net
interest-earning assets(2)
|
|
$
|
168,662
|
|
|
|
|
|
|
|
$
|
113,215
|
|
|
|
|
|
|
|
Net
interest margin(3)
|
|
|
|
|
|
|
|
|
3.27
|
%
|
|
|
|
|
|
|
|
3.33
|
%
|
Average
interest-bearing assets to average interest-bearing
liabilities
|
|
|
|
|
|
|
|
|
125.61
|
%
|
|
|
|
|
|
|
|
118.29
|
%
|
____________________
(1)
|
Net
interest rate spread represents the difference between the yield
on
average interest-earning assets and the cost of average interest-bearing
liabilities.
|
(2)
|
Net
interest-earning assets represents total interest-earning assets
less
total interest-bearing liabilities.
|
(3)
|
Net
interest margin represents net interest income divided by average
total
interest-earning assets.
|
Rate/Volume
Analysis. The
following table presents the effects of changing rates and volumes on our net
interest income for the periods indicated. The rate column shows the effects
attributable to changes in rate (changes in rate multiplied by prior volume).
The volume column shows the effects attributable to changes in volume (changes
in volume multiplied by prior rate). The net column represents the sum of the
prior columns. For purposes of this table, changes attributable to both rate
and
volume, which cannot be segregated, have been allocated proportionately, based
on the changes due to rate and the changes due to volume.
|
|
Years
ended December 31,
2005
vs. 2004
|
|
|
|
Increase
(Decrease) Due to
|
|
|
|
Volume
|
|
Rate
|
|
Net
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
1,879
|
|
$
|
663
|
|
$
|
2,542
|
|
Commercial
real estate
|
|
|
872
|
|
|
431
|
|
|
1,303
|
|
Commercial
and industrial
|
|
|
552
|
|
|
556
|
|
|
1,108
|
|
Consumer
and other
|
|
|
26
|
|
|
(121
|
)
|
|
(95
|
)
|
Total
loans
|
|
|
3,329
|
|
|
1,529
|
|
|
4,858
|
|
Investment
securities
|
|
|
1,076
|
|
|
312
|
|
|
1,388
|
|
Other
interest-earning assets
|
|
|
199
|
|
|
256
|
|
|
455
|
|
Total
interest-earning assets
|
|
|
4,604
|
|
|
2,097
|
|
|
6,701
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Savings
accounts
|
|
|
(3
|
)
|
|
(48
|
)
|
|
(51
|
)
|
Money
market accounts
|
|
|
(18
|
)
|
|
1,406
|
|
|
1,388
|
|
NOW
accounts
|
|
|
3
|
|
|
55
|
|
|
58
|
|
Certificates
of deposit
|
|
|
808
|
|
|
1,102
|
|
|
1,910
|
|
Total
interest-bearing deposits
|
|
|
790
|
|
|
2,515
|
|
|
3,305
|
|
FHLB
advances
|
|
|
414
|
|
|
297
|
|
|
711
|
|
Other
interest-bearing liabilities
|
|
|
39
|
|
|
3
|
|
|
42
|
|
Total
interest-bearing liabilities
|
|
|
1,243
|
|
|
2,815
|
|
|
4,058
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in net interest income
|
|
$
|
3,361
|
|
$
|
(718
|
)
|
$
|
2,643
|
|
Net
Interest Income Before Provision for Loan Losses. Net
interest income before provision for loan losses increased $2.6 million, or
10.8%, to $27.0 million for the year ended December 31, 2005. The increase
reflected a $95.0 million, or 13.0%, increase in our interest-earning assets,
which was partially offset by a 26 basis point decline in our net interest
rate
spread to 2.77% for the year ended December 31, 2005 from 3.03% for the year
ended December 31, 2004. The reduction in the net interest rate spread was
at
least partially attributable to the flattening of the yield curve wherein
short-term interest rates generally increased while longer-term rates remained
essentially flat during 2005.
Interest
Income.
Interest
income increased $6.7 million, or 18.3%, to $43.2 million for the year ended
December 31, 2005 from $36.5 million for the prior year. The increase resulted
from the $95.0 million, or 13.0%, increase in the average balance of
interest-earning assets, coupled with the 24 basis point increase in the average
yield on such assets to 5.23% for the year ended December 31, 2005 from 4.99%
for the prior year. Interest earned on investment securities increased $1.4
million, or 21.1%, to $8.0 million for the year ended December 31, 2005, from
$6.6 million for the year ended December 31, 2004. The increase reflected the
increased average balance in such securities of $28.3 million, or 15.8%, as
well
as the higher yield on such securities to 3.84% from 3.68%. Interest income
attributable to loans increased $4.9 million, or 16.4%, to $34.5 million for
the
year ended December 31, 2005 from $29.7 million for the year ended December
31,
2004. The increase in interest earned on loans was due to the $58.4 million,
or
10.8%, increase in the average balance of loans, coupled with the 28 basis
point
increase in the yields earned on such loans to 5.79% from 5.51%, as the
continued strong demand for residential financing in our primary market area
resulted in our loan originations more than offsetting loan prepayments.
Interest
Expense. Interest
expense increased $4.1 million, or 33.4%, to $16.2 million for the year ended
December 31, 2005 from $12.1 million for the year ended December 31, 2004.
The
increase in interest expense was due to the $40.2 million, or 6.4%, increase
in
the average balance of interest-bearing liabilities to $659.3 million for the
year ended December 31, 2005 from $619.1 million for the year ended December
31,
2004, combined with the increase in the average cost of such liabilities to
2.46% for the year ended December 31, 2005 from 1.96% for the prior year. The
interest paid on deposits increased by $3.3 million, or 36.7%, reflecting an
increase in the average cost of such deposits to 2.22% from 1.71% due to the
rising interest rate environment, while the average balance of such deposits
increased by $26.6 million, or 5.0%, as we continued to expand deposit balances
to fund loan growth. Interest paid on Federal Home Loan Bank advances increased
by $711,000, or 24.0%, reflecting an increase in the average balance of such
advances to $96.7 million for the year ended December 31, 2005 from $85.4
million for the prior year, coupled with the increase in the average cost of
such advances to 3.79% from 3.47%. We have increased the use of such advances
to
match fund loans, particularly residential mortgage loans.
Provision
for Loan Losses. The
provision for loan losses $917,000 for the year ended December 31, 2005, as
compared to a $983,000 provision for the year ended December 31, 2004. The
modest decrease in the provision in 2005 as compared to 2004 was due primarily
to a decrease in adversely classified loans and in non-performing loans in
2005
as compared to 2004. The allowance for loan losses was $6.4 million, or 1.00%
of
loans outstanding at December 31, 2005, as compared to $5.8 million, or 1.00%
of
loans outstanding at December 31, 2004.
Non-interest
Income. Non-interest
income decreased $114,000, or 2.2%, to $5.0 million for the year ended December
31, 2005 from $5.1 million for the prior year. The reduction in non-interest
income was primarily due to gains from sales of securities totaling $119,000
in
2004.
Non-interest
Expense.
In 2005
the Company contributed $3.6 million to establish and fund the new United
Charitable Foundation. Excluding this contribution, non-interest expense
increased $1.3 million, or 7.0%, to $20.5 million for the year ended December
31, 2005 from $19.2 million for the prior year. Salaries and employee benefits
increased to $11.2 million from $9.6 million, reflecting higher staffing levels,
principally in the commercial lending area, as well as average annual salary
increases of 3.3%. Occupancy expense increased to $1.5 million from $1.4
million, reflecting lease renewals at higher rates and purchases of additional
facilities. Professional fees increase $386,000 reflecting higher audit and
consulting fees. Other non-interest expense decreased $500,000 to $3.2 million
from $3.7 million as a result of $694,000 of costs incurred in 2004 in
connection with our reorganization into the mutual holding company structure
and
the conversion of United Bank to a federally chartered savings bank (including
the change of the name of the bank).
Income
Tax Expense. Income
tax expense decreased to $2.6 million for the year ended December 31, 2005
from
$3.8 million for the prior year. The effective tax rate was 37.8% and 40.9%
for
2005 and 2004, respectively. The lower effective tax rate in 2005 reflected
the
higher proportion of our pre-tax income earned at UCB Securities, Inc., our
security corporation, whose earnings are taxed by Massachusetts at a lower
rate
than United Bank.
Management
of Market Risk
General.
The
majority of our assets and liabilities are monetary in nature. Consequently,
our
most significant form of market risk is interest rate risk. Our assets,
consisting primarily of mortgage loans, have longer maturities than our
liabilities, consisting primarily of deposits. As a result, a principal part
of
our business strategy is to manage interest rate risk and reduce the exposure
of
our net interest income to changes in market interest rates. Accordingly, our
Board of Directors has established an Asset/Liability Management Committee
which
is responsible for evaluating the interest rate risk inherent in our assets
and
liabilities, for determining the level of risk that is appropriate, given our
business strategy, operating environment, capital, liquidity and performance
objectives, and for managing this risk consistent with the guidelines approved
by the Board of Directors. With the assistance of an interest rate risk
management consultant, senior management monitors the level of interest rate
risk on a regular basis and the Asset/Liability Management Committee generally
meets at least on a monthly basis to review our asset/liability policies and
interest rate risk position.
We
have
sought to manage our interest rate risk in order to minimize the exposure of
our
earnings and capital to changes in interest rates. As part of our ongoing
asset-liability management, we currently use the following strategies to manage
our interest rate risk: (i) using alternative funding sources, such as advances
from the Federal Home Loan Bank of Boston, to “match fund” longer-term one- to
four-family residential mortgage loans; (ii) investing in variable-rate
mortgage-backed securities; (iii) continued emphasis on increasing core
deposits; (iv) offering adjustable-rate and shorter-term commercial real estate
loans and commercial and industrial loans; and (v) offering a variety of
consumer loans, which typically have shorter-terms. Shortening the average
maturity of our interest-earning assets by increasing our investments in
shorter-term loans and securities, as well as loans and securities with variable
rates of interest, helps to better match the maturities and interest rates
of
our assets and liabilities, thereby reducing the exposure of our net interest
income to changes in market interest rates.
Net
interest income at-risk measures the risk of a decline in earnings due to
potential short-term and long term changes in interest rates. The table below
represents an analysis of our IRR as measured by the estimated changes in NII
over the following twelve months, resulting from an instantaneous and sustained
parallel shift in the yield curve (+200 and -200 basis points) at December
31,
2006 and 2005.
Net
Interest Income At-Risk
|
|
|
|
|
|
|
|
Estimated
Increase
|
|
Estimated
Increase
|
Change
in Interest Rates
|
|
(Decrease)
in NII
|
|
(Decrease)
in NII
|
(Basis
Points)
|
|
(December
31, 2006)
|
|
(December
31, 2005)
|
-200
|
|
12.1%
|
|
0.4%
|
Stable
|
|
0.0%
|
|
0.0%
|
+200
|
|
-10.9%
|
|
-3.4%
|
The
preceding income simulation analysis does not represent a forecast of NII and
should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions, which are
subject to change, including: the nature and timing of interest rate levels
including the yield curve shape, prepayments on loans and securities, deposit
decay rates, pricing decisions on loans and deposits, reinvestment/replacement
of asset and liability cash flows, and others. Also, as market conditions vary
from those assumed in the income simulation models, the actual results will
differ reflecting prepayment/refinancing levels likely deviating from those
assumed, the varying impact of interest rate changes on caps and floors embedded
in adjustable rate loans, early withdrawal of deposits, changes in product
preferences, and other internal/external variables.
Liquidity
and Capital Resources
Liquidity
is the ability to meet current and future financial obligations of a short-term
nature. Our primary sources of funds consist of deposit inflows, loan repayments
and maturities and sales of securities. While maturities and scheduled
amortization of loans and securities are predictable sources of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition. Our Asset/Liability Management Committee
is
responsible for establishing and monitoring our liquidity targets and strategies
in order to ensure that sufficient liquidity exists for meeting the borrowing
needs of our customers as well as unanticipated contingencies. We seek to
maintain a liquidity ratio of 10% or greater. At December 31, 2006, our
liquidity ratio was 27.01%.
We
regularly adjust our investments in liquid assets based upon our assessment
of
(1) expected loan demand, (2) expected deposit flows, (3) yields available
on
interest-earning deposits and securities, and (4) the objectives of our
asset/liability management program. Excess liquid assets are invested generally
in interest-earning deposits and short- and intermediate-term
securities.
Our
most
liquid assets are cash and cash equivalents. The levels of these assets are
dependent on our operating, financing, lending and investing activities during
any given period. At December 31, 2006, cash and cash equivalents totaled $25.4
million. Securities classified as available-for-sale, which provide additional
sources of liquidity, totaled $190.2 million at December 31, 2006. In addition,
at December 31, 2006, we had the ability to borrow a total of approximately
$319
million from the Federal Home Loan Bank of Boston. On that date, we had $169.8
million in advances outstanding.
Our
cash
flows are derived from operating activities, investing activities and financing
activities as reported in our Consolidated Statements of Cash Flows included
in
our Consolidated Financial Statements.
At
December 31, 2006, we had $42.6 million in loan commitments outstanding. In
addition to commitments to originate loans, we had $135.4 million in unused
lines of credit to borrowers. Certificates of deposit due within one year of
December 31, 2006 totaled $282.0 million, or 41.1% of total deposits. If these
deposits do not remain with us, we will be required to seek other sources of
funds, including other certificates of deposit and Federal Home Loan Bank
advances. Depending on market conditions, we may be required to pay higher
rates
on such deposits or other borrowings than we currently pay on the certificates
of deposit due on or before December 31, 2007. We believe, however, based on
past experience, that a significant portion of our certificates of deposit
will
remain with us. We have the ability to attract and retain deposits by adjusting
the interest rates offered.
Our
primary investing activities are the origination of loans and the purchase
of
securities. In 2006, we originated $357.0 million of loans and purchased $47.8
million of securities. In 2005, we originated $290.1 million of loans and
purchased $124.9 million of securities.
Financing
activities consist primarily of activity in deposit accounts and Federal Home
Loan Bank advances. We experienced a net increase in total deposits of $32.1
million and $39.9 million for the years ended December 31, 2006 and 2005,
respectively. Deposit flows are affected by the overall level of interest rates,
the interest rates and products offered by us and our local competitors and
other factors.
Liquidity
management is both a daily and long-term function of business management. If
we
require funds beyond our ability to generate them internally, borrowing
agreements exist with the Federal Home Loan Bank of Boston, which provide an
additional source of funds. Federal Home Loan Bank advances reflected net
increases of $67.9 million and $15.2 million during the years ended December
31,
2006 and 2005, respectively. Federal Home Loan Bank advances have primarily
been
used to fund loan demand and to purchase securities. Our current asset/liability
management strategy has been to “match-fund” longer-term one- to four-family
residential mortgage loans, with Federal Home Loan Bank advances.
United
Bank is subject to various regulatory capital requirements, including a
risk-based capital measure. The risk-based capital guidelines include both
a
definition of capital and a framework for calculating risk-weighted assets
by
assigning balance sheet assets and off-balance sheet items to broad risk
categories. At December 31, 2006, United Bank exceeded all regulatory capital
requirements. United Bank is considered “well-capitalized” under regulatory
guidelines. See “Supervision and Regulation—Federal Banking Regulation—Capital
Requirements” and Note L of the Notes to the Consolidated Financial Statements.
