form10q-83302_ubnk.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
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ý
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Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
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For
the quarterly period ended March 31, 2007
OR
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o
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Transition
report pursuant to section 13 or 15(d) of the Securities Exchange
Act of
1934
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For
the transition period from ______________ to
_____________
Commission
File Number 000-51369
United
Financial Bancorp, Inc.
(Exact
name of registrant as specified in its charter)
Federal
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83-0395247
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(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
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Identification
Number)
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95
Elm Street, West Springfield, Massachusetts 01089
(Address
of principal executive offices)
Registrant's
telephone number, including area code: (413)
787-1700
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes ý No o
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
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Accelerated
filer ý
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Non-accelerated filer o
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Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
ý
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Common
stock, $0.01 par value
17,071,853
shares outstanding as of May 3, 2007
United
Financial Bancorp, Inc.
INDEX
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Page
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1
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1
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2
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3
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4
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5
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9
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16
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16
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17
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17
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17
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17
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17
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18
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18
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18
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19
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Consolidated
Financial Statements
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UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CONDITION
(Dollars
in thousands, except per share amounts)
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|
March
31,
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December
31,
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2007
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2006
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(unaudited)
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ASSETS
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Cash
and due from banks
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$ |
17,900
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|
$ |
15,459
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|
Interest-bearing
deposits
|
|
|
24,144
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|
|
|
9,960
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|
Total
cash and cash equivalents
|
|
|
42,044
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|
25,419
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|
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Securities
available for sale, at fair value
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|
171,474
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190,237
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|
Securities
to be held to maturity, at amortized cost (fair value $3,901
at
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March
31, 2007 and $3,227 at December 31, 2006)
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3,913
|
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|
3,241
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|
Loans,
net of allowance for loan losses of $7,426 at March 31, 2007
and
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$7,218
at December 31, 2006
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|
779,905
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756,180
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Other
real estate owned
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|
-
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|
562
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|
Accrued
interest receivable
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|
4,430
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|
4,320
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|
Stock
in the Federal Home Loan Bank of Boston
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9,885
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|
9,274
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|
Banking
premises and equipment, net
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|
10,673
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|
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|
8,821
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|
Bank-owned
life insurance
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|
|
6,473
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|
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|
6,304
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|
Other
assets
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|
|
4,901
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|
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|
5,075
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|
|
|
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|
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TOTAL
ASSETS
|
|
$ |
1,033,698
|
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|
$ |
1,009,433
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|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
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Liabilities:
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Deposits:
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Interest-bearing
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$ |
614,426
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|
$ |
588,496
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|
Non-interest-bearing