Off-Balance
Sheet Arrangements and Aggregate Contractual Obligations
Commitments. As
a
financial services provider, we routinely are a party to various financial
instruments with off-balance-sheet risks, such as commitments to extend credit,
standby letters of credit and unused lines of credit. While these contractual
obligations represent our future cash requirements, a significant portion of
commitments to extend credit may expire without being drawn upon. Such
commitments are subject to the same credit policies and approval process
accorded to loans made by us. We consider commitments to extend credit in
determining our allowance for loan losses. For additional information, see
Note
K, “Commitments,” to our Consolidated Financial Statements.
Contractual
Obligations.
In the
ordinary course of our operations, we enter into certain contractual
obligations. Such obligations include operating leases for premises and
equipment.
The
following table summarizes our significant fixed and determinable contractual
obligations and other funding needs by payment date at December 31, 2006. The
payment amounts represent those amounts due to the recipient and do not include
any unamortized premiums or discounts or other similar carrying amount
adjustments.
|
|
Payments
Due by Period
|
|
|
|
Less
Than
|
|
One
to Three
|
|
Three
to Five
|
|
More
than
|
|
|
|
|
|
One
Year
|
|
Years
|
|
Years
|
|
Five
Years
|
|
Total
|
|
Contractual
Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
of Deposit
|
|
$
|
282,025
|
|
$
|
27,988
|
|
$
|
9,501
|
|
$
|
-
|
|
$
|
319,514
|
|
Federal
Home Loan Bank advances
|
|
|
65,000
|
|
|
29,411
|
|
|
55,295
|
|
|
20,100
|
|
|
169,806
|
|
Repurchase
Agreements
|
|
|
10,425
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10,425
|
|
Standby
letters of credit
|
|
|
879
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
879
|
|
Operating
Leases
|
|
|
498
|
|
|
839
|
|
|
589
|
|
|
3,224
|
|
|
8,677
|
|
Total
|
|
$
|
358,827
|
|
$
|
58,238
|
|
$
|
65,385
|
|
$
|
23,324
|
|
$
|
509,301
|
|
Commitments
to extend credit
|
|
$
|
170,116
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
170,116
|
|
____________________
Recent
Accounting Pronouncements
In
July
2006, the Financial Accounting Standards Board (“FASB”) released FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the
accounting and reporting for income taxes where interpretation of the tax law
may be uncertain. FIN 48 prescribes a comprehensive model for the financial
statement recognition, measurement, presentation and disclosure of income tax
uncertainties with respect to positions taken or expected to be taken in income
tax returns. This standard is effective for the Company on January 1, 2007.
The
cumulative effect, if any, of applying FIN 48 will be recorded as an adjustment
to the beginning balance of retained earnings. Management is in the process
of
completing its evaluation of the impact that adoption of FIN 48 may have but
does not expect the adoption will have a material effect on the Company’s results
of
operations or financial position.
In
September 2006, the SEC issued SAB 108 “Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements”. This SAB addresses quantifying the financial statement effect of
misstatements, specifically, how the effects of prior year uncorrected errors
must be considered in quantifying misstatements in the current year financial
statements. This SAB is effective for fiscal years ending after
November 15, 2006. Management has determined that the effect of SAB 108 on
the Company’s financial statements is not material.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value,
establishes a GAAP framework for measuring fair value, and expands financial
statement disclosures about fair value measurements. SFAS 157 is effective
for
the Company on January 1, 2008 and is not expected to have a significant impact
on the Company's financial statements.
In
June 2006, the EITF released Issue 06-05, “Accounting for Purchases of Life
Insurance-Determining the Amount That Could Be Realized in Accordance with
FASB
Technical Bulletin No. 85-4, “Accounting for Purchases of Life Insurance”.
On September 7, 2006, the EITF concluded that a policyholder should
consider any additional amounts included in the contractual terms of the policy
in determining the amount that could be realized under the insurance contract.
Amounts that are recoverable by the policyholder at the discretion of the
insurance company should be excluded from the amount that could be realized.
Amounts that are recoverable by the policyholder in periods beyond one year
from
the surrender of the policy should be discounted utilizing an appropriate rate
of interest. The effective date of EITF 06-05 is for fiscal years beginning
after December 15, 2006. Management does not expect the implementation of
the Interpretation will have a material effect on the Company’s results of
operations or financial position.
In
February 2007, the FASB issued Statement of Financial Accounting Standards
No.
159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS
159"), which provides companies with an option to report selected financial
assets and liabilities at fair value. The objective of SFAS 159 is to reduce
both complexity in accounting for financial instruments and the volatility
in
earnings caused by measuring related assets and liabilities differently. SFAS
159 establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes
for
similar types of assets and liabilities and to more easily understand the effect
of the company’s choice to use fair value on its earnings. SFAS 159 also
requires entities to display the fair value of the selected assets and
liabilities on the face of the balance sheet. SFAS 159 does not eliminate
disclosure requirements of other accounting standards, including fair value
measurement disclosures in SFAS 157. This Statement is effective as of the
beginning of an entity’s first fiscal year beginning after November 15, 2007.
Early adoption is permitted as of the beginning of the previous fiscal year
provided that the entity makes that choice in the first 120 days of that fiscal
year and also elects to apply the provisions of Statement 157. Adoption of
SFAS
159 is not expected to have a material impact on the Company’s financial
statements.
Impact
of Inflation and Changing Prices
The
consolidated financial statements and related notes of United Financial Bancorp,
Inc. have been prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). GAAP generally requires
the
measurement of financial position and operating results in terms of historical
dollars without consideration for changes in the relative purchasing power
of
money over time due to inflation. The impact of inflation is reflected in the
increased cost of our operations. Unlike industrial companies, our assets and
liabilities are primarily monetary in nature. As a result, changes in market
interest rates have a greater impact on performance than the effects of
inflation.
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
|
For
information regarding market risk see Item 7- “Management’s Discussion and
Analysis of Financial Conditions and Results of Operation.”
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTAL
DATA
|
INDEX
TO
FINANCIAL STATEMENTS
|
Page
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
Financial
Statements
|
|
|
|
Consolidated
Balance Sheets
|
F-2
|
|
|
Consolidated
Statements of Earnings
|
F-3
|
|
|
Consolidated
Statements of Stockholders’ Equity and
Comprehensive Income
|
F-4
|
|
|
Consolidated
Statements of Cash Flows
|
F-5
|
|
|
Notes
to Consolidated Financial Statements
|
F-6
|
Report
of Independent Registered Public Accounting Firm
Board
of
Directors
United
Financial Bancorp, Inc.
We
have
audited the accompanying consolidated balance sheets of United Financial
Bancorp, Inc. and subsidiary (the “Company”) as of December 31, 2006 and 2005,
and the related statements of earnings, stockholders’ equity and comprehensive
income, and cash flows for each of the three years in the period ended
December
31, 2006. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of United Financial Bancorp,
Inc. and subsidiary as of December 31, 2006 and 2005, and the results of
their
operations and their cash flows for each of the three years in the period
ended
December 31, 2006 in conformity with accounting principles generally accepted
in
the United States of America.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2006, based on criteria
established in Internal
Control—Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO)
and our report dated March 13, 2007 expressed an unqualified opinion on
management’s assessment of the effectiveness of the Company’s internal control
over financial reporting and an unqualified opinion on the effectiveness
of the
Company’s internal control over financial reporting.
Boston,
Massachusetts
March
13,
2007
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Consolidated
Balance Sheets
December
31, 2006
and
2005
(Dollars
in thousands, except per share amounts)
|
|
December 31,
|
|
December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
15,459
|
|
$
|
15,841
|
|
Interest-bearing
deposits
|
|
|
9,960
|
|
|
2
|
|
Total
cash and cash equivalents
|
|
|
25,419
|
|
|
15,843
|
|
|
|
|
|
|
|
|
|
Securities
available for sale, at fair value
|
|
|
190,237
|
|
|
226,465
|
|
Securities
held to maturity, at amortized cost (fair value of $3,227
at
|
|
|
|
|
|
|
|
December
31, 2006 and $3,298 at December 31, 2005)
|
|
|
3,241
|
|
|
3,325
|
|
Loans,
net of allowance for loan losses of $7,218 at December 31,
2006
|
|
|
|
|
|
|
|
and
$6,382 at December 31, 2005
|
|
|
756,180
|
|
|
630,558
|
|
Other
real estate owned
|
|
|
562
|
|
|
1,602
|
|
Accrued
interest receivable
|
|
|
4,320
|
|
|
3,928
|
|
Deferred
tax asset, net
|
|
|
2,851
|
|
|
1,245
|
|
Stock
in the Federal Home Loan Bank of Boston
|
|
|
9,274
|
|
|
6,588
|
|
Banking
premises and equipment, net
|
|
|
8,821
|
|
|
8,236
|
|
Bank-owned
life insurance
|
|
|
6,304
|
|
|
6,031
|
|
Other
assets
|
|
|
2,224
|
|
|
2,692
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
1,009,433
|
|
$
|
906,513
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
Interest-bearing
|
|
$
|
588,496
|
|
$
|
560,310
|
|
Non-interest-bearing
|
|
|
97,190
|
|
|
93,301
|
|
Total
deposits
|
|
|
685,686
|
|
|
653,611
|
|
Federal
Home Loan Bank of Boston advances
|
|
|
169,806
|
|
|
101,880
|
|
Repurchase
agreements
|
|
|
10,425
|
|
|
8,434
|
|
Escrow
funds held for borrowers
|
|
|
1,121
|
|
|
1,129
|
|
Accrued
expenses and other liabilities
|
|
|
4,684
|
|
|
4,454
|
|
Total
liabilities
|
|
|
871,722
|
|
|
769,508
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note L)
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Preferred
stock, par value $0.01 per share, authorized 5,000,000
shares;
|
|
|
|
|
|
|
|
none
issued
|
|
|
-
|
|
|
-
|
|
Common
stock, par value $0.01 per share, authorized 60,000,000
shares;
|
|
|
|
|
|
|
|
17,205,995
shares issued at December 31, 2006 and 2005
|
|
|
172
|
|
|
172
|
|
Paid-in
capital
|
|
|
75,520
|
|
|
78,446
|
|
Retained
earnings
|
|
|
70,406
|
|
|
66,944
|
|
Unearned
compensation
|
|
|
(5,772
|
)
|
|
(6,092
|
)
|
Treasury
stock, at cost (51,445 shares at December 31, 2006)
|
|
|
(664
|
)
|
|
-
|
|
Accumulated
other comprehensive loss, net of taxes
|
|
|
(1,951
|
)
|
|
(2,465
|
)
|
Total
stockholders’ equity
|
|
|
137,711
|
|
|
137,005
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
1,009,433
|
|
$
|
906,513
|
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Consolidated
Statements of Earnings
For
the
years ended December 31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
|
|
2006
|
|
2005
|
|
2004
|
|
Interest
and dividend income:
|
|
|
|
|
|
|
|
Loans
|
|
$
|
42,338
|
|
$
|
34,540
|
|
$
|
29,682
|
|
Investments
|
|
|
8,843
|
|
|
7,970
|
|
|
6,582
|
|
Other
interest-earning assets
|
|
|
1,021
|
|
|
723
|
|
|
268
|
|
Total
interest and dividend income
|
|
|
52,202
|
|
|
43,233
|
|
|
36,532
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
18,695
|
|
|
12,300
|
|
|
8,995
|
|
Short-term
borrowings
|
|
|
3,198
|
|
|
1,675
|
|
|
373
|
|
Long-term
debt
|
|
|
2,754
|
|
|
2,231
|
|
|
2,780
|
|
Total
interest expense
|
|
|
24,647
|
|
|
16,206
|
|
|
12,148
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income before provision for loan losses
|
|
|
27,555
|
|
|
27,027
|
|
|
24,384
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
969
|
|
|
917
|
|
|
983
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income after provision for loan losses
|
|
|
26,586
|
|
|
26,110
|
|
|
23,401
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
|
|
Fee
income on depositors’ accounts
|
|
|
4,190
|
|
|
3,744
|
|
|
3,683
|
|
(Loss)
gain on sale of securities
|
|
|
(222
|
)
|
|
3
|
|
|
122
|
|
Income
from bank-owned life insurance
|
|
|
273
|
|
|
326
|
|
|
332
|
|
Other
income
|
|
|
1,151
|
|
|
947
|
|
|
997
|
|
Total
non-interest income
|
|
|
5,392
|
|
|
5,020
|
|
|
5,134
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
|
12,888
|
|
|
11,167
|
|
|
9,564
|
|
Occupancy
expenses
|
|
|
1,792
|
|
|
1,494
|
|
|
1,453
|
|
Marketing
expenses
|
|
|
1,436
|
|
|
1,386
|
|
|
1,244
|
|
Data
processing expenses
|
|
|
2,474
|
|
|
2,371
|
|
|
2,681
|
|
Contributions
and sponsorships
|
|
|
174
|
|
|
3,792
|
|
|
192
|
|
Professional
fees
|
|
|
1,148
|
|
|
732
|
|
|
336
|
|
Other
expenses
|
|
|
4,124
|
|
|
3,170
|
|
|
3,709
|
|
Total
non-interest expense
|
|
|
24,036
|
|
|
24,112
|
|
|
19,179
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
7,942
|
|
|
7,018
|
|
|
9,356
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
3,018
|
|
|
2,649
|
|
|
3,828
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
4,924
|
|
$
|
4,369
|
|
$
|
5,528
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.30
|
|
|
NA
|
|
|
NA
|
|
Diluted
|
|
$
|
0.30
|
|
|
NA
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,467,874
|
|
|
NA
|
|
|
NA
|
|
Diluted
|
|
|
16,476,933
|
|
|
NA
|
|
|
NA
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Consolidated
Statements of Stockholders’ Equity and Comprehensive Income
December
31, 2006, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Shares
|
|
Common
|
|
Paid-In
|
|
Retained
|
|
Unearned
|
|
Treasury
|
|
Comprehensive
|
|
|
|
|
|
Outstanding
|
|
Stock
|
|
Capital
|
|
Earnings
|
|
Compensation
|
|
Stock
|
|
Loss
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2003
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
57,289
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(239
|
)
|
$
|
57,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact
of reorganization
|
|
|
|
|
|
|
|
|
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
(150
|
)
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
5,528
|
|
|
|
|
|
|
|
|
|
|
|
5,528
|
|
Net
unrealized loss on securities available for sale, net of reclassification
adjustments and taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(173
|
)
|
|
(173
|
)
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2004
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
62,667
|
|
|
-
|
|
|
-
|
|
|
(412
|
)
|
|
62,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,369
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,369
|
|
Net
unrealized loss on securities available for sale, net of reclassification
adjustments and taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,053
|
)
|
|
(2,053
|
)
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock, net of offering costs of $1,900
|
|
|
7,671,973
|
|
|
77
|
|
|
74,745
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
74,822
|
|
Issuance
of common stock to MHC
|
|
|
9,189,922
|
|
|
92
|
|
|
-
|
|
|
(92
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Issuance
of common stock to United
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charitable
Foundation.