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|
|
102,513
|
|
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|
97,190
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|
Total
deposits
|
|
|
716,939
|
|
|
|
685,686
|
|
Federal
Home Loan Bank of Boston advances
|
|
|
162,171
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|
|
|
169,806
|
|
Repurchase
agreements
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|
8,825
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|
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|
10,425
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|
Escrow
funds held for borrowers
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|
1,537
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|
|
|
1,121
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Accrued
expenses and other liabilities
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|
5,741
|
|
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|
4,684
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Total
liabilities
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|
895,213
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871,722
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Stockholders’
equity:
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Preferred
stock, par value $0.01 per share, authorized 5,000,000
shares;
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none
issued
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-
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-
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Common
stock, par value $0.01 per share, authorized 60,000,000
shares;
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17,205,995
shares issued at March 31, 2007 and at December 31, 2006
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|
172
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|
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|
172
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Paid-in
capital
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|
76,197
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|
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|
75,520
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Retained
earnings
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|
70,798
|
|
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|
70,406
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|
Unearned
compensation
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|
(5,661 |
) |
|
|
(5,772 |
) |
Treasury
stock, at cost (109,861 shares at March 31, 2007 and 51,445
shares
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|
at December 31, 2006)
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|
(1,513 |
) |
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|
(664 |
) |
Accumulated
other comprehensive loss, net of taxes
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|
(1,508 |
) |
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|
(1,951 |
) |
Total
stockholders’ equity
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|
|
138,485
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|
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|
137,711
|
|
|
|
|
|
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TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$ |
1,033,698
|
|
|
$ |
1,009,433
|
|
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|
See
notes
to unaudited consolidated financial statements
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS (unaudited)
(Dollars
in thousands, except per share amounts)
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Three
Months Ended
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March
31,
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2007
|
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|
2006
|
|
Interest
and dividend income:
|
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|
|
|
|
Loans
|
|
$ |
11,955
|
|
|
$ |
9,600
|
|
Investments
|
|
|
1,982
|
|
|
|
2,305
|
|
Other
interest-earning assets
|
|
|
375
|
|
|
|
242
|
|
Total
interest and dividend income
|
|
|
14,312
|
|
|
|
12,147
|
|
|
|
|
|
|
|
|
|
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Interest
expense:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
5,181
|
|
|
|
4,042
|
|
Short-term borrowings
|
|
|
1,098
|
|
|
|
576
|
|
Long-term debt
|
|
|
1,077
|
|
|
|
621
|
|
Total
interest expense
|
|
|
7,356
|
|
|
|
5,239
|
|
|
|
|
|
|
|
|
|
|
Net
interest income before provision for loan losses
|
|
|
6,956
|
|
|
|
6,908
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
284
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
Net
interest income after provision for loan losses
|
|
|
6,672
|
|
|
|
6,746
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
Fee
income on depositors’ accounts
|
|
|
1,038
|
|
|
|
946
|
|
Gain
on sale of securities
|
|
|
14
|
|
|
|
-
|
|
Wealth
management income
|
|
|
121
|
|
|
|
57
|
|
Income
from bank-owned life insurance
|
|
|
35
|
|
|
|
81
|
|
Other
income
|
|
|
190
|
|
|
|
174
|
|
Total
non-interest income
|
|
|
1,398
|
|
|
|
1,258
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
|
3,838
|
|
|
|
3,028
|
|
Occupancy
expenses
|
|
|
491
|
|
|
|
403
|
|
Marketing
expenses
|
|
|
322
|
|
|
|
415
|
|
Data
processing expenses
|
|
|
642
|
|
|
|
632
|
|
Professional
fees
|
|
|
389
|
|
|
|
256
|
|
Other
expenses
|
|
|
965
|
|
|
|
1,042
|
|
Total
non-interest expense
|
|
|
6,647
|
|
|
|
5,776
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
1,423
|
|
|
|
2,228
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
589
|
|
|
|
873
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
834
|
|
|
$ |
1,355
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.05
|
|
|
$ |
0.08
|
|
Diluted
|
|
$ |
0.05
|
|
|
$ |
0.08
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,273,732
|
|
|
|
16,600,767
|
|
Diluted
|
|
|
16,333,235
|
|
|
|
16,600,767
|
|
See
notes
to unaudited consolidated financial statements.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)
FOR
THE
THREE MONTHS ENDED MARCH 31, 2007 and 2006
(Dollars
in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Shares
|
|
|
Common
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Unearned
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
|
|
|
|
Outstanding
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Stock
|
|
|
Loss
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2005
|
|
|
17,205,995
|
|
|
$ |
172
|
|
|
$ |
78,446
|
|
|
$ |
66,944
|
|
|
$ |
(6,092 |
) |
|
$ |
-
|
|
|
$ |
(2,465 |
) |
|
$ |
137,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,355
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,355
|
|
Net
unrealized loss on securities available for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(791 |
) |
|
|
(791 |
) |
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared ($0.05 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(371 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(371 |
) |
ESOP
shares committed to be released