|
|
|
344,100
|
|
|
3
|
|
|
3,646
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,649
|
|
Shares
purchased for ESOP
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,413
|
)
|
|
-
|
|
|
-
|
|
|
(6,413
|
)
|
ESOP
shares committed to be released
|
|
|
-
|
|
|
-
|
|
|
55
|
|
|
-
|
|
|
321
|
|
|
-
|
|
|
-
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2005
|
|
|
17,205,995
|
|
|
172
|
|
|
78,446
|
|
|
66,944
|
|
|
(6,092
|
)
|
|
-
|
|
|
(2,465
|
)
|
|
137,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,924
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,924
|
|
Net
unrealized gain on securities available for sale, net of reclassification
adjustments and taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
514
|
|
|
514
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared ($0.20 per share)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,462
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,462
|
)
|
Treasury
stock purchases
|
|
|
(341,945
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,405
|
)
|
|
-
|
|
|
(4,405
|
)
|
Reissuance
of treasury shares in connection with restricted stock
grants
|
|
|
290,500
|
|
|
-
|
|
|
(3,741
|
)
|
|
-
|
|
|
-
|
|
|
3,741
|
|
|
-
|
|
|
-
|
|
Stock-based
compensation
|
|
|
-
|
|
|
-
|
|
|
728
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
728
|
|
ESOP
shares committed to be released
|
|
|
-
|
|
|
-
|
|
|
87
|
|
|
-
|
|
|
320
|
|
|
-
|
|
|
-
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2006
|
|
|
17,154,550
|
|
$
|
172
|
|
$
|
75,520
|
|
$
|
70,406
|
|
$
|
(5,772
|
)
|
$
|
(664
|
)
|
$
|
(1,951
|
)
|
$
|
137,711
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Consolidated
Statements of Cash Flows
For
the
years ended December 31, 2006, 2005 and 2004
|
|
2006
|
|
2005
|
|
2004
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
4,924
|
|
$
|
4,369
|
|
$
|
5,528
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
969
|
|
|
917
|
|
|
983
|
|
ESOP
expense
|
|
|
407
|
|
|
376
|
|
|
-
|
|
Stock-based
compensation
|
|
|
728
|
|
|
-
|
|
|
-
|
|
Contribution
to United Charitable Foundation
|
|
|
-
|
|
|
3,649
|
|
|
-
|
|
Amortization
of premiums and discounts
|
|
|
308
|
|
|
670
|
|
|
1,062
|
|
Depreciation
and amortization
|
|
|
838
|
|
|
667
|
|
|
647
|
|
Amortization
of intangible assets
|
|
|
25
|
|
|
-
|
|
|
-
|
|
Provision
for other real estate owned
|
|
|
-
|
|
|
-
|
|
|
(21
|
)
|
Gain
on sales of loans
|
|
|
(3
|
)
|
|
(2
|
)
|
|
(13
|
)
|
Net
loss (gain) on sale of property and equipment
|
|
|
21
|
|
|
(4
|
)
|
|
(2
|
)
|
Net
loss (gain) on sale of available for sale securities
|
|
|
222
|
|
|
(3
|
)
|
|
(122
|
)
|
Income
tax provision (benefit)
|
|
|
(1,679
|
)
|
|
978
|
|
|
(1
|
)
|
Increase
in cash surrender value of bank-owned life insurance
|
|
|
(273
|
)
|
|
(326
|
)
|
|
(332
|
)
|
(Increase)
decrease in accrued interest receivable
|
|
|
(392
|
)
|
|
(1,065
|
)
|
|
282
|
|
Decrease
(increase) in other assets
|
|
|
475
|
|
|
(2,005
|
)
|
|
678
|
|
(Decrease)
increase in accrued expenses and other liabilities
|
|
|
(42
|
)
|
|
337
|
|
|
469
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
6,528
|
|
|
8,558
|
|
|
9,158
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases
of securities available for sale
|
|
|
(47,764
|
)
|
|
(124,036
|
)
|
|
(58,142
|
)
|
Proceeds
from sales of securities available for sale
|
|
|
28,896
|
|
|
2,597
|
|
|
32,985
|
|
Proceeds
from maturities and principal repayments of securities available
for
sale
|
|
|
55,430
|
|
|
44,127
|
|
|
68,646
|
|
Purchases
of securities held to maturity
|
|
|
-
|
|
|
(909
|
)
|
|
(404
|
)
|
Proceeds
from maturities and principal repayments of securities held to
maturity
|
|
|
75
|
|
|
75
|
|
|
77
|
|
Purchases
of Federal Home Loan Bank of Boston stock
|
|
|
(2,686
|
)
|
|
(567
|
)
|
|
(2,072
|
)
|
Refund
of Cooperative Central Bank deposit
|
|
|
-
|
|
|
-
|
|
|
1,522
|
|
Proceeds
from sales of other real estate owned
|
|
|
1,852
|
|
|
-
|
|
|
39
|
|
Net
loan originations and principal repayments
|
|
|
(127,570
|
)
|
|
(64,046
|
)
|
|
(78,428
|
)
|
Proceeds
from sales of loans
|
|
|
170
|
|
|
215
|
|
|
5,314
|
|
Purchases
of property and equipment
|
|
|
(1,372
|
)
|
|
(1,245
|
)
|
|
(382
|
)
|
Cash
paid to acquire Levine Financial Group
|
|
|
(100
|
)
|
|
-
|
|
|
-
|
|
Proceeds
from sale of property and equipment
|
|
|
-
|
|
|
16
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(93,069
|
)
|
|
(143,773
|
)
|
|
(30,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Net
increase in deposits
|
|
|
32,075
|
|
|
39,938
|
|
|
18,924
|
|
Proceeds
of Federal Home Loan Bank of Boston advances
|
|
|
133,000
|
|
|
148,365
|
|
|
185,714
|
|
Repayments
of Federal Home Loan Bank of Boston advances
|
|
|
(65,074
|
)
|
|
(133,179
|
)
|
|
(175,839
|
)
|
Net
increase in repurchase agreements
|
|
|
1,991
|
|
|
4,118
|
|
|
98
|
|
Net
increase (decrease) in escrow funds held for borrowers
|
|
|
(8
|
)
|
|
174
|
|
|
14
|
|
Treasury
stock purchases
|
|
|
(4,405
|
)
|
|
-
|
|
|
-
|
|
Cash
dividends paid
|
|
|
(1,462
|
)
|
|
-
|
|
|
-
|
|
Proceeds
from stock offering subscriptions
|
|
|
-
|
|
|
74,822
|
|
|
-
|
|
Acquistion
of common stock by ESOP
|
|
|
-
|
|
|
(6,413
|
)
|
|
-
|
|
Impact
of reorganization
|
|
|
-
|
|
|
-
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
96,117
|
|
|
127,825
|
|
|
28,761
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
9,576
|
|
|
(7,390
|
)
|
|
7,088
|
|
Cash
and cash equivalents at beginning of year
|
|
|
15,843
|
|
|
23,233
|
|
|
16,145
|
|
Cash
and cash equivalents at end of period
|
|
$
|
25,419
|
|
$
|
15,843
|
|
$
|
23,233
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period:
|
|
|
|
|
|
|
|
|
|
|
Interest
on deposits and other borrowings
|
|
$
|
24,353
|
|
$
|
16,080
|
|
$
|
12,102
|
|
Income
taxes - net
|
|
|
3,882
|
|
|
2,786
|
|
|
2,635
|
|
Transfer
of loans to other real estate owned
|
|
|
562
|
|
|
1,602
|
|
|
-
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2005, 2004 and 2003
(Dollars
in thousands, except per share amounts)
NOTE
A - REORGANIZATION AND
CHANGE IN CORPORATE FORM
During
2004, United Bank received both regulatory and depositor approval to reorganize
from a state-chartered cooperative bank to a multi-tier federally-chartered
holding company. As a result, United Financial Bancorp, Inc., a stock holding
company, was formed to be the parent company of United Bank (the Bank)
and
United Mutual Holding Company (MHC), a mutual holding company, was formed
to be
the parent company of United Financial Bancorp, Inc. Included in non-interest
expenses in the accompanying statement of earnings for the year ended December
31, 2004 are related reorganization expenses of $693.
In
December 2004, the Board of Directors of United Mutual Holding Company
adopted a
plan pursuant to which United Financial Bancorp, Inc.(the
Company) intended to sell up to 49% of its common stock to eligible Bank
depositors and, if necessary, to the general public. The Company’s initial
public offering concluded on July 12, 2005 after the receipt of regulatory
approval. The Company raised $74,822 in the offering, selling 7.7 million
shares
of common stock at $10 per share. This represented 44.6% of the stock issued.
In
addition, 344,100 shares or 2.0% of the shares outstanding were contributed
to
the newly formed United Charitable Foundation (“the Foundation”) to further
support its the Bank’s ongoing commitment to the community. United Mutual
Holding Company holds the remaining 53.4% of the outstanding shares.
The
Company established the United Charitable Foundation in connection with
the
reorganization and funded it with 344,100 shares of the Company’s common stock.
This contribution resulted in the recognition of expense equal to $3,441
based
on the offering price of $10 per share. The Company realized an additional
tax
benefit of $208 that was recorded as an increase to stockholders’ equity because
the basis for the contribution for tax purposes was based on the trading
price
of Company stock on its first day of trading.
In
addition, the Bank’s Board of Directors adopted an Employee Stock Ownership Plan
(the “ESOP”) which purchased 8%, or 641,300 shares, in the initial public
offering financed by a loan from the Company. (See Note K)
The
reorganization to a mutual holding company structure has been accounted
for as a
change in corporate form with the historic basis of the Bank’s assets,
liabilities and equity unchanged as a result. Subsequent to the stock offering,
the existing liquidation rights of the Bank’s depositors were transferred with
records to be maintained to ensure such rights receive statutory priority
in the
event of a complete mutual-to-stock conversion or in the more unlikely
event of
the Bank’s liquidation.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
consolidated financial statements include the accounts of United Financial
Bancorp, Inc. and its wholly owned subsidiary United Bank (the Bank). UCB
Securities, Inc. is a subsidiary of the Bank and is engaged in buying,
selling
and holding of securities. All significant intercompany accounts and
transactions have been eliminated in consolidation. These entities are
collectively referred to herein as “the Company”.
The
accounting and reporting policies of the Company conform to accounting
principles generally accepted in the United States of America (“U.S. GAAP”) and
general practices within the banking industry.
Use
of Estimates
In
preparing consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, management
is
required to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and disclosures of contingent assets and liabilities
as
of the date of the balance sheet and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
are
the determination of the allowance for loan losses and the valuation allowance
for the deferred tax asset.
The
following is a description of the Company’s more significant accounting
policies:
Cash
and Cash Equivalents
The
Company classifies cash and due from banks, interest bearing deposits in
other
banks and overnight funds sold as cash and cash equivalents as these liquid
assets have original maturities of 90 days or less.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2005, 2004 and 2003
(Dollars
in thousands, except per share amounts)
NOTE
B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Investment
Securities
Debt
securities that the Company has the positive intent and ability to hold
to
maturity are classified as held to maturity and reported at amortized cost;
debt
and equity securities that are bought and held principally for the purpose
of
selling in the near term are classified as trading and reported at fair
value,
with unrealized gains and losses included in earnings; and debt and equity
securities not classified as either held to maturity or trading are classified
as available for sale and reported at fair value, with unrealized gains
and
losses excluded from earnings and reported in accumulated other comprehensive
income (loss), net of taxes, as a separate component of stockholders’ equity.
The Company had no securities classified as trading at December 31, 2006
and
2005.
Premiums
and discounts on investment securities are amortized or accreted into income
on
the level yield method over the life of the investments. If a decline in
the
fair value of an investment security below its cost is judged to be
other-than-temporary the cost basis of the investment security is written
down
to fair value as a new cost basis and the amount of the write-down is included
in the results of operations. Gains and losses on the sale of investment
securities are recognized at the time of sale on a specific identification
basis.
Loans
Real
estate mortgage loans and other loans are
stated at their unpaid principal balance net of unearned loan fees and
costs and
the allowance for loan losses. The Company does not originate loans for
the
purpose of resale.
Interest
on most loans is included in income as earned based upon interest rates
applied
to unpaid principal using the simple interest method. Accrual of interest
on
loans is discontinued when in the judgment of management the collectibility
of
principal or interest becomes doubtful or when a loan becomes contractually
past
due 90 days with respect to principal or interest. The accrual of interest
on
some loans, however, may continue even though they are 90 days past due
if
management deems it appropriate, provided that the loans are well secured
and in
the process of collection. When a loan is placed on nonaccrual status,
all
interest previously accrued is reversed against current period interest
income.
Interest subsequently received on nonaccrual loans is either applied against
principal or recorded as income according to management’s judgment as to the
collectibility of principal. Interest accruals are resumed on such loans
only
when they are brought fully current as to principal and interest and when,
in
the judgment of management, the loans are estimated to be fully
collectible.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements - Continued
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Loan
origination and commitment fees and certain direct loan origination costs
are
deferred and the net amount is amortized over the contractual term of the
loan
as an adjustment of yield.
A
loan is
considered impaired when, based on current information and events, it is
probable that the Company will be unable to collect the scheduled payments
of
principal or interest when due according to the contractual terms of the
loan
agreement. Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired.
Impairment is measured on a loan-by-loan basis for commercial and construction
loans by either the present value of expected future cash flows discounted
at
the loan’s effective interest rate, the loan’s obtainable market price, or the
fair value of the collateral if the loan is collateral dependent.
Allowance
for Loan Losses
The
allowance for loan losses is maintained at a level determined by management
to
be adequate to absorb probable losses based on an evaluation of known and
inherent losses in the portfolio. The adequacy of the allowance for loan
losses
is evaluated on a quarterly basis by management. Factors considered in
evaluating the adequacy of the allowance include prior loss experience,
current
economic conditions and their effect on borrowers, the character and size
of the
loan portfolio, trends in nonperforming loans and delinquency rates and
the
performance of individual loans in relation to contractual terms. Loan
losses
are charged against the allowance when management believes that the
collectibility of the principal is unlikely and recoveries are credited
to the
allowance when received.
Determining
an appropriate level for the allowance for loan losses necessarily involves
a
high degree of judgment. While management uses available information to
recognize losses on loans, future additions to the allowance may be necessary.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the allowance for loan losses.
Such
agencies may require the Company to recognize additions to the allowance
based
on judgments different from those of management.
A
substantial portion of the Company’s loans are secured by real estate in Western
Massachusetts. Accordingly, the ultimate collectibility of the Company’s loan
portfolio is susceptible to changing conditions in this market
area.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Other
intangible assets
Statement
of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible
Assets”, prescribes that other identifiable intangible assets are recorded at
their estimated fair value and are amortized on a straight-line basis over
their
estimated useful lives. These assets are evaluated for impairment if
circumstances suggest that their value may be impaired.
Business
segments
An
operating segment is a component of a business for which separate financial
information is available that is evaluated regularly by the chief operating
decision-maker in deciding how to allocate resources and evaluate performance.
The Company's operations are limited to financial services provided within
the
framework of a community bank, and decisions are based generally on specific
market areas and or product offerings. Accordingly, based on the financial
information which is presently evaluated by the Company's chief operating
decision-maker, the Company operates in a single business segment.
Off-balance
sheet financial instruments
In
the
ordinary course of business, the Company enters into off-balance sheet
financial
instruments, consisting primarily of credit related financial instruments.
These
financial instruments are recorded in the consolidated financial statements
when
they are funded or related fees are incurred or received.
Earnings
Per Share
Earnings
per share have been computed in accordance with SFAS No. 128,
“Earnings Per Share.” Basic earnings per share have been calculated by dividing
net income by weighted average shares outstanding before any dilution and
adjusted to exclude the weighted average number of unallocated shares held
by
the ESOP and unvested restricted stock awards. Diluted earnings per share
have
been calculated by dividing net income by weighted average shares outstanding
after giving effect to the potential dilution that could occur if potential
common shares were converted into common stock using the treasury stock
method.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Other
Real Estate Owned
Other
real estate owned (“OREO”) is comprised of properties acquired through
foreclosure proceedings or acceptance of a deed in lieu of foreclosure.
Losses
arising from the acquisition of such properties are charged against the
allowance for loan losses. Operating expenses are charged to current period
operations as incurred. Gains and losses upon disposition are reflected
in
income as realized.
Foreclosed
assets held for sale are recorded at the lower of fair value less estimated
costs to sell or cost. Subsequent changes in the fair value of the foreclosed
assets are reflected as a valuation allowance.
Banking
Premises and Equipment
Banking
premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed for financial reporting purposes on the straight-line
method over the estimated useful life of each type of asset. Leasehold
improvements are amortized on the straight-line method over the shorter
of the
lease term, including consideration of renewal options, or estimated useful
life
of the asset. The cost of maintenance and repairs is charged against income
as
incurred. The Company reviews for impairment of long-lived assets whenever
events or changes in circumstances indicate that the carrying amount of
an asset
may not be recoverable.
Asset
retirement obligations are recognized at fair value when incurred. The
Company
recognizes a liability when the obligation is incurred - generally upon
acquisition, construction, or development and (or) through the normal operation
of the asset. In
periods subsequent to initial measurement, the Company recognizes changes
in the
liability for an asset retirement obligation resulting from (a) the passage
of time and (b) revisions to either the timing or the amount of the original
estimate of undiscounted cash flows.
An
asset
retirement obligation is recognized as a liability and measured at fair
value.
Because the liability is recorded at its fair value and not it’s ultimate
settlement amount, increases in the liability’s carrying amount for accretion
are recognized each period. The accretion expense is classified as an operating
expense in the income statement. The Company also capitalizes the cost
associated with its asset retirement obligations as part of the carrying
amount
of the associated long-lived assets. As part of the depreciable cost of
the
related long-lived assets, capitalized asset retirement costs are depreciated
over their useful life.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Pension
Plan
The
Company provides pension benefits for eligible employees through a
multi-employer defined benefit plan sponsored by the Co-operative Banks
Employees’ Retirement Association (CBERA). The Company’s policy is to expense
related pension costs based on assessments by CBERA. The Bank has also
established a defined contribution plan for eligible employees. The Company
matches employee contributions up to 5% of an employee’s qualified compensation.
Transfers
of Financial Assets
Transfers
of financial assets are accounted for as sales, when control over the assets
has
been surrendered. Control over transferred assets is deemed to be surrendered
when (1) the assets have been isolated from the Company, (2) the transferee
obtains the right (free of conditions that constrain it from taking advantage
of
that right) to pledge or exchange the transferred assets and (3) the Company
does not maintain effective control over the transferred assets through
an
agreement to repurchase them before their maturity.
Income
Taxes
The
Company recognizes income taxes under the asset and liability method. Under
this
method, deferred tax assets and liabilities are established for the tax
consequences attributable to the temporary differences between the financial
statement carrying amount and the tax basis of the Bank’s assets and liabilities
and certain tax carryforwards at enacted tax rates.
Deferred
tax expense (benefit) is the result of changes in deferred tax assets and
liabilities. A valuation allowance is recorded against deferred tax assets
when
management deems a portion of the asset to be more likely than not unrealizable.
The Company’s valuation allowance is reviewed and adjustments are made to the
valuation allowance based on management’s judgments relating to the
realizability of the deferred tax asset. It
is
management's belief, that it is more likely than not, that the reversal
of
deferred tax liabilities and results of future operations will generate
sufficient taxable income to realize the deferred tax assets. In addition,
the
Company’s net deferred tax asset is supported by recoverable income taxes.
Therefore, no valuation allowance was necessary at December 31, 2006 or
2005 for
deferred tax assets. It should be noted, however, that factors beyond
management's control, such as the general state of the economy and real
estate
values, can affect future levels of taxable income and that no assurance
can be
given that sufficient taxable income will be generated to fully absorb
gross
deductible temporary differences.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Stock
Compensation Plan
The
Company adopted SFAS No. 123R, “Share-Based
Payment”,
on
January 1, 2006. SFAS 123R requires that the compensation cost associated
with
share-based payment transactions, such as stock options and restricted
stock
awards, be recognized in the financial statements over the requisite service
(vesting) period.
During the year ended December 31, 2006, the Company’s shareholders approved a
stock based incentive plan, which is described in Note J.
Comprehensive
Income
Accounting
principles generally require that recognized revenue, expenses, gains and
losses
be included in net income. Although certain changes in assets and liabilities,
such as unrealized gains and losses on available for sale securities, are
reported as a separate component of stockholders’ equity such items, along with
net income, are components of comprehensive income. The Company uses the
specific identification method to determine the cost of a security sold
and the
amount reclassified out of accumulated other comprehensive income into
earnings.
The
components of other comprehensive income and related tax effects are as
follows
for the years ended December 31:
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Change
in unrealized holding gains (losses) on available for sale
securities
|
|
$
|
633
|
|
$
|
(3,371
|
)
|
$
|
(180
|
)
|
Reclassification
adjustment for losses (gains) realized in income
|
|
|
222
|
|
|
(3
|
)
|
|
(122
|
)
|
Net
change in unrealized gains (losses)
|
|
|
855
|
|
|
(3,374
|
)
|
|
(302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Tax
effect
|
|
|
341
|
|
|
1,321
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
$
|
514
|
|
$
|
(2,053
|
)
|
$
|
(173
|
)
|
Reclassifications
Amounts
reported for prior periods are reclassified as necessary to be consistent
with
the current-period presentation.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Advertising
and public relations expense
Advertising,
promotional and other business development costs are generally expensed
as
incurred. External costs incurred in producing media advertising are expensed
the first time the advertising takes place. External costs relating to
direct
mailing costs are expensed in the period in which the direct mailings are
sent.
Recent
Accounting Developments
In
July
2006, the Financial Accounting Standards Board (“FASB”) released FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the
accounting and reporting for income taxes where interpretation of the tax
law
may be uncertain. FIN 48 prescribes a comprehensive model for the financial
statement recognition, measurement, presentation and disclosure of income
tax
uncertainties with respect to positions taken or expected to be taken in
income
tax returns. This standard is effective for the Company on January 1, 2007.
The
cumulative effect, if any, of applying FIN 48 will be recorded as an adjustment
to the beginning balance of retained earnings. Management is in the process
of completing its evaluation of the impact that adoption of FIN 48 may
have but
does not expect the adoption will have a material effect on the Company’s results
of
operations or financial position.
In
September 2006, the Securities
and Exchange Commission issued Staff Accounting Bulletin (SAB) 108 “Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements
in
Current Year Financial Statements”. This SAB addresses quantifying the financial
statement effect of misstatements, specifically, how the effects of prior
year
uncorrected errors must be considered in quantifying misstatements in the
current year financial statements. This SAB is effective for fiscal years
ending
after November 15, 2006. The adoption of this SAB had no effect on the
Company’s financial position, results of operations or cash flows.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” . SFAS
157 defines fair value, establishes a U.S. GAAP framework for measuring
fair
value, and expands financial statement disclosures about fair value
measurements. SFAS No.157 is effective for the Company on January 1, 2008
and is
not expected to have a significant impact on its financial
statements.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Concluded
In
June 2006, the EITF released Issue 06-05, “Accounting for Purchases of Life
Insurance-Determining the Amount That Could Be Realized in Accordance with
FASB
Technical Bulletin No. 85-4, “Accounting for Purchases of Life Insurance”.
On September 7, 2006, the EITF concluded that a policyholder should
consider any additional amounts included in the contractual terms of the
policy
in determining the amount that could be realized under the insurance contract.
Amounts that are recoverable by the policyholder at the discretion of the
insurance company should be excluded from the amount that could be realized.
Amounts that are recoverable by the policyholder in periods beyond one
year from
the surrender of the policy should be discounted utilizing an appropriate
rate
of interest. The effective date of EITF 06-05 is for fiscal years beginning
after December 15, 2006. Management does not expect the implementation of
the Interpretation will have a material effect on the Company’s results of
operations or financial position.
In
February 2007, the FASB issued Statement of Financial Accounting Standards
No.
159, The Fair Value Option for Financial Assets and Financial Liabilities
("SFAS
159"), which provides companies with an option to report selected financial
assets and liabilities at fair value. The objective of SFAS 159 is to reduce
both complexity in accounting for financial instruments and the volatility
in
earnings caused by measuring related assets and liabilities differently.
SFAS
159 establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes
for
similar types of assets and liabilities and to more easily understand the
effect
of the company’s choice to use fair value on its earnings. SFAS 159 also
requires entities to display the fair value of the selected assets and
liabilities on the face of the balance sheet. SFAS 159 does not eliminate
disclosure requirements of other accounting standards, including fair value
measurement disclosures in SFAS 157. This Statement is effective as of
the
beginning of an entity’s first fiscal year beginning after November 15, 2007.
Early adoption is permitted as of the beginning of the previous fiscal
year
provided that the entity makes that choice in the first 120 days of that
fiscal
year and also elects to apply the provisions of Statement 157. Adoption
of SFAS
159 is not expected to have a material impact on the Company’s results of
operations or financial position.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
C - INVESTMENT SECURITIES
The
amortized cost and fair values of securities classified as available for
sale
and held to maturity are as follows:
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
|
Cost
|
|
Gain
|
|
Losses
|
|
Value
|
|
Securities
Available for Sale
|
|
|
|
|
|
|
|
|
|
December
31, 2006:
|
|
|
|
|
|
|
|
|
|
Government-sponsored
enterprises
|
|
$
|
78,248
|
|
$
|
4
|
|
$
|
(883
|
)
|
$
|
77,369
|
|
Mortgage-backed
securities
|
|
|
111,481
|
|
|
107
|
|
|
(2,314
|
)
|
|
109,274
|
|
Corporate
bonds
|
|
|
3,415
|
|
|
14
|
|
|
(120
|
)
|
|
3,309
|
|
Subtotal
|
|
|
193,144
|
|
|
125
|
|
|
(3,317
|
)
|
|
189,952
|
|
Marketable
equity securities
|
|
|
294
|
|
|
-
|
|
|
(9
|
)
|
|
285
|
|
Total
|
|
$
|
193,438
|
|
$
|
125
|
|
$
|
(3,326
|
)
|
$
|
190,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored
enterprises
|
|
$
|
99,957
|
|
$
|
1
|
|
$
|
(1,397
|
)
|
$
|
98,561
|
|
Mortgage-backed
securities
|
|
|
117,259
|
|
|
102
|
|
|
(2,659
|
)
|
|
114,702
|
|
Corporate
bonds
|
|
|
13,011
|
|
|
54
|
|
|
(135
|
)
|
|
12,930
|
|
Subtotal
|
|
|
230,227
|
|
|
157
|
|
|
(4,191
|
)
|
|
226,193
|
|
Marketable
equity securities
|
|
|
294
|
|
|
-
|
|
|
(22
|
)
|
|
272
|
|
Total
|
|
$
|
230,521
|
|
$
|
157
|
|
$
|
(4,213
|
)
|
$
|
226,465
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
|
Cost
|
|
Gain
|
|
Losses
|
|
Value
|
|
Securities
Held to Maturity
|
|
|
|
|
|
|
|
|
|
December
31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRB
|
|
$
|
1,271
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,271
|
|
Municipal
bonds
|
|
|
1,970
|
|
|
4
|
|
|
(18
|
)
|
|
1,956
|
|
Total
|
|
$
|
3,241
|
|
$
|
4
|
|
$
|
(18
|
)
|
$
|
3,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRB
|
|
$
|
1,346
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,346
|
|
Municipal
bonds
|
|
|
1,979
|
|
|
-
|
|
|
(27
|
)
|
|
1,952
|
|
Total
|
|
$
|
3,325
|
|
$
|
-
|
|
$
|
(27
|
)
|
$
|
3,298
|
|
The
Company’s portfolio of mortgage-backed securities, which represent interests in
pools of residential
mortgage loans, consists solely of securities issued by the Federal Home
Loan
Mortgage Corporation (Freddie Mac), the Federal National Mortgage Association
(Fannie Mae), and the Government National Mortgage Association (Ginnie
Mae), all
of which are federal government owned or sponsored agencies.