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
|
|
-
|
|
|
|
80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at March 31, 2006
|
|
|
17,205,995
|
|
|
$ |
172
|
|
|
$ |
78,460
|
|
|
$ |
67,928
|
|
|
$ |
(6,012 |
) |
|
$ |
-
|
|
|
$ |
(3,256 |
) |
|
$ |
137,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2006
|
|
|
17,154,550
|
|
|
$ |
172
|
|
|
$ |
75,520
|
|
|
$ |
70,406
|
|
|
$ |
(5,772 |
) |
|
$ |
(664 |
) |
|
$ |
(1,951 |
) |
|
$ |
137,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
834
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
834
|
|
Net
unrealized gain on securities available for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
443
|
|
|
|
443
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared ($0.06 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(442 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(442 |
) |
Treasury
stock purchases
|
|
|
(58,416 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(849 |
) |
|
|
-
|
|
|
|
(849 |
) |
Stock-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
628
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
628
|
|
ESOP
shares committed to be released
|
|
|
-
|
|
|
|
-
|
|
|
|
49
|
|
|
|
-
|
|
|
|
111
|
|
|
|
-
|
|
|
|
-
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at March 31, 2007
|
|
|
17,096,134
|
|
|
$ |
172
|
|
|
$ |
76,197
|
|
|
$ |
70,798
|
|
|
$ |
(5,661 |
) |
|
$ |
(1,513 |
) |
|
$ |
(1,508 |
) |
|
$ |
138,485
|
|
The
components of other comprehensive income and related tax effects
are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Change
in unrealized holding gains (losses) on available for sale
securities
|
|
$ |
749
|
|
|
$ |
(1,289 |
) |
Reclassification
adjustment for gains realized in income
|
|
|
(14 |
) |
|
|
-
|
|
Net
change in unrealized gains (losses)
|
|
|
735
|
|
|
|
(1,289 |
) |
|
|
|
|
|
|
|
|
|
Tax
effect
|
|
|
292
|
|
|
|
(498 |
) |
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
$ |
443
|
|
|
$ |
(791 |
) |
See
notes
to unaudited consolidated financial statements.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS (unaudited)
FOR
THE
THREE MONTHS ENDED MARCH 31, 2007 and 2006
(Dollars
in thousands)
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
834
|
|
|
$ |
1,355
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
284
|
|
|
|
162
|
|
ESOP
expense
|
|
|
160
|
|
|
|
94
|
|
Stock-based
compensation
|
|
|
628
|
|
|
|
-
|
|
Amortization
of premiums and discounts
|
|
|
(9 |
) |
|
|
100
|
|
Depreciation
and amortization
|
|
|
230
|
|
|
|
193
|
|
Amortization
of intangible assets
|
|
|
8
|
|
|
|
-
|
|
Provision
for other real estate owned
|
|
|
-
|
|
|
|
34
|
|
Net
gain on sale of other real estate owned
|
|
|
(14 |
) |
|
|
-
|
|
Net
gain on sale of securities
|
|
|
(14 |
) |
|
|
-
|
|
Increase
in bank-owned life insurance
|
|
|
(169 |
) |
|
|
(81 |
) |
Increase
in accrued interest receivable
|
|
|
(110 |
) |
|
|
(274 |
) |
Increase
in other assets
|
|
|
(124 |
) |
|
|
(787 |
) |
Decrease
in accrued expenses and other liabilities
|
|
|
(878 |
) |
|
|
(348 |
) |
Net
cash provided by operating activities
|
|
|
826
|
|
|
|
448
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of securities available for sale
|
|
|
(5,129 |
) |
|
|
(6,872 |
) |
Proceeds
from sales of securities available for sale
|
|
|
2,684
|
|
|
|
-
|
|
Proceeds
from maturities, calls and principal repayments of securities
available for sale
|
|
|
21,967
|
|
|
|
12,172
|
|
Purchases
of securities held to maturity
|
|
|
(675 |
) |
|
|
-
|
|
Purchases
of Federal Home Loan Bank of Boston stock
|
|
|
(611 |
) |
|
|
(96 |
) |
Proceeds
from sales of other real estate owned
|
|
|
576
|
|
|
|
-
|
|
Net
loan originations and principal repayments
|
|
|
(24,009 |
) |
|
|
(9,044 |
) |
Purchases
of property and equipment
|
|
|
(147 |
) |
|
|
(97 |
) |
Cash
paid to acquire Levine Financial Group
|
|
|
-
|
|
|
|
(100 |
) |
Net
cash used in investing activities
|
|
|
(5,344 |
) |
|
|
(4,037 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Net
increase in deposits
|
|
|
31,253
|
|
|
|
32,170
|
|
Proceeds
of Federal Home Loan Bank of Boston advances
|
|
|
50,000
|
|
|
|
29,612
|
|
Repayments
of Federal Home Loan Bank of Boston advances
|
|
|
(57,635 |
) |
|
|
(18,949 |
) |
Net
decrease in repurchase agreements
|
|
|
(1,600 |
) |
|
|
(2,046 |
) |
Net
increase in escrow funds held for borrowers
|
|
|
416
|
|
|
|
130
|
|
Treasury
stock purchases
|
|
|
(849 |
) |
|
|
-
|
|
Cash
dividends paid
|
|
|
(442 |
) |
|
|
(371 |
) |
Net
cash provided by financing activities
|
|
|
21,143
|
|
|
|
40,546
|
|
Increase
in cash and cash equivalents
|
|
|
16,625
|
|
|
|
36,957
|
|
Cash
and cash equivalents at beginning of period
|
|
|
25,419
|
|
|
|
15,843
|
|
Cash
and cash equivalents at end of period
|
|
$ |
42,044
|
|
|
$ |
52,800
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period:
|
|
|
|
|
|
|
|
|
Interest
on deposits and other borrowings
|
|
$ |
7,351
|
|
|
$ |
5,240
|
|
Income
taxes – net
|
|
|
877
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
Non-cash
item:
|
|
|
|
|
|
|
|
|
Capitalized
lease asset and obligation
|
|
$ |
1,932
|
|
|
$ |
-
|
|
See
notes
to unaudited consolidated financial statements.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2007
Dollars
in Thousands (except per share amounts)
NOTE
A – BASIS OF PRESENTATION
The
consolidated financial statements include the accounts of United Financial
Bancorp, Inc. and its wholly owned subsidiary, United Bank. The consolidated
financial statements also include the accounts of United Bank’s wholly owned
subsidiary, UCB Securities, Inc., which is engaged in buying, selling and
holding investment securities. These entities are collectively
referred to herein as “the Company.” All significant intercompany
accounts and transactions have been eliminated in consolidation.
The
accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
(“GAAP”) and with general practices within the banking industry. In the opinion
of management, the accompanying unaudited interim consolidated financial
statements reflect all adjustments, consisting of normal recurring adjustments,
which are necessary for the fair presentation of the Company’s financial
condition as of March 31, 2007 and the results of operations for the three
months ended March 31, 2007 and 2006. The interim results of operations
presented herein are not necessarily indicative of the results to be expected
for the entire year. These financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto for the year
ended December 31, 2006 included in the Company’s Annual Report on Form 10-K,
which was filed by the Company with the Securities and Exchange
Commission.
Certain
amounts in the prior period financial statements have been reclassified to
conform to the current period presentation.
NOTE
B – RECENTLY ISSUED 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. The cumulative effect, if any, of applying FIN 48 is recorded
as an
adjustment to the beginning balance of retained earnings. FIN 48 also requires
disclosure of the entity’s policy on classification of interest and penalties.