As
of
December 31, 2006, the Bank has pledged securities with an amortized cost
of
$16,000 and a fair value of $15,807 to secure treasury, tax and loan deposits
at
the Federal Reserve Bank of Boston and to secure customers’ repurchase
agreements. Additionally, there is a blanket lien on certain securities
to
collateralize borrowings from the Federal Home Loan Bank of Boston, as
discussed
further in Note G.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
C - INVESTMENT SECURITIES -Continued
Gross
unrealized losses and fair values at December 31, 2006 and 2005 aggregated
by investment category and the length of time that individual securities
have
been in a continuous unrealized loss position follow:
|
|
Less
than 12 months
|
|
12
months or longer
|
|
Total
|
|
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Number of
|
|
Fair
|
|
Unrealized
|
|
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Securities
|
|
Value
|
|
Losses
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored
enterprises
|
|
$
|
1,239
|
|
$
|
(19
|
)
|
$
|
62,182
|
|
$
|
(864
|
)
|
|
28
|
|
$
|
63,421
|
|
$
|
(883
|
)
|
Mortgage-backed
securities
|
|
|
13,609
|
|
|
(117
|
)
|
|
78,972
|
|
|
(2,197
|
)
|
|
86
|
|
|
92,581
|
|
|
(2,314
|
)
|
Corporate
bonds
|
|
|
-
|
|
|
-
|
|
|
1,841
|
|
|
(120
|
)
|
|
4
|
|
|
1,841
|
|
|
(120
|
)
|
Marketable
equity securities
|
|
|
-
|
|
|
-
|
|
|
285
|
|
|
(9
|
)
|
|
2
|
|
|
285
|
|
|
(9
|
)
|
Total
|
|
$
|
14,848
|
|
$
|
(136
|
)
|
$
|
143,280
|
|
$
|
(3,190
|
)
|
|
120
|
|
$
|
158,128
|
|
$
|
(3,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
bonds
|
|
$
|
212
|
|
$
|
(1
|
)
|
$
|
1,207
|
|
$
|
(17
|
)
|
|
7
|
|
$
|
1,419
|
|
$
|
(18
|
)
|
Total
|
|
$
|
212
|
|
$
|
(1
|
)
|
$
|
1,207
|
|
$
|
(17
|
)
|
|
7
|
|
$
|
1,419
|
|
$
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored
enterprises
|
|
$
|
69,298
|
|
$
|
(765
|
)
|
$
|
28,519
|
|
$
|
(632
|
)
|
|
50
|
|
$
|
97,817
|
|
$
|
(1,397
|
)
|
Mortgage-backed
securities
|
|
|
53,636
|
|
|
(976
|
)
|
|
54,052
|
|
|
(1,683
|
)
|
|
88
|
|
|
107,688
|
|
|
(2,659
|
)
|
Corporate
bonds
|
|
|
2,078
|
|
|
(74
|
)
|
|
3,803
|
|
|
(61
|
)
|
|
13
|
|
|
5,881
|
|
|
(135
|
)
|
Marketable
equity securities
|
|
|
100
|
|
|
(1
|
)
|
|
172
|
|
|
(21
|
)
|
|
2
|
|
|
272
|
|
|
(22
|
)
|
Total
|
|
$
|
125,112
|
|
$
|
(1,816
|
)
|
$
|
86,546
|
|
$
|
(2,397
|
)
|
|
153
|
|
$
|
211,658
|
|
$
|
(4,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
bonds
|
|
$
|
1,365
|
|
$
|
(12
|
)
|
$
|
587
|
|
$
|
(15
|
)
|
|
9
|
|
$
|
1,952
|
|
$
|
(27
|
)
|
Total
|
|
$
|
1,365
|
|
$
|
(12
|
)
|
$
|
587
|
|
$
|
(15
|
)
|
|
9
|
|
$
|
1,952
|
|
$
|
(27
|
)
|
Management
has evaluated the securities in the preceding tables and concluded that
none of
these securities have experienced impairments that are other-than temporary.
In
its evaluation, management considered the types of securities, including
if the
securities were U.S. Government issued, and the credit rating on the securities.
Management believes that the current unrealized loss position is related
to the
current interest rate environment. The Company has the ability to hold
these
securities until the earlier of maturity or a market price recovery and
currently has no plans to dispose of any of these securities.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
C - INVESTMENT SECURITIES - Concluded
Realized
gains and losses and the proceeds from sales of securities available for
sale
are as follows for the years ended December 31:
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales
|
|
$
|
28,896
|
|
$
|
2,597
|
|
$
|
32,985
|
|
Gross
gains
|
|
|
56
|
|
|
16
|
|
|
122
|
|
Gross
losses
|
|
|
(278
|
)
|
|
(13
|
)
|
|
-
|
|
The
scheduled maturities of debt securities held to maturity and available
for sale
at December 31, 2006, are shown below. Expected maturities may differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
|
|
At
December 31, 2006
|
|
|
|
Securities
Available for Sale
|
|
Securities
Held to Maturity
|
|
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
|
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
Due
in one year or less
|
|
$
|
31,698
|
|
$
|
31,575
|
|
$
|
201
|
|
$
|
198
|
|
Due
from one year to five years
|
|
|
57,709
|
|
|
56,174
|
|
|
1,312
|
|
|
1,299
|
|
Due
from five years to ten years
|
|
|
34,957
|
|
|
34,081
|
|
|
878
|
|
|
880
|
|
Due
after ten years
|
|
|
68,780
|
|
|
68,122
|
|
|
850
|
|
|
850
|
|
|
|
$
|
193,144
|
|
$
|
189,952
|
|
$
|
3,241
|
|
$
|
3,227
|
|
Maturities
are based on the final contractual payment dates, and do not reflect the
impact
of prepayments or early redemptions that may occur. Such
securities have been classified within the category that represents the
final
maturity date.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
D - LOANS, NET
The
components of loans are as follows at December 31:
|
|
December 31,
|
|
December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
One-to-four
family residential real estate
|
|
$
|
319,108
|
|
$
|
285,236
|
|
Commercial
real estate
|
|
|
175,564
|
|
|
150,099
|
|
Construction
|
|
|
54,759
|
|
|
28,872
|
|
Home
equity loans
|
|
|
112,739
|
|
|
86,045
|
|
Commercial
and industrial
|
|
|
69,762
|
|
|
59,591
|
|
Consumer
|
|
|
30,181
|
|
|
25,949
|
|
Total
loans
|
|
|
762,113
|
|
|
635,792
|
|
|
|
|
|
|
|
|
|
Net
deferred loan costs and fees
|
|
|
1,285
|
|
|
1,148
|
|
Allowance
for loan losses
|
|
|
(7,218
|
)
|
|
(6,382
|
)
|
Loans,
net
|
|
$
|
756,180
|
|
$
|
630,558
|
|
The
Company’s lending activities are conducted principally in Western Massachusetts.
The Bank grants single family and multi-family residential loans, commercial
real estate loans, commercial loans, and a variety of consumer loans. In
addition, the Company grants loans for the construction of residential
homes,
multi-family properties and commercial real estate properties. Most loans
granted by the Company are collateralized by real estate. The ability and
willingness of the single family residential, commercial and consumer borrowers
to honor their repayment commitments is generally dependent on the level
of
overall economic activity within the borrowers’ geographic areas and real estate
values. The ability and willingness of commercial real estate and construction
loan borrowers to honor their repayment commitments is generally dependent
on
the health of the real estate economic sector in the borrowers’ geographic areas
and the general economy.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
D - LOANS, NET - Continued
Nonaccrual
loans amounted to approximately $1,288 and $1,717 at December
31, 2006 and 2005,
respectively. Additional interest income of approximately $71, $158 and
$110
would have been recorded during the years ended December 31, 2006, 2005
and
2004, respectively, if the loans had performed in accordance with their
original
terms.
At
December 31, 2006
and
2005, the recorded investment in impaired loans was $1,288 and $700,
respectively, all of which were accounted for on a non-accrual basis. An
allowance for loan losses was established on $1,288 and $700 of the impaired
loans at December 31, 2006 and 2005, respectively, which allowances
amounted to $295 and $80 at the respective year-ends. The average balance
of
impaired loans was $2,076, $2,145 and $1,395 for the years ended December
31,
2006, 2005 and 2004, respectively. Interest income recognized on impaired
loans
during 2006, 2005 and 2004 was not significant.
Certain
officers and directors of the Company and certain corporations and individuals
related to such persons, incurred indebtedness, in the form of loans, as
customers. These loans were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time or comparable
transactions with other customers and did not involve more than the normal
risk
of collectibility.
The
following table summarizes the Company’s lending activity with its directors and
executive officers all of which was conducted with terms consistent with
those
offered to unrelated parties:
|
|
2006
|
|
2005
|
|
Beginning
balance
|
|
$
|
1,373
|
|
$
|
1,359
|
|
New
loans
|
|
|
10
|
|
|
335
|
|
Repayments
|
|
|
(409
|
)
|
|
(321
|
)
|
Ending
balance
|
|
$
|
974
|
|
$
|
1,373
|
|
The
Company does not presently originate loans for the purpose of reselling
them in
the secondary market but has sold residential mortgage loans from its portfolio.
Loans serviced by the Company for others totaled $36,900 and $42,400 at
December 31, 2006 and 2005, respectively. The balances of mortgage
servicing rights related to such loans were insignificant at December 31,
2006
and 2005.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
D - LOANS, NET - Concluded
A
summary
of changes in the allowance for loan losses for the years ended December 31
follows:
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$
|
6,382
|
|
$
|
5,750
|
|
$
|
5,094
|
|
Provision
for loan losses
|
|
|
969
|
|
|
917
|
|
|
983
|
|
Charge-offs
|
|
|
(186
|
)
|
|
(455
|
)
|
|
(558
|
)
|
Recoveries
|
|
|
53
|
|
|
170
|
|
|
231
|
|
Balance
at end of period
|
|
$
|
7,218
|
|
$
|
6,382
|
|
$
|
5,750
|
|
NOTE
E - BANKING PREMISES AND EQUIPMENT
The
composition of banking premises and equipment is as follows at December
31:
|
|
|
|
|
|
Estimated
|
|
|
|
2006
|
|
2005
|
|
Useful Lives
|
|
|
|
|
|
|
|
|
|
Land
and improvements
|
|
$
|
2,146
|
|
$
|
2,135
|
|
|
|
|
Buildings
and improvements
|
|
|
7,475
|
|
|
7,309
|
|
|
25
- 40 Years
|
|
Leasehold
improvements
|
|
|
1,976
|
|
|
1,708
|
|
|
|
|
Furniture
and equipment
|
|
|
2,271
|
|
|
1,573
|
|
|
5
Years
|
|
|
|
|
13,868
|
|
|
12,725
|
|
|
|
|
Less
accumulated depreciation and amortization
|
|
|
(5,047
|
)
|
|
(4,489
|
)
|
|
|
|
|
|
$
|
8,821
|
|
$
|
8,236
|
|
|
|
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
E - BANKING PREMISES AND EQUIPMENT- Concluded
The
Company leases six of its branches, two ATM facilities and a financial
services
office. Rent expense for the years ended December 31, 2006, 2005 and 2004
amounted to approximately $363, $259 and $231, respectively. The leases,
which
are noncancelable, expire at various dates through 2031. Future minimum
rental
commitments under the terms of leases are as follows:
Years
ending December 31,
|
|
|
|
|
|
|
|
2007
|
|
$
|
498
|
|
2008
|
|
|
434
|
|
2009
|
|
|
405
|
|
2010
|
|
|
350
|
|
2011
|
|
|
239
|
|
Thereafter
|
|
|
3,224
|
|
Total
minimum lease payments
|
|
$
|
5,150
|
|
NOTE
F - DEPOSITS
Deposit
accounts by type are summarized as follows at December 31:
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Demand
|
|
$
|
97,190
|
|
$
|
93,301
|
|
NOW
|
|
|
37,523
|
|
|
39,922
|
|
Regular
savings
|
|
|
65,475
|
|
|
87,253
|
|
Money
market
|
|
|
164,463
|
|
|
154,177
|
|
Retirement
|
|
|
55,368
|
|
|
52,694
|
|
Certificates
of deposit
|
|
|
265,667
|
|
|
226,264
|
|
|
|
$
|
685,686
|
|
$
|
653,611
|
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
F - DEPOSITS- Concluded
Certificates
of deposit with balances greater than or equal to $100 totaled $103,321
and
$90,597 at December
31, 2006 and 2005,
respectively. The FDIC generally insures deposit amounts up to $100, as
defined
in the applicable regulations. The maturity of those certificates as of
December
31, 2006 is as follows:
|
|
At
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
|
|
|
Three
months or less
|
|
$
|
34,924
|
|
Over
three months through six months
|
|
|
38,264
|
|
Over
six months through one year
|
|
|
20,554
|
|
Over
one year to three years
|
|
|
6,196
|
|
Over
three years
|
|
|
3,383
|
|
Total
|
|
$
|
103,321
|
|
The
scheduled maturities of time deposits at December 31, 2006, are as
follows:
2007
|
|
$
|
282,025
|
|
2008
|
|
|
17,089
|
|
2009
|
|
|
10,899
|
|
2010
|
|
|
8,738
|
|
2011
|
|
|
763
|
|
Total
time deposits
|
|
$
|
319,514
|
|
Interest
expense on deposits, classified by type, is as follows:
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
NOW
|
|
$
|
103
|
|
$
|
148
|
|
$
|
90
|
|
Regular
savings
|
|
|
638
|
|
|
647
|
|
|
698
|
|
Money
market
|
|
|
5,125
|
|
|
3,098
|
|
|
1,710
|
|
Retirement
|
|
|
2,087
|
|
|
1,900
|
|
|
1,354
|
|
Certificates
of deposit
|
|
|
10,742
|
|
|
6,507
|
|
|
5,143
|
|
Total
|
|
$
|
18,695
|
|
$
|
12,300
|
|
$
|
8,995
|
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
G - BORROWINGS
Federal
Home Loan Bank Advances
The
Bank
is a member of the Federal Home Loan Bank of Boston (“FHLBB”) and as such, it
was required to invest in stock of the FHLBB, until April 2004, in an amount
which was the greater of .3% of its total assets, 1% of its outstanding
home
loans or 5% of its outstanding advances from the FHLBB. In April 2004,
the FHLBB
amended its capital structure at which time the Bank’s FHLBB stock was converted
to Class B stock. Such stock is redeemable at par value five years after
filing
for a redemption or upon termination of membership. The FHLBB may, but
is not
obligated to, repurchase Class B stock prior to expiration of the five year
redemption notice. Under the amended capital structure, the Bank’s stock
investment requirement is an amount equal to the sum of .35% of certain
specified assets plus 4.5% of the Bank’s advances and certain other specified
items.
The
FHLBB
is authorized to make advances to its members subject to such regulations
and
limitations as its Board of Directors may prescribe. The Bank’s advances are
secured by its FHLBB stock and a blanket lien on certain qualified collateral,
primarily one-to four-family first mortgage loans and certain debt securities.
The Bank’s unused borrowing capacity with the FHLBB, excluding its $12.4 million
line of credit, was approximately $136,538 at December 31, 2006.
At
December 31, 2006, the Bank had no borrowing against the line of
credit.
Advances
outstanding at December 31, 2006, 2005 and 2004 consisted of the following:
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Amount
|
|
Average
Rate
|
|
Amount
|
|
Average
Rate
|
|
Amount
|
|
Average
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
1 year
|
|
$
|
65,000
|
|
|
5.16
|
%
|
$
|
13,799
|
|
|
3.40
|
%
|
$
|
16,000
|
|
|
2.35
|
%
|
Over
1 year to 2 years
|
|
|
16,411
|
|
|
5.06
|
%
|
|
10,000
|
|
|
4.37
|
%
|
|
12,000
|
|
|
3.23
|
%
|
Over
2 years to 3 years
|
|
|
13,000
|
|
|
5.13
|
%
|
|
19,393
|
|
|
4.95
|
%
|
|
-
|
|
|
|
% |
Over
3 years to 4 years
|
|
|
16,111
|
|
|
3.20
|
%
|
|
-
|
|
|
|
% |
|
-
|
|
|
|
% |
Over
4 years to 5 years
|
|
|
39,184
|
|
|
4.60
|
% |
|
20,318
|
|
|
3.19
|
%
|
|
22,247
|
|
|
4.87
|
%
|
Over
5 years
|
|
|
20,100
|
|
|
4.32
|
% |
|
38,370
|
|
|
4.02
|
%
|
|
36,447
|
|
|
3.32
|
%
|
|
|
$
|
169,806
|
|
|
4.73
|
%
|
$
|
101,880
|
|
|
3.98
|
%
|
$
|
86,694
|
|
|
3.53
|
% |
At
December 31, 2006, advances in the amounts of $30,000 and $5,000 are callable
at
the option of the FHLBB during 2007 and 2009, respectively.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
Repurchase
Agreements
Securities
sold under agreements to repurchase are funds borrowed from customers on
an
overnight basis that are secured by U.S. Government agency obligations.
The
following table summarizes repurchase agreement activity for the years
indicated:
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Balance
at year-end
|
|
$
|
10,425
|
|
$
|
8,434
|
|
$
|
4,317
|
|
Average
amount outstanding during year
|
|
|
5,546
|
|
|
5,572
|
|
|
4,064
|
|
Interest
expense incurred during year
|
|
|
167
|
|
|
90
|
|
|
39
|
|
Maximum
amount outstanding at any month-end
|
|
|
10,425
|
|
|
8,675
|
|
|
6,015
|
|
Average
interest rate during the year
|
|
|
3.01
|
%
|
|
1.62
|
%
|
|
0.96
|
%
|
Weighted
average interest rate at year-end balances
|
|
|
3.38
|
%
|
|
2.12
|
%
|
|
1.19
|
%
|
NOTE
H - INCOME TAXES
Allocation
of federal and state income taxes between current and deferred provisions
is as
follows:
|
|
Years
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Current
tax provision:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
3,618
|
|
$
|
1,417
|
|
$
|
2,970
|
|
State
|
|
|
1,079
|
|
|
254
|
|
|
859
|
|
|
|
|
4,697
|
|
|
1,671
|
|
|
3,829
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,289
|
)
|
|
704
|
|
|
(1
|
)
|
State
|
|
|
(390
|
)
|
|
274
|
|
|
0
|
|
|
|
|
(1,679
|
)
|
|
978
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,018
|
|
$
|
2,649
|
|
$
|
3,828
|
|
The
reasons for the differences between the statutory federal income tax
rate and
the effective rates are summarized as follows:
|
|
Years
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Statutory
tax rate
|
|
|
34.0
|
%
|
|
34.0
|
%
|
|
34.0
|
%
|
Increase
(decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
State
taxes, net of federal tax benefit
|
|
|
5.7
|
%
|
|
5.0
|
%
|
|
6.1
|
%
|
Other,
net
|
|
|
(1.7
|
%)
|
|
(1.2
|
%)
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Effective
tax rates
|
|
|
38.0
|
%
|
|
39.0
|
%
|
|
40.9
|
%
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
H - INCOME TAXES - Continued
The
components of the net deferred tax asset are as follows:
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Deferred
tax asset:
|
|
|
|
|
|
Federal
|
|
$
|
4,744
|
|
$
|
4,769
|
|
State
|
|
|
1,548
|
|
|
1,583
|
|
|
|
|
6,292
|
|
|
6,352
|
|
|
|
|
|
|
|
|
|
Deferred
tax liability:
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,558
|
)
|
|
(3,839
|
)
|
State
|
|
|
(883
|
)
|
|
(1,268
|
)
|
|
|
|
(3,441
|
)
|
|
(5,107
|
)
|
|
|
|
|
|
|
|
|
Net
deferred tax asset
|
|
$
|
2,851
|
|
$
|
1,245
|
|
The
tax
effects of each type of income and expense item that give rise to deferred
taxes
are as follows:
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Cash
basis of accounting
|
|
$
|
29
|
|
$
|
64
|
|
Net
unrealized loss on securities available for sale
|
|
|
426
|
|
|
500
|
|
Depreciation
|
|
|
492
|
|
|
376
|
|
Deferred
expense
|
|
|
(1,044
|
)
|
|
(858
|
)
|
Allowance
for loan loss
|
|
|
2,955
|
|
|
2,598
|
|
Employee
benefit plans
|
|
|
1,337
|
|
|
1,304
|
|
Market
value adjustment - loans
|
|
|
(2,391
|
)
|
|
(3,912
|
)
|
Contribution
carryover
|
|
|
1,048
|
|
|
1,510
|
|
Other
|
|
|
(1
|
)
|
|
(337
|
)
|
Net
deferred tax asset
|
|
$
|
2,851
|
|
$
|
1,245
|
|
A
summary
of the change in the net deferred tax asset is as follows:
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$
|
1,245
|
|
$
|
1,551
|
|
Deferred
tax provision (benefit)
|
|
|
1,679
|
|
|
(978
|
)
|
Change
in unrealized (loss) gain on securities available for sale
|
|
|
(73
|
)
|
|
672
|
|
Balance
at end of year
|
|
$
|
2,851
|
|
$
|
1,245
|
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
H - INCOME
TAXES - Concluded
The
charitable contribution carryforward may be carried forward until 2009
and is
limited to 10% of taxable income each year. Based on an assessment of the
likely
ranges of taxable income during the carryforward period, management believes
that it is more likely than not it will fully utilize tax deductions for
this
item.
The
Bank’s base year reserve (as of December 31, 1995) will not be recaptured unless
the reserve is used for purposes other than for loan losses, such as in
a
distribution in liquidation or otherwise. Accordingly, the Bank has not
recorded
a deferred tax liability of approximately $2,600 relating to approximately
$6,200 of cumulative tax deductions generated prior to December 31,
1995.
NOTE
I - EARNINGS
PER SHARE
The
calculation of earnings per common share and diluted earnings per common
share
for the year ended December 31, 2006 is presented below. Earnings per share
are
not applicable for years ended December 31, 2005 and 2004 since the Company
completed its initial public offering on July 12, 2005.
|
|
Year
Ended
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
|
|
|
Net
income
|
|
$
|
4,924
|
|
|
|
|
|
|
Weighted
average common shares applicable to basic EPS
|
|
|
16,467,874
|
|
Effect
of dilutive potential common shares (1,
2)
|
|
|
9,059
|
|
|
|
|
|
|
Weighted
average common shares applicable to diluted EPS
|
|
|
16,476,933
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
Basic
|
|
$
|
0.30
|
|
Diluted
|
|
$
|
0.30
|
|
|
|
|
|
|
(1)
|
Options
to purchase 756,500 shares were outstanding but not included
in the
computation of diluted earnings per share because they were
antidulutive.
|
(2)
|
Includes
incremental shares related to stock options and restricted
stock.
|
NOTE
J - STOCK-BASED
INCENTIVE PLAN
The
Company’s 2006 Stock-Based Incentive Plan (the “Incentive Plan”) was approved by
shareholders at the Company’s Annual Meeting held on July 20, 2006. The
Incentive Plan will remain in effect for a period of ten years and provides
for
the issuance of up to 1,180,330 shares of Company common stock pursuant
to
grants of incentive and non-statutory stock options,
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
J - STOCK-BASED
INCENTIVE PLAN - Continued
stock
appreciation rights and restricted stock awards, provided that no more
than
337,237 shares may be issued as restricted stock awards, and no more than
843,093 shares may be issued pursuant to the exercise of stock options.
Employees and outside directors of the Company are eligible to receive
awards
under the Incentive Plan. The holders of restricted stock awards also have
full
voting rights beginning on the grant date. Upon the occurrence of an event
constituting a change in control of the Company, as defined in the Incentive
Plan, all stock options will become fully vested, and all stock awards
then
outstanding will vest free of restrictions.
Under
the
Incentive Plan, stock options are granted at an exercise price equal to
the fair
value of the underlying shares at the date of grant and have a contractual
life
of ten years. Stock options vest based on continued service with the Company
over the five year period following the grant date. Certain employees and
directors are eligible for accelerated vesting based upon early retirement
provisions in the plan. The compensation cost related to stock options
is based
upon the fair value for each option as of the date of the grant determined
using
the Black-Scholes option pricing model. The Black-Scholes model requires
the
Company to provide estimates of the expected term, volatility of the underlying
stock, the stock’s dividend yield and the discount rate. The Company intends to
use treasury shares to satisfy stock option exercises.
The
compensation cost related to restricted stock awards is based upon the
Company’s
stock price at the grant date. Restricted stock awards vest based upon
continuous service with the Company over the five year period following
the
grant date. Certain employees and directors are eligible for accelerated
vesting
based upon early retirement provisions in the plan. During the vesting
period,
participants are entitled to dividends for all awards. Dividends on unvested
stock awards are also recognized as compensation cost.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
J - STOCK-BASED
INCENTIVE PLAN - Continued
A
combined summary of activity in the Company’s Incentive Plan activity for the
period ended December 31, 2006 is presented in the following table:
|
|
|
|
Stock
Awards Outstanding
|
|
Stock
Options Outstanding
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
Shares
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Available
|
|
Number
of
|
|
Grant
|
|
Number
of
|
|
Exercise
|
|
|
|
for
Grant
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|
Balance
at December 31, 2005
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
New
Incentive Plan
|
|
|
1,180,330
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Granted
|
|
|
(1,047,000
|
)
|
|
290,500
|
|
|
12.86
|
|
|
756,500
|
|
|
12.88
|
|
Stock
options exercised
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Shares
vested
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
133,330
|
|
|
290,500
|
|
$
|
12.86
|
|
|
756,500
|
|
$
|
12.88
|
|
In
2006,
the Company granted 756,500 stock options and 290,500 restricted shares
to
certain directors and employees. The stock options had a weighted average
value
of $3.63 per share, with a total grant date fair value of $2,742. The restricted
shares had a weighted average value of $12.86 per share, with a total grant
date
fair value of $3,735.
The
Company’s total compensation cost for shared-based payment arrangements was
$729, including $15 of dividends on unvested stock. The Company also recorded
a
tax benefit of $219 in 2006 related to the recognition of the shared-based
compensation expense. As of December 31, 2006, compensation costs related
to
nonvested awards totaling $5,763 million has not been recognized. These
costs
will be recognized over an estimated weighted average period of 4.2
years.
The
following table presents the assumptions used to compute the fair value
of
options using the Black-Scholes option pricing model for stock options
granted
during 2006.
Expected
term
|
|
|
6.50
years
|
|
Volatility
|
|
|
25.00
|
%
|
Expected
dividend yield
|
|
|
2.00
|
%
|
Weighted
average risk-free interest rate
|
|
|
4.81
|
%
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements December 31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
J - STOCK-BASED
INCENTIVE PLAN - Concluded
A
summary
of stock options outstanding and exercisable at December 31, 2006 is as
follows:
|
|
Stock
Options
|
|
|
|
Outstanding
|
|
Exercisable
|
|
|
|
|
|
|
|
Total
number of shares
|
|
|
756,500
|
|
|
-
|
|
Weighted
average exercise price
|
|
$
|
12.88
|
|
|
-
|
|
Aggregate
intrinsic value
|
|
$
|
699
|
|
|
-
|
|
Weighted
average remaining contractual term
|
|
|
9.6
years
|
|
|
-
|
|
NOTE
K - EMPLOYEE
BENEFIT PLANS
Retirement
Plans
The
Bank
provides pension benefits for all of its eligible employees through membership
in a multi-employer defined benefit plan of the CBERA. The Bank’s contribution
to the plan was $397, $394 and $397 for the years ended December 31, 2006,
2005
and 2004, respectively. Under the plan,
retirement benefits are based on years of service and the highest average
compensation. In addition, employees make voluntary contributions to a
defined
contribution plan. These contributions are matched by the Bank up to a
maximum
of 5% of the employee’s qualified salary and provide retirement benefits to the
employee in addition to those available under the Bank’s participation in the
multi-employer defined benefit plan. The contributions matched by the Bank
were
$307, $292 and $279 for the years ended December
31, 2006, 2005 and 2004,
respectively.
In
November 2006, the Company’s Board of Directors approved a plan to freeze
benefits under this plan effective in April 2007.
Supplemental
Executive Retirement Plan
The
Bank
has entered into Supplemental Executive Retirement Plan (“SERP”) contracts with
certain of its current and former officers.
The
estimated amount to be paid under each contract is accrued over the executive’s
active employment from the time the contract is signed to the date of full
eligibility.
The
liability associated with these SERP contracts was $1,626 and $1,471 at
December
31, 2006 and 2005, respectively, and is included in accrued expenses and
other
liabilities in the consolidated balance sheets. The expense for SERP contracts,
excluding interest, was $162, $156 and $64 for the years ended December 31,
2006, 2005 and 2004, respectively.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
K - EMPLOYEE
BENEFIT PLANS- Continued
Incentive
Plan
The
Company maintains an incentive plan in which employees are eligible to
participate. The incentive plan provides for awards based on the achievement
of
both individual and Company performance goals, subject to approval by the
Board
of Directors. Related expense amounted to $547, $832 and $544 for the years
ended December 31, 2006, 2005 and 2004 respectively.
Directors
Fee Continuation Plan
The
Company sponsors a Directors Fee Continuation Plan under which a Director
will
annually receive $15 ($24 for former chairpersons) for ten years beginning
upon
attaining the normal retirement date. The benefit is reduced for directors
serving fewer than 15 years. In the event of the participant’s death prior to
receiving the full benefits of the plan, any unpaid benefits will be paid
to the
beneficiary. The Company recognizes expense under this plan on a ratable
basis
such that the present value of the liability is fully accrued at each director’s
normal retirement date. At December 31, 2006 and 2005, the Company’s recorded
liability for this plan amounted to $868 and $834, respectively,
and is
included in accrued expenses and other liabilities in the consolidated
balance
sheets.
The
expense associated with this plan was $59, $207, and $56 for the years
ended
December 31, 2006, 2005 and 2004, respectively.
Employee
Stock Ownership Plan
In
connection with the Company’s 2005 stock offering, the Company established an
Employee Stock Ownership Plan (“ESOP”) for the benefit of each employee that has
reached the age of 21 and has completed at least 1,000 hours of service
in the
previous twelve-month period. The Company issued 641,301 shares of common
stock
to the ESOP in exchange for a twenty-year note. The loan amount was
approximately $6,413 and was recorded as "Unearned Compensation" within
stockholders' equity. The loan bears interest equal to the prime rate in
effect
at January 1st
of each
year and provides for annual payments of principal and interest. In November
2006, the Board of Directors voted to accelerate its Employee Stock Ownership
Plan benefit from a twenty (20) year payout to a fifteen (15) year payout
beginning in 2007.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
K - EMPLOYEE
BENEFIT PLANS- Concluded
The
Bank
has committed to make contributions to the ESOP sufficient to support the
debt
service of the loan. The loan is secured by the shares held by First Bankers
Trust Company (“Trustee”) in a suspense account for allocation among the
participants as the loan is paid. In connection with the release of shares
from
the suspense account, the Company reports compensation expense equal to
the
average market price of the shares. Total compensation expense applicable
to the
ESOP amounted to $406 and $376 for the years ended December 31, 2006 and
2005,
respectively.
Shares
held by the ESOP include the following:
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
Allocated
|
|
|
32,065
|
|
|
-
|
|
Committed
to be released
|
|
|
32,065
|
|
|
32,065
|
|
Unallocated
|
|
|
577,171
|
|
|
609,236
|
|
|
|
|
641,301
|
|
|
641,301
|
|
Cash
dividends received on allocated shares are allocated to participants and
cash
dividends received on shares held in suspense are used to fund the scheduled
annual debt payment. The fair value of unallocated shares at December 31,
2006
and December 31, 2005 was $7,965 and $7,024, respectively.
NOTE
L - COMMITMENTS
AND CONTINGENCIES
Financial
Instruments With Off-Balance Sheet Risk
The
Company is party to financial instruments with off-balance sheet risk in
the
normal course of business to meet the financing needs of its customers.