The Company adopted FIN 48 on January 1, 2007. The adoption of this standard
had
no effect on the Company’s results of operations or financial condition. The
Company’s policy is to report interest and penalties as part of other
non-interest expenses in the Consolidated Statement of Operations.
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 Company adopted EITF 06-05 on January 1, 2007.The Company’s
implementation of this Interpretation had no effect on its results of operations
or financial condition.
NOTE
C – CRITICAL ACCOUNTING POLICIES
In
preparing the financial statements, 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 as well as revenues and expenses for the reporting period. Actual results
could differ from these estimates.
The
allowance for loan losses is a critical accounting estimate because it is highly
susceptible to change from period to period. Arriving at 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 for loans may
be
necessary based on changes in the factors considered in evaluating the adequacy
of the allowance, including prior loss experience, current economic conditions
and their effect on borrowers, the character and size of the portfolio, trends
in nonperforming loans and delinquency rates and the performance of individual
loans in relation to contractual terms.
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.
NOTE
D – 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 are 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.
The
calculation of basic and diluted earnings per common share for the periods
indicated is presented below.
|
|
Three
Months Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
834
|
|
|
$ |
1,355
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares applicable to basic EPS
|
|
|
16,273,732
|
|
|
|
16,600,767
|
|
Effect
of dilutive potential
common shares (1, 2)
|
|
|
59,503
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares applicable to diluted EPS
|
|
|
16,333,235
|
|
|
|
16,600,767
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.05
|
|
|
$ |
0.08
|
|
Diluted
|
|
$ |
0.05
|
|
|
$ |
0.08
|
|
(1)
For the three months ended March 31, 2007 options to purchase 748,000
shares were outstanding but not included in the computation of
earnings
per share because they were antidulutive.
|
(2)
Includes incremental shares related to stock options and restricted
stock.
|
NOTE
E – LOANS
The
components of loans were as follows at March 31, 2007 and December 31,
2006:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
One-to-four
family residential real estate
|
|
$ |
325,948
|
|
|
$ |
319,108
|
|
Commercial
real estate
|
|
|
197,514
|
|
|
|
175,564
|
|
Construction
|
|
|
48,748
|
|
|
|
54,759
|
|
Home
equity loans
|
|
|
116,350
|
|
|
|
112,739
|
|
Commercial
and industrial
|
|
|
67,723
|
|
|
|
69,762
|
|
Consumer
|
|
|
29,681
|
|
|
|
30,181
|
|
Total
loans
|
|
|
785,964
|
|
|
|
762,113
|
|
|
|
|
|
|
|
|
|
|
Net
deferred loan costs and fees
|
|
|
1,367
|
|
|
|
1,285
|
|
Allowance
for loan losses
|
|
|
(7,426 |
) |
|
|
(7,218 |
) |
Loans,
net
|
|
$ |
779,905
|
|
|
$ |
756,180
|
|
NOTE
F – NON-PERFORMING ASSETS
The
table
below sets forth the amounts and categories of non-performing assets at the
dates indicated.
|
|
|
|
|
|
|
|
|
At
March 31,
|
|
|
At
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Non-accrual
loans:
|
|
|
|
|
|
|
Residential
mortgages (1)
|
|
$ |
401
|
|
|
$ |
20
|
|
Commercial
mortgages
|
|
|
641
|
|
|
|
1,144
|
|
Construction
|
|
|
-
|
|
|
|
-
|
|
Commercial
and industrial
|
|
|
260
|
|
|
|
123
|
|
Automobile
|
|
|
-
|
|
|
|
-
|
|
Other
consumer
|
|
|
-
|
|
|
|
1
|
|
Total
non-accrual loans
|
|
|
1,302
|
|
|
|
1,288
|
|
|
|
|
|
|
|
|
|
|
Accruing
loans 90 days or more past due
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing loans
|
|
|
1,302
|
|
|
|
1,288
|
|
|
|
|
|
|
|
|
|
|
Other
real estate owned
|
|
|
-
|
|
|
|
562
|
|
Total
non-performing assets
|
|
$ |
1,302
|
|
|
$ |
1,850
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
Total
non-performing loans to total loans
|
|
|
0.17 |
% |
|
|
0.17 |
% |
Total
non-performing assets to total assets
|
|
|
0.13 |
% |
|
|
0.18 |
% |
Allowance
for loan losses to non-performing loans
|
|
|
570.35 |
% |
|
|
560.40 |
% |
|
|
|
|
|
|
|
|
|
(1) Includes
one- to four-family loans and home equity loans and lines of
credit
|
|
|
|
|
|
NOTE
G – ALLOWANCE FOR LOAN LOSSES
A
summary
of the activity in the allowance for loan losses is as follows:
|
|
For
the Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$ |
7,218
|
|
|
$ |
6,382
|
|
Provision
for loan losses
|
|
|
284
|
|
|
|
162
|
|
Charge-offs
|
|
|
(76 |
) |
|
|
(2 |
) |
Recoveries
|
|
|
-
|
|
|
|
38
|
|
Balance
at end of period
|
|
$ |
7,426
|
|
|
$ |
6,580
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
Net
charge-offs (recoveries) to average loans
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
0.04 |
% |
|
|
(0.02 |
%) |
Allowance
for loan losses to non-performing
|
|
|
|
|
|
|
|
|
loans
at end of period
|
|
|
570.35 |
% |
|
|
390.27 |
% |
Allowance
for loan losses to total
|
|
|
|
|
|
|
|
|
loans
at end of period
|
|
|
0.94 |
% |
|
|
1.02 |
% |
NOTE
H – COMMITMENTS
Financial
instruments with off-balance sheet risk at March 31, 2007 and December 31,