These
financial instruments include commitments to originate loans and standby
letters
of credit. The
Company does not record a liability for the fair value of the obligation
undertaken in issuing standby letters of credit unless it becomes probable
that
the Company would have to perform under the guarantee. These instruments
involve, to varying degrees, elements of credit and interest rate risk
in excess
of the amount recognized in the consolidated balance sheets. The contract
or
notional amounts of those instruments reflect the extent of involvement
the
Company has in particular classes of financial instruments.
The
Company’s exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for loan commitments and standby letters
of
credit is represented by the contractual or notional amounts of those
instruments. The Company uses the same credit policies in making commitments
and
conditional obligations as it does for on-balance sheet
instruments.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
L - COMMITMENTS
AND CONTINGENCIES - Continued
Financial
instruments with off-balance sheet risk at December 31, 2006 and 2005,
are as
follows:
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Unused
lines of credit
|
|
$
|
135,374
|
|
$
|
114,016
|
|
Amounts
due mortgagors
|
|
|
34,742
|
|
|
16,833
|
|
Standby
letters of credit
|
|
|
879
|
|
|
1,383
|
|
Commitments
to originate loans
|
|
|
42,551
|
|
|
15,831
|
|
Included
in commitments to originate loans at December 31, 2006 and 2005 are fixed
rate
commitments in the amount of $15,316 and $9,465 at interest ranges of 5.25%
to
9.00% and 5.38% to 7.25%, respectively.
Commitments
to extend credit are agreements to lend to a customer as long as there
is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require
payment
of a fee. Since many of the commitments are expected to expire without
being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Company evaluates each customer’s creditworthiness on a
case-by-case basis.
The
amount of collateral obtained, if deemed necessary by the Bank upon extension
of
credit, is based on management’s credit evaluation.
Standby
letters of credit are conditional commitments issued by the Company to
guarantee
the performance of a customer to a third party. Those guarantees are primarily
issued to support public and private borrowing arrangements, including
commercial paper, bond financing and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Company holds residential
or
commercial real estate, accounts receivable, inventory and equipment as
collateral supporting those commitments for which collateral is deemed
necessary. The extent of collateral held for those commitments at
December 31, 2006 and 2005 exceeds 100%.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
L -
COMMITMENTS
AND CONTINGENCIES - Concluded
Employment
and change in control agreements
The
Company has entered into a three-year employment agreement with its President
and Chief Executive Officer expiring in 2010. This agreement generally
provides
for a base salary and the continuation of certain benefits currently received.
Annually the Bank may extend the agreement for an additional year. Under
certain
specified circumstances, the employment agreement requires certain payments
to
be made for certain reasons other than cause, including a “change in control” as
defined in the agreement. However, such employment may be terminated for
cause,
as defined, without incurring any continuing obligations.
The
Company also entered into three-year change in control agreements with
certain
executive officers, none of whom are covered by an employment agreement.
The
change in control agreements are renewable on an annual basis and generally
provide a severance payment and the continuation of certain benefits currently
received following a “change in control” as defined in the
agreements.
Litigation
The
Company and its subsidiaries are subject to various legal actions arising
in the
normal course of business. At December 31, 2006, the Company was not involved
in
any material legal proceedings.
NOTE
M - FAIR
VALUE OF FINANCIAL INSTRUMENTS
The
Company is required to provide supplemental financial statement disclosures
of
the estimated fair value of its financial instruments. Financial instruments
including cash and cash equivalents, investment and mortgage-backed securities,
loan, deposits, borrowings and certain off-balance sheet items such as
loan
commitments. Other assets significant to the Company, including bank premises
and equipment, deferred tax assets, as well as core deposit and other intangible
assets are not considered financial instruments and are excluded from the
fair
value disclosures. In addition, the tax ramifications related to the realization
of unrealized gains and losses can have a significant effect on fair value
estimates and have not been Considered in the estimates.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
M - FAIR
VALUE OF FINANCIAL INSTRUMENTS - Continued
Fair
value estimates are made at a specific point in time, based on relevant
market
information and information about the financial instrument. These estimates
do
not reflect any premium or discount that could result from offering for
sale at
one time the Bank’s entire holdings of a particular financial instrument.
Because a market may not readily exist for a significant portion of the
Bank’s
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters
of
significant judgment and therefore cannot be determined with precision.
Changes
in assumptions could significantly affect the estimates.
The
following methods and assumptions were used by the Company in estimating
fair
values of its financial instruments:
Cash
and Cash Equivalents
For
cash
and short term investments having maturities of 90 days or less, the carrying
amounts reported in the balance sheets approximate fair values.
Investment
Securities and FHLBB Stock
The
fair
value of securities to be held to maturity and securities available for
sale is
estimated based on quoted market prices, where available. If quoted market
prices are not available, fair values are based on quoted market prices
of
comparable instruments. Ownership of Federal Home Loan Bank of Boston stock
is
restricted to member banks; therefore, the stock is not traded. The estimated
fair value of Federal Home Loan Bank of Boston stock is equal to its carrying
value, which represents the price at which the FHLBB is obligated to redeem
its
stock.
Loans
For
variable-rate residential and commercial loans that reprice frequently
and which
have no significant change in credit risk, fair values are based on carrying
values. The fair values for certain mortgage loans (e.g. one-to-four family
residential) and other consumer loans are based on quoted market prices
of
similar loans sold in conjunction with securitization transactions, adjusted
for
differences in loan characteristics.
Accrued
Interest Receivable and Payable
The
carrying value of accrued interest receivable on investments and loans
and
accrued interest payable on deposits and borrowings, included in other
liabilities, approximates their fair values.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
((Dollars
in thousands, except per share amounts)
NOTE
M - FAIR
VALUE OF FINANCIAL INSTRUMENTS - Continued
Deposits
The
fair
value of deposits with no stated maturity, such as demand deposits, NOW,
regular
savings, and money market deposit accounts, is equal to the amount payable
on
demand. The fair value estimates do not include the benefit that results
from
the generally lower cost of funding provided by
the
deposit liabilities compared to the cost of borrowing funds in the market.
The
fair value estimate of time deposits is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates
currently
offered for deposits of similar remaining maturities.
Federal
Home Loan Bank of Boston Advances
The
fair
value estimate of the borrowings from the Federal Home Loan Bank of Boston
is
determined by discounting the anticipated future cash payments by using
the
rates currently available to the Bank for debt with similar terms and remaining
maturities.
Repurchase
Agreements
Securities
sold under agreements to repurchase generally mature within one to four
days
from transaction date and, accordingly, the fair value of these agreements
approximates their recorded balance.
Off-Balance
Sheet Instruments
Fair
value of off-balance-sheet mortgage lending commitments are based on fees
currently charged to enter into similar agreements, taking into account
the
remaining terms of the agreements and the counterparties’ credit standing. In
the case of the commitments discussed in Note K, the fair value equals
the
carrying amounts which are not significant.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
M - FAIR
VALUE OF FINANCIAL INSTRUMENTS - Concluded
The
fair
value of the Company’s financial instruments is as follows at December
31:
|
|
2006
|
|
2005
|
|
|
|
Carrying
|
|
Estimated
|
|
Carrying
|
|
Estimated
|
|
|
|
Value
|
|
Fair
Value
|
|
Value
|
|
Fair
Value
|
|
Financial
Assets:
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
25,419
|
|
$
|
25,419
|
|
$
|
15,843
|
|
$
|
15,843
|
|
Securities
available for sale
|
|
|
190,237
|
|
|
190,237
|
|
|
226,465
|
|
|
226,465
|
|
Securities
held to maturity
|
|
|
3,241
|
|
|
3,227
|
|
|
3,325
|
|
|
3,298
|
|
Stock
in Federal Home Loan Bank of Boston
|
|
|
9,274
|
|
|
9,274
|
|
|
6,588
|
|
|
6,588
|
|
Net
loans
|
|
|
756,180
|
|
|
733,196
|
|
|
630,558
|
|
|
630,288
|
|
Accrued
interest receivable
|
|
|
4,320
|
|
|
4,320
|
|
|
3,928
|
|
|
3,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
(with no stated maturity)
|
|
|
366,172
|
|
|
366,172
|
|
|
375,967
|
|
|
375,967
|
|
Time
deposits
|
|
|
319,514
|
|
|
318,916
|
|
|
277,644
|
|
|
279,309
|
|
Federal
Home Loan Bank of Boston advances
|
|
|
169,806
|
|
|
167,051
|
|
|
101,880
|
|
|
98,946
|
|
Accrued
interest payable
|
|
|
695
|
|
|
695
|
|
|
400
|
|
|
400
|
|
Repurchase
agreements
|
|
|
10,425
|
|
|
10,425
|
|
|
8,434
|
|
|
8,434
|
|
NOTE
N - STOCKHOLDERS’
EQUITY
Regulatory
Capital
The
Bank
is subject to various minimum regulatory capital standards promulgated
by The
Office of Thrift Supervision (“OTS”). Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary, actions by regulators that, if undertaken, could have a
direct
material effect on the Bank’s financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Bank
must meet specific capital guidelines that involve quantitative measures
of the
Bank’s assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank’s capital amounts and
classification are also subject to qualitative judgments by the regulators
about
components, risk weightings, and other factors. United Financial Bancorp,
Inc is
not subject to capital guidelines.
The
minimum capital standards of the OTS generally require the maintenance
of
regulatory capital sufficient to meet each of three tests, hereinafter
described
as the total risk-based capital requirement, the Tier I risk-based capital
requirement and the Tier I or leverage capital requirement. The Tier I
risk-based and Tier I leverage capital requirements provide for minimum
core
capital (tangible capital plus certain forms of supervisory goodwill and
other
qualifying intangible assets) generally equal to 4.0% of risk-weighted
assets
and to 4.0% of adjusted total assets, respectively, except for those banks
with
the highest examination rating and acceptable levels of risk. The risk-based
capital requirement provides for the maintenance of core capital plus general
loss allowances equal to 8.0% of risk-weighted assets. In computing
risk-weighted assets, the Bank multiplies the value of each asset on its
balance
sheet by a defined risk-weighting factor, e.g., one- to four-family residential
loans carry a risk-weighted factor of 50%.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
N - STOCKHOLDERS’
EQUITY - Concluded
As
of
December 31, 2006, the most recent notification from the OTS categorized
the
Bank as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as adequately capitalized the Bank must maintain
minimum ratios as set forth in the accompanying table. There are no conditions
or events since that notification that management believes have changed
the
institution’s category.
The
Bank’s actual capital amounts and ratios, as well as minimum amounts and ratios
required for capital adequacy are presented below:
|
|
|
|
|
|
|
|
|
|
To
Be Well Capitalized
|
|
|
|
|
|
|
|
For
Capital
|
|
Under
Regulatory
|
|
|
|
Actual
|
|
Adequacy
Purposes
|
|
Framework
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
As
of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
Risk Weighted Assets)
|
|
$
|
111,045
|
|
|
15.9%
|
>
|
$
|
56,000
|
>
|
|
8.0%
|
>
|
$
|
70,000
|
>
|
|
10.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I (Core) Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
Risk Weighted Assets)
|
|
|
103,827
|
|
|
14.8%
|
>
|
|
28,000
|
>
|
|
4.0%
|
>
|
|
42,000
|
>
|
|
6.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I Leverage Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
Average Total Assets)
|
|
|
103,827
|
|
|
10.8%
|
>
|
|
38,380
|
>
|
|
4.0%
|
>
|
|
47,975
|
>
|
|
5.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
Risk Weighted Assets)
|
|
$
|
108,500
|
|
|
18.3%
|
>
|
$
|
47,475
|
>
|
|
8.0%
|
>
|
$
|
59,343
|
>
|
|
10.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I (Core) Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
Risk Weighted Assets)
|
|
|
102,117
|
|
|
17.2%
|
>
|
|
23,737
|
>
|
|
4.0%
|
>
|
|
35,606
|
>
|
|
6.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I Leverage Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
Average Total Assets)
|
|
|
102,117
|
|
|
11.7%
|
>
|
|
34,873
|
>
|
|
4.0%
|
>
|
|
43,591
|
>
|
|
5.0%
|
|
Common
Stock Repurchase Program
In
November 2006, the Board of Directors approved a plan to repurchase up
to 5%, or
approximately 858,000 shares, of the Company’s common stock through open market
purchases or privately negotiated transactions. Stock repurchases under
the
program are accounted for as treasury stock, carried at cost, and reflected
as a
reduction in stockholders’ equity. As of December 31, 2006, the Company
repurchased 1,945 shares at a cost of approximately $27 under this
plan.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
O - CONDENSED
FINANCIAL STATEMENTS OF UNITED FINANCIAL BANCORP, INC.
The
following are the condensed financial statements for United Financial Bancorp,
Inc. (parent company only).
BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
December
31,
|
|
December
31,
|
|
|
|
|
2006
|
|
2005
|
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
336
|
|
$
|
14
|
|
|
Interest-bearing
deposits
|
|
|
7,344
|
|
|
-
|
|
|
Total
cash and cash equivalents
|
|
|
7,680
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in Bank
|
|
|
102,278
|
|
|
99,816
|
|
|
Securities
available for sale, at fair value
|
|
|
21,441
|
|
|
31,186
|
|
|
ESOP
loan receivable
|
|
|
5,891
|
|
|
6,049
|
|
|
Other
assets
|
|
|
827
|
|
|
113
|
|
|
TOTAL
ASSETS
|
|
$
|
138,117
|
|
$
|
137,178
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
$
|
406
|
|
$
|
173
|
|
|
Stockholders’
equity
|
|
|
137,711
|
|
|
137,005
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
138,117
|
|
$
|
137,178
|
|
|
STATEMENTS
OF INCOME
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Income:
|
|
|
|
|
|
|
|
Investment
interest
|
|
$
|
1,258
|
|
$
|
617
|
|
$
|
-
|
|
ESOP
loan interest
|
|
|
439
|
|
|
189
|
|
|
-
|
|
Loss
on sale of securities
|
|
|
(9
|
)
|
|
-
|
|
|
-
|
|
Total
income
|
|
|
1,688
|
|
|
806
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense:
|
|
|
|
|
|
|
|
|
|
|
Charitable
contribution to Foundation
|
|
|
-
|
|
|
3,591
|
|
|
-
|
|
Professional
services
|
|
|
958
|
|
|
266
|
|
|
-
|
|
Other
expenses
|
|
|
31
|
|
|
63
|
|
|
64
|
|
Total
expense
|
|
|
989
|
|
|
3,920
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes and equity in undistributed
|
|
|
|
|
|
|
|
|
|
|
earnings
in the Bank
|
|
|
699
|
|
|
(3,114
|
)
|
|
(64
|
)
|
Income
tax expense (benefit)
|
|
|
235
|
|
|
(894
|
)
|
|
(26
|
)
|
Income
(loss) before equity in undistributed earnings of the Bank
|
|
|
464
|
|
|
(2,220
|
)
|
|
(38
|
)
|
Equity
in undistributed earnings of the Bank
|
|
|
4,460
|
|
|
6,589
|
|
|
5,566
|
|
NET
INCOME
|
|
$
|
4,924
|
|
$
|
4,369
|
|
$
|
5,528
|
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
P - CONDENSED
FINANCIAL STATEMENTS OF UNITED FINANCIAL BANCORP, INC. -
Concluded
STATEMENTS
OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
4,924
|
|
$
|
4,369
|
|
$
|
5,528
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Equity
in undistributed earnings of the bank
|
|
|
(4,460
|
)
|
|
(6,589
|
)
|
|
(5,566
|
)
|
Net
amortization of discounts and premiums
|
|
|
(83
|
)
|
|
(46
|
)
|
|
-
|
|
Net
loss on sale of available for sale securities
|
|
|
9
|
|
|
-
|
|
|
-
|
|
Increase
in deferred income taxes
|
|
|
3
|
|
|
255
|
|
|
-
|
|
Charitable
contribution to Foundation
|
|
|
-
|
|
|
3,649
|
|
|
-
|
|
Decrease
(increase) in accrued interest receivable
|
|
|
57
|
|
|
(322
|
)
|
|
-
|
|
(Increase) in
other assets
|
|
|
(717
|
)
|
|
(182
|
)
|
|
(26
|
)
|
Intercompany
payables and other liabilities
|
|
|
233
|
|
|
107
|
|
|
19
|
|
Net
cash (used in) provided by operating activities
|
|
|
(34
|
)
|
|
1,241
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases
of securities available for sale
|
|
|
(2,094
|
)
|
|
(32,963
|
)
|
|
-
|
|
Proceeds
from sales of securities available for sale
|
|
|
4,990
|
|
|
-
|
|
|
-
|
|
Proceeds
from maturities and principal repayments of securities available
for
sale
|
|
|
6,934
|
|
|
1,676
|
|
|
-
|
|
Loan
to fund ESOP
|
|
|
-
|
|
|
(6,413
|
)
|
|
-
|
|
Principal
payments on ESOP loan
|
|
|
158
|
|
|
364
|
|
|
-
|
|
Net
cash provided by (used in) investing activities
|
|
|
9,988
|
|
|
(37,336
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
Initial funding
by Bank
|
|
|
- |
|
|
- |
|
|
150 |
|
Investment
in United Bank
|
|
|
3,579
|
|
|
(38,818
|
)
|
|
-
|
|
Treasury
stock purchases
|
|
|
(4,405
|
)
|
|
-
|
|
|
-
|
|
Cash
dividends paid
|
|
|
(1,462
|
)
|
|
-
|
|
|
-
|
|
Net
proceeds from stock issuance
|
|
|
-
|
|
|
74,822
|
|
|
150
|
|
Net
cash (used in) provided by financing activities
|
|
|
(2,288
|
)
|
|
36,004
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
7,666
|
|
|
(91
|
)
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
|
14
|
|
|
105
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of year
|
|
$
|
7,680
|
|
$
|
14
|
|
$
|
105
|
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements - Continued
December
31, 2006, 2005 and 2004
(Dollars
in thousands, except per share amounts)
NOTE
Q - QUARTERLY
RESULTS OF OPERATIONS (UNAUDITED)
The
following table summarizes the operating results on a quarterly basis for
the
years ended December 31, 2006 and 2005.
|
|
Three
Months Ended
|
|
|
|
March
31
|
|
June
30
|
|
September
30
|
|
December
31
|
|
|
|
|
|
|
|
|
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
12,147
|
|
$
|
12,625
|
|
$
|
13,494
|
|
$
|
13,936
|
|
Interest
expense
|
|
|
5,239
|
|
|
5,860
|
|
|
6,550
|
|
|
6,998
|
|
Net
interest income
|
|
|
6,908
|
|
|
6,765
|
|
|
6,944
|
|
|
6,938
|
|
Provision
for loan losses
|
|
|
162
|
|
|
300
|
|
|
165
|
|
|
342
|
|
Non-interest
income
|
|
|
1,258
|
|
|
1,441
|
|
|
1,294
|
|
|
1,399
|
|
Non-interest
expense
|
|
|
5,776
|
|
|
5,836
|
|
|
5,579
|
|
|
6,845
|
|
Income
before income taxes
|
|
|
2,228
|
|
|
2,070
|
|
|
2,494
|
|
|
1,150
|
|
Income
tax expense
|
|
|
873
|
|
|
780
|
|
|
981
|
|
|
384
|
|
Net
income
|
|
$
|
1,355
|
|
$
|
1,290
|
|
$
|
1,513
|
|
$
|
766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.08
|
|
$
|
0.08
|
|
$
|
0.09
|
|
$
|
0.05
|
|
Diluted
earnings per share
|
|
$
|
0.08
|
|
$
|
0.08
|
|
$
|
0.09
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
9,716
|
|
$
|
10,327
|
|
$
|
11,456
|
|
$
|
11,734
|
|
Interest
expense
|
|
|
3,369
|
|
|
3,819
|
|
|
4,249
|
|
|
4,769
|
|
Net
interest income
|
|
|
6,347
|
|
|
6,508
|
|
|
7,207
|
|
|
6,965
|
|
Provision
for loan losses
|
|
|
275
|
|
|
275
|
|
|
275
|
|
|
92
|
|
Non-interest
income
|
|
|
1,135
|
|
|
1,255
|
|
|
1,324
|
|
|
1,306
|
|
Non-interest
expense
|
|
|
4,937
|
|
|
4,826
|
|
|
8,623
|
|
|
5,726
|
|
Income
(loss) before income taxes
|
|
|
2,270
|
|
|
2,662
|
|
|
(367
|
)
|
|
2,453
|
|
Income
tax expense (benefit)
|
|
|
904
|
|
|
1,063
|
|
|
(195
|
)
|
|
877
|
|
Net
income (loss)
|
|
$
|
1,366
|
|
$
|
1,599
|
|
$
|
(172
|
)
|
$
|
1,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
NA
|
|
|
NA
|
|
|
NA
|
|
$
|
0.10
|
|
Diluted
earnings per share
|
|
|
NA
|
|
|
NA
|
|
|
NA
|
|
$
|
0.10
|
|
During
the quarter ended December 31, 2006, non-interest expense increased $1.3
million
in comparison to the prior quarter mainly due to costs related to compliance
with Sarbanes-Oxley
Section 404
and a
full quarter impact of awards granted in August in connection with the
Company’s
2006 Incentive Plan. The fourth quarter 2006 results were also impacted
by a
reduction in the Company’s effective tax rate to 33% from 39% in the prior
quarter. The
lower
tax rate was largely due to the reversal of tax reserves which management
concluded were no longer needed based on an assessment of known
requirements.
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
Not
Applicable.
ITEM
9A.
|
CONTROLS
AND PROCEDURES
|
|
(a)
|
Evaluation
of disclosure controls and
procedures.
|
Under
the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we evaluated the effectiveness
of
the design and operation of our disclosure controls and procedures (as defined
in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the
fiscal year (the “Evaluation Date”). Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as of the
Evaluation Date, our disclosure controls and procedures were effective in timely
alerting them to the material information relating to us (or our consolidated
subsidiaries) required to be included in our periodic SEC filings.
|
(b)
|
Management’s
annual report on internal control over financial
reporting.
|
Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting.
The
Company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation
of
financial statements in accordance with accounting principles generally accepted
in the United States of America, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management
and
directors of the Company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the Company’s assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2006, based on the framework set forth by the
Committee of Sponsoring Organizations of the Treadway Commission in Internal
Control—Integrated Framework.
Based
on that assessment, management concluded that, as of December 31, 2006, the
Company’s internal control over financial reporting is effective based on the
criteria established in Internal
Control—Integrated Framework.
Management’s
assessment of the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2006, has been audited by Grant Thornton LLP,
an independent registered public accounting firm, as stated in their report
appearing in item (c) below.
Report
of Independent Registered Public Accounting Firm
Board
of
Directors
United
Financial Bancorp, Inc.
We
have
audited management's assessment, included in the accompanying Management’s
Annual Report on Internal Control Over Financial Reporting, that United
Financial Bancorp, Inc. and subsidiary (the “Company”) maintained effective
internal control over financial reporting as of December 31, 2006, based on
the
criteria established in Internal
Control- Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company's management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness
of
internal control over financial reporting. Our responsibility is to express
an
opinion on management's assessment and an opinion on the effectiveness of the
Company's internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control
over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, management’s assessment that the Company maintained effective internal
control over financial reporting as of December 31, 2006, is fairly stated,
in
all material respects, based on the criteria established in COSO. Also, in
our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2006, based on the criteria
established in COSO.
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of United
Financial Bancorp, Inc. and subsidiary as of December 31, 2006 and 2005, and
the
related consolidated statements of earnings, stockholders’ equity and
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 2006, and our report dated March 13, 2007 expressed an
unqualified opinion on those financial statements.
Boston,
Massachusetts
March
13,
2007
|
(d)
|
Changes
to internal controls
|
There
were no significant changes made in our internal controls during the period
covered by this report or, to our knowledge, in other factors that could
significantly affect these controls subsequent to the date of their
evaluation.
ITEM
9B.
|
OTHER
INFORMATION
|
Not
Applicable.
PART
III
ITEM
10.
|
DIRECTORS
, EXECUTIVE OFFICERS AND COPORATE
GOVERNANCE
|
The
information required by this item is incorporated by reference to “Proposal 1 -
Election of Directors” of the Company’s Proxy Statement for the 2007 Annual
Meeting of Stockholders.
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
The
information required by this item is incorporated by reference to the
“Compensation Committee” section of the Company’s Proxy Statement for the 2007
Annual Meeting of Stockholders.
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
The
information required by this item is incorporated by reference to the “Security
Ownership of Certain Beneficial Owners” and “Compensation Committee Interlocks
and Insider Participation” sections of the Company’s Proxy Statement for the
2007 Annual Meeting of Stockholders.
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR
INDEPENDENCE
|
The
information required by this item is incorporated by reference to the
“Transactions with Certain Related Persons” section of the Company’s Proxy
Statement for the 2007 Annual Meeting of Stockholders.
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND
SERVICES
|
The
information required by this item is incorporated by reference to “Item 2 -
Ratification of Appointment of Independent Registered Public Accounting Firm” of
the Company’s Proxy Statement for the 2007 Annual Meeting of
Stockholders.
ITEM
15.
|
EXHIBITS
AND FINANCIAL STATEMENT
SCHEDULES
|
|
(a)(1)
|
Financial
Statements
|
The
following documents are filed as item 8 of this Form 10-K.
|
(A)
|
Report
of Independent Registered Public Accounting Firm
|
|
(B)
|
Consolidated
Balance Sheets - at December 31, 2006 and
2005
|
|
(C)
|
Consolidated
Statements of Earnings - Years ended December 31, 2006, 2005 and
2004
|
|
(D)
|
Consolidated
Statements of Stockholders’ Equity and Comprehensive Income - at December
31, 2006, 2005 and 2004
|
|
(E)
|
Consolidated
Statements of Cash Flows - Years ended December 31, 2006, 2005 and
2004
|
|
(F)
|
Notes
to Consolidated Financial
Statements.
|
|
(a)(2) |
Financial
Statement Schedules
|
None.
3.1
|
Charter
of United Financial Bancorp, Inc.
(1)
|
3.2
|
Resolution
and Consent of Sole Stockholder Amending the Charter of United Financial
Bancorp, Inc. (1)
|
3.3
|
Bylaws
of United Financial Bancorp, Inc.
(2)
|
4
|
Form
of Common Stock Certificate of United Financial Bancorp, Inc.
(1)
|
10.1
|
Form
of Employee Stock Ownership Plan
(1)
|
10.2
|
Executive
Supplemental Compensation Agreement by and between United Bank and
Richard
B. Collins (1)
|
10.3
|
Executive
Supplemental Compensation Agreement by and between United Bank and
Keith
E. Harvey (1)
|
10.4
|
Executive
Supplemental Compensation Agreement by and between United Bank and
John J.
Patterson (1)
|
10.5
|
United
Bank 2004 and 2005 Incentive Plans
(1)
|
10.6
|
Deferred
Income Agreement by and between United Bank and Donald G. Helliwell
(1)
|
10.7
|
Deferred
Income Agreement by and between United Bank and Robert W. Bozenhard,
Jr.
(1)
|
10.8
|
Deferred
Income Agreement by and between United Bank and George W. Jones
(1)
|
10.9
|
Directors
Fee Continuation Plan (1)
|
10.10
|
Form
of Employment Agreement by and between United Bank and Richard B.
Collins
(1)
|
10.11
|
Form
of Change in Control Agreement by and between United Bank and certain
executive officers (1)
|
10.12
|
United
Bank 2006 Stock-Based Incentive Plan
(3)
|
21
|
Subsidiaries
of Registrant (1)
|
|
Consent
of Independent Registered Public Accounting
Firm.
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
Statement
of Chief Executive Officer and Chief Financial Officer pursuant to
Section
906 of the Sarbanes-Oxley Act of
2002
|
_______________________________
|
(1)
|
Incorporated
by reference to the Registration Statement on Form S-1 of United
Financial
Bancorp, Inc. (file no. 333-123371), originally filed with the Securities
and Exchange Commission on March 16,
2005.
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(2)
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Incorporated
by reference to the Form 10-Q of United Financial Bancorp, Inc. filed
with
the Securities and Exchange Commission on August 9,
2006.
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(3)
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Incorporated
by reference to Appendix B of the Registrant’s definitive Proxy Statement
for the Company’s 2006 Annual Meeting filed with the Securities and
Exchange Commission on June 12,
2006.
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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.
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UNITED
FINANCIAL BANCORP, INC.
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Date:
March 15, 2007
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By:
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/s/
Richard B. Collins
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Richard
B. Collins
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Chief
Executive Officer, President and Director
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(Duly
Authorized
Representative)
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Pursuant
to the requirements of the Securities Exchange of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signatures
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Title
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Date
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/s/
Richard B. Collins
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Chief
Executive Officer,
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March
15, 2007
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Richard
B. Collins
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President
and Director (Principal Executive Officer)
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/s/
Mark A. Roberts
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Executive
Vice President and
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March
15, 2007
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Mark
A. Roberts
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Chief
Financial Officer (Principal Financial and Accounting
Officer)
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/s/
Robert W. Bozenhard, Jr.
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Chairman
of the Board
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March
15, 2007
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Robert
W. Bozenhard, Jr.
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/s/
Michael F. Crowley
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Director
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March
15, 2007
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Michael
F. Crowley
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/s/
Carol Moore Cutting
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Director
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March
15, 2007
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Carol
Moore Cutting
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/s/
Carol A. Leary
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Director
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March
15, 2007
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Carol
A. Leary
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/s/
G. Todd Marchant
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Director
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March
15, 2007
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G.
Todd Marchant
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/s/
Kevin E. Ross
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Director
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March
15, 2007
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Kevin
E. Ross
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/s/
Robert A. Stewart, Jr.
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Director
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March
15, 2007
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Robert
A. Stewart, Jr.
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/s/
Thomas H. Themistos
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Director
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March
15, 2007
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Thomas
H. Themistos
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/s/
Michael F. Werenski
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Director
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March
15, 2007
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Michael
F. Werenski
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