2006
were as follows:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Unused
lines of credit
|
|
$ |
140,994
|
|
|
$ |
135,374
|
|
Amounts
due mortgagors
|
|
|
36,671
|
|
|
|
34,742
|
|
Standby
letters of credit
|
|
|
986
|
|
|
|
879
|
|
Commitments
to originate loans
|
|
|
30,354
|
|
|
|
42,551
|
|
NOTE
I – DEPOSITS
Deposit
accounts, by type, are
summarized as follows at March 31, 2007 and December 31,
2006:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Demand
|
|
$ |
102,513
|
|
|
$ |
97,190
|
|
NOW
|
|
|
38,227
|
|
|
|
37,523
|
|
Regular
savings
|
|
|
68,006
|
|
|
|
65,475
|
|
Money
market
|
|
|
177,173
|
|
|
|
165,984
|
|
Certificates
of deposit
|
|
|
331,020
|
|
|
|
319,514
|
|
|
|
$ |
716,939
|
|
|
$ |
685,686
|
|
NOTE
J – CONTINGENCIES
The
Company is a defendant in certain claims and legal actions arising in the
ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters
is
not expected to have a material adverse effect on the Company’s financial
condition, results of operations and cash flows.
NOTE
K – SUBSEQUENT EVENT – EMPLOYEE BENEFIT PLAN CHANGES
The
Company completed a comprehensive review of its employee benefit programs in
2006. As a result, effective April 30, 2007, the Company no longer
participates in a multiple employer defined benefit plan sponsored by the
Co-operative Banks Employee Retirement Association. All
benefits earned by eligible plan participants have been frozen at such date
and,
accordingly, no additional expense is expected to be recognized
thereafter. The final determination of the Company’s share of the
plan’s obligations and assets will be completed during the second quarter. It is
expected that no withdrawal liability will exist in connection with this
transaction. The Company intends to allocate any excess plan assets to its
participants to the fullest extent as provided by the plan.
The
Company has also elected to enhance its existing Employee Stock Ownership Plan
(“ESOP”). Beginning in 2007, the Company is allocating ESOP shares to
plan participants over a 13 year period rather than the 18 years remaining
under
the original loan agreement. As a result of this change, the number
of shares to be released each year will increase from 32,065 to 44,398. The
higher allocation of shares in each of the 13 years will result in higher
compensation expense for such years than would have been the case if the
allocations were made over the original 18-year period.
ITEM
2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Forward-Looking
Statements
From
time to time, the Company may
publish forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments, new
products, and similar matters. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for forward-looking statements
provided that the Company notes that a variety of factors could cause the
Company’s actual results to differ materially from the anticipated results
expressed in the Company’s forward-looking statements. Factors that
may cause actual results to differ materially from those projected in the
forward-looking statements include, but are not limited to, general economic
conditions that are less favorable than expected, changes in market interest
rates that result in reduced interest margins, risks in the loan portfolio,
including prepayments that are greater than expected, the enactment of
legislation or regulatory changes that have a less than favorable impact on
the
business of the Company, and significant increases in competitive pressures.
Forward-looking statements speak only as of the date they are made and the
Company does not undertake to update forward- looking statements to reflect
circumstances or events that occur after the date of the forward-looking
statements or to reflect the occurrence of unanticipated events. Accordingly,
past results and trends should not be used by investors to anticipate future
results or trends.
Comparison
of Financial Condition at March 31, 2007 and December 31,
2006
Total
assets increased $24.3 million, or 2.4%, to $1.0 billion at March 31, 2007,
due
in large part to strong growth in net loans and an increase in cash and cash
equivalents. Net loans increased $23.7 million, or 3.1%, to $779.9 million
at
March 31, 2007 from $756.2 million at December 31,
2006. Loan growth was solid reflecting a sound local economy, a
resilient real estate market, continued demand in our primary market areas
for
our products and successful business development efforts. The
increase in loans was also attributable to the Company’s practice of originating
residential loans for investment. Cash and cash equivalents increased $16.6
million to $42.0 million at March 31, 2007 reflecting an intentional buildup
of
funds to support future growth in loans and to pay down short-term Federal
Home
Loan Bank advances.
These
increases were offset to some extent by a decrease in securities available
for
sale of $18.8 million, or 9.9%, to $171.5 million at March 31, 2007
from $190.2 million at December 31, 2006 due to sales, calls and
maturities of certain debt instruments and repayments of mortgage-backed
securities, partially offset by purchases of mortgage-backed
securities. The cash flows from investment securities were used to
support loan growth.
The
growth in assets was funded by an increase in total deposits of
$31.2 million, or 4.6%, to $716.9 million at March 31, 2007 from
$685.7 million at December 31, 2006. Deposit growth was solid in all
categories, with increases of 4.5% in transaction accounts, 3.8% in savings
balances, 6.7% in money market accounts and 3.6% in certificates of
deposit. The first quarter results were affected by the December 2006
opening of our second branch in Westfield, Massachusetts, the introduction
of
new products and services, competitive pricing and targeted promotional
activities. Core deposits increased $19.7 million, or 5.4%, to $385.9
million, or 53.8% of deposits at March 31, 2007. Federal Home Loan Bank advances
decreased $7.6 million, or 4.5%, to $162.2 million at March 31, 2007 from
$169.8 million at December 31, 2006 due to repayment of higher cost
short term advances. Repurchase agreements decreased $1.6 million to
$8.8 million at March 31, 2007 from $10.4 million at December 31,
2006, reflecting routine fluctuations in these overnight accounts.
Total
stockholders’ equity increased $774,000, or 0.6%, to $138.5 million at March 31,
2007 from $137.7 million at December 31, 2006 as a result of net
income of $834,000 for the first quarter of 2007, stock-based compensation
totaling $628,000 and a decrease of $443,000 in the net unrealized loss on
securities available for sale. These items were partially offset by share
repurchases totaling $849,000 and payment of cash dividends of
$442,000.
Comparison
of Operating Results for the Three Months Ended March 31,
2007 and
2006
Overview
Our
results of operations depend primarily on our net interest
income. Net interest income is the difference between the interest
income earned on interest-earning assets, consisting primarily of loans,
investment securities and other interest-earning assets, and the interest paid
on interest-bearing liabilities, consisting primarily of deposits and Federal
Home Loan Bank advances.
Our
results of operations also are affected by provisions for loan losses,
non-interest income and non-interest expense. Non-interest income
consists primarily of deposit account fees, wealth management fees, increases
in
the cash surrender value of bank-owned life insurance and miscellaneous other
income. Non-interest expense consists primarily of compensation
and employee benefits, data processing, occupancy, marketing and public
relations, professional services, postage, printing, 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.
Net
Income
The
Company’s net income was $834,000, or $0.05 per diluted share, for the first
quarter of 2007 compared to net income of $1.4 million, or $0.08 per diluted
share, for the same period in 2006. The Company’s lower net income
and earnings per share were due in large part to net interest margin
contraction, a higher provision for loan losses, and increased non-interest
expenses. The 2007 results were favorably affected by growth in
average earning assets and expansion in non-interest income.
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.
|
|
Three
Months Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
Average
|
|
|
and
|
|
|
Yield/
|
|
|
Average
|
|
|
and
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Dividends
|
|
|
Cost
|
|
|
Balance
|
|
|
Dividends
|
|
|
Cost
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$ |
336,891
|
|
|
$ |
4,744
|
|
|
|
5.63 |
% |
|
$ |
296,061
|
|
|
$ |
4,081
|
|
|
|
5.51 |
% |
Commercial
real estate
|
|
|
225,188
|
|
|
|
3,704
|
|
|
|
6.58 |
% |
|
|
169,578
|
|
|
|
2,780
|
|
|
|
6.56 |
% |
Home
equity loans
|
|
|
115,715
|
|
|
|
1,873
|
|
|
|
6.47 |
% |
|
|
89,316
|
|
|
|
1,395
|
|
|
|
6.25 |
% |
Commercial
and industrial
|
|
|
68,716
|
|
|
|
1,257
|
|
|
|
7.32 |
% |
|
|
59,166
|
|
|
|
1,020
|
|
|
|
6.90 |
% |
Consumer
and other
|
|
|
29,791
|
|
|
|
377
|
|
|
|
5.06 |
% |
|
|
26,711
|
|
|
|
324
|
|
|
|
4.85 |
% |
Total
loans
|
|
|
776,301
|
|
|
|
11,955
|
|
|
|
6.16 |
% |
|
|
640,832
|
|
|
|
9,600
|
|
|
|
5.99 |
% |
Investment
securities
|
|
|
180,491
|
|
|
|
1,982
|
|
|
|
4.39 |
% |
|
|
227,373
|
|
|
|
2,305
|
|
|
|
4.06 |
% |
Other
interest-earning assets
|
|
|
28,320
|
|
|
|
375
|
|
|
|
5.30 |
% |
|
|
22,014
|
|
|
|
242
|
|
|
|
4.40 |
% |
Total
interest-earning assets
|
|
|
985,112
|
|
|
|
14,312
|
|
|
|
5.81 |
% |
|
|
890,219
|
|
|
|
12,147
|
|
|
|
5.46 |
% |
Noninterest-earning
assets
|
|
|
31,257
|
|
|
|
|
|
|
|
|
|
|
|
30,936
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
1,016,369
|
|
|
|
|
|
|
|
|
|
|
$ |
921,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
accounts
|
|
$ |
64,922
|
|
|
|
139
|
|
|
|
0.86 |
% |
|
$ |
84,855
|
|
|
|
174
|
|
|
|
0.82 |
% |
Money
market accounts
|
|
|
174,194
|
|
|
|
1,356
|
|
|
|
3.11 |
% |
|
|
161,522
|
|
|
|
1,184
|
|
|
|
2.93 |
% |
NOW
accounts
|
|
|
34,130
|
|
|
|
44
|
|
|
|
0.52 |
% |
|
|
35,459
|
|
|
|
22
|
|
|
|
0.25 |
% |
Certificates
of deposit
|
|
|
323,984
|
|
|
|
3,642
|
|
|
|
4.50 |
% |
|
|
287,018
|
|
|
|
2,662
|
|
|
|
3.71 |
% |
Total
interest-bearing deposits
|
|
|
597,230
|
|
|
|
5,181
|
|
|
|
3.47 |
% |
|
|
568,854
|
|
|
|
4,042
|
|
|
|
2.84 |
% |
FHLB
advances
|
|
|
170,727
|
|
|
|
2,023
|
|
|
|
4.74 |
% |
|
|
112,641
|
|
|
|
1,118
|
|
|
|
3.97 |
% |
Other
interest-bearing liabilities
|
|
|
12,635
|
|
|
|
152
|
|
|
|
4.81 |
% |
|
|
8,875
|
|
|
|
79
|
|
|
|
3.56 |
% |
Total
interest-bearing liabilities
|
|
|
780,592
|
|
|
|
7,356
|
|
|
|
3.77 |
% |
|
|
690,370
|
|
|
|
5,239
|
|
|
|
3.04 |
% |
Demand
deposits
|
|
|
94,302
|
|
|
|
|
|
|
|
|
|
|
|
89,677
|
|
|
|
|
|
|
|
|
|
Other
noninterest-bearing liabilities
|
|
|
3,179
|
|
|
|
|
|
|
|
|
|
|
|
3,340
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
878,073
|
|
|
|
|
|
|
|
|
|
|
|
783,387
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
138,296
|
|
|
|
|
|
|
|
|
|
|
|
137,768
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$ |
1,016,369
|
|
|
|
|
|
|
|
|
|
|
$ |
921,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$ |
6,956
|
|
|
|
|
|
|
|
|
|
|
$ |
6,908
|
|
|
|
|
|
Interest
rate spread(1)
|
|
|
|
|
|
|
|
|
|
|
2.04 |
% |
|
|
|
|
|
|
|
|
|
|
2.42 |
% |
Net
interest-earning assets(2)
|
|
$ |
204,520
|
|
|
|
|
|
|
|
|
|
|
$ |
199,849
|
|
|
|
|
|
|
|
|
|
Net
interest margin(3)
|
|
|
|
|
|
|
|
|
|
|
2.82 |
% |
|
|
|
|
|
|
|
|
|
|
3.10 |
% |
Average
interest-earning assets to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average
interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
126.20 |
% |
|
|
|
|
|
|
|
|
|
|
128.95 |
% |
|
(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.
|
|
Three
Months Ended March 31
|
|
|
|
2007
vs. 2006
|
|
|
|
Increase
(Decrease) Due to
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$ |
573
|
|
|
$ |
90
|
|
|
$ |
663
|
|
Commercial
real estate
|
|
|
915
|
|
|
|
9
|
|
|
|
924
|
|
Home
equity loans
|
|
|
425
|
|
|
|
53
|
|
|
|
478
|
|
Commercial
and industrial
|
|
|
172
|
|
|
|
65
|
|
|
|
237
|
|
Consumer
and other
|
|
|
38
|
|
|
|
15
|
|
|
|
53
|
|
Total
loans
|
|
|
2,123
|
|
|
|
232
|
|
|
|
2,355
|
|
Investment
securities
|
|
|
(503 |
) |
|
|
180
|
|
|
|
(323 |
) |
Other
interest-earning assets
|
|
|
77
|
|
|
|
56
|
|
|
|
133
|
|
Total
interest-earning assets
|
|
|
1,697
|
|
|
|
468
|
|
|
|
2,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
accounts
|
|
|
(43 |
) |
|
|
8
|
|
|
|
(35 |
) |
Money
market accounts
|
|
|
96
|
|
|
|
76
|
|
|
|
172
|
|
NOW
accounts
|
|
|
(1 |
) |
|
|
23
|
|
|
|
22
|
|
Certificates
of deposit
|
|
|
371
|
|
|
|
609
|
|
|
|
980
|
|
Total
interest-bearing deposits
|
|
|
423
|
|
|
|
716
|
|
|
|
1,139
|
|
FHLB
Advances
|
|
|
658
|
|
|
|
247
|
|
|
|
905
|
|
Other
interest-bearing liabilities
|
|
|
39
|
|
|
|
34
|
|
|
|
73
|
|
Total
interest-bearing liabilities
|
|
|
1,120
|
|
|
|
997
|
|
|
|
2,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in net interest income
|
|
$ |
577
|
|
|
$ |
(529 |
) |
|
$ |
48
|
|
Net
Interest Income Before Provision for Loan Losses. Net
interest income before provision for loan losses increased $48,000, or 0.7%,
to
$7.0 million for the three months ended March 31, 2007, reflecting growth
in average earning assets, substantially offset by net interest margin
compression. Net interest margin contracted 28 basis points to
2.82% for the three-month period ended March 31, 2007 compared to 3.10% for
the
same period in 2006. 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 $2.2 million, or 17.8%, to $14.3
million for the three months ended March 31, 2007 from $12.1 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
$94.9 million, or 10.7%, to $985.1 million for the three months ended March
31, 2007 due in large part to strong loan growth, funded largely by deposit
growth and cash flows from the investment securities portfolio. Total average
loans increased $135.5 million, or 21.1%, to $776.3 million for the first
quarter of 2007 as a result of solid origination activity, partially offset
by
prepayments and normal amortization. Total average investment
securities decreased by $46.9 million, or 20.6%, to $180.5 million due to
maturities, calls, sales and principal repayments of existing securities,
partially offset by purchases of bonds. The yield on average
interest-earning assets increased 35 basis points to 5.81% for the first quarter
of 2007 in connection with the higher interest rate environment and the use
of
cash flows from the investment portfolio to fund higher yielding
loans. The expansion in market rates contributed to the repricing of
a portion of the Company’s existing assets and to higher 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 expansion in market rates was limited.
Interest
Expense. Interest expense increased $2.2 million, or
40.4%, to $7.4 million for the three months ended March 31, 2007 from
$5.2 million for the prior year period due to an increase in the rate paid
for interest-bearing liabilities and expansion in the average balance of such
liabilities. The average rate paid on interest-bearing
liabilities rose 73 basis points to 3.77% for the three months ended March
31,
2007 reflecting the impact of higher market rates related to interest rate
increases initiated by the Federal Reserve Board and the competitive rate
environment for deposits. Since a large portion of the Company’s
interest-bearing liabilities are short-term, the impact of the expansion in
market rates was significant. Average interest-bearing liabilities
increased $90.2 million, or 13.1%, to $780.6 million for the three
months ended March 31, 2007 from $690.4 million for the prior year period
reflecting growth in interest-bearing deposits and FHLB
advances. Total average interest-bearing deposits increased $28.4
million, or 5.0%, to $597.2 million for the first quarter of 2007 mainly
attributable to an increase in money market and certificates of deposit
balances, partially offset by a reduction in savings deposits. The
decline in savings account balances reflected a shift in deposit demand towards
money market and certificates of deposit products to take advantage of more
attractive rates. Total average FHLB advances increased $58.1
million, or 51.6%, to $170.7 million to support loan growth.
Provision
for Loan Losses. The provision for loan losses was $284,000 for
the three months ended March 31, 2007 as compared to $162,000 for the three
months ended March 31, 2006. The allowance for loan losses is based on
management’s estimate of the probable losses inherent in the portfolio,
considering the impact of certain factors. Among the factors
management may consider are prior loss experience, current economic conditions
and their effect on borrowers, the character and size of the portfolio, trends
in nonperforming loans and delinquency rates and the performance of individual
loans in relation to contractual terms. The provision for loan losses reflects
adjustments to the allowance based on management’s review of the loan portfolio
in light of those conditions. The allowance for loan losses was
$7.4 million, or 0.94%, of loans outstanding at March 31,
2007.
Non-interest
Income. Non-interest income increased $140,000, or
11.1%, to $1.4 million for the three months ended March 31, 2007 due to
growth in fee income on deposit and wealth management
accounts. Fee income on deposit accounts rose $92,000 as a
result of growth in transaction account balances and activity. Wealth
management income expanded $64,000 as a result of new accounts opened due to
successful business development efforts and the acquisition of the Levine
Financial Group in March 2006.
Non-interest
Expense. Non-interest expense increased $871,000, or
15.1%, to $6.6 million for the three months ended March 31, 2007 from
$5.8 million for the prior year period reflecting increases in salaries and
benefits, occupancy and professional fees. Total salaries and
benefits increased $810,000, or 26.8% mainly due to stock-based compensation
associated with restricted stock and stock options granted in August 2006 and
staffing costs for the two new branches opened in 2006. Occupancy costs grew
$88,000, or 21.8%, principally attributable to two new branches opened in 2006.
These increases were offset in part by a decrease in marketing expenses of
$93,000, or 22.4%.
Income
Tax Expense. Income
tax expense
decreased $284,000 to $589,000 for three months ended March 31, 2007 from
$873,000 for the comparable 2006 period. This decrease was mainly due
to lower income before income taxes, somewhat offset by an increase in the
effective tax rate to 41.5% for the first quarter of 2007 compared to 39.2%
for
the same period last year. The higher effective tax rate was principally due
to
the disallowed deduction for stock-based compensation associated with
incentive stock options.
Market
Risk, Liquidity and Capital Resources
Market
Risk
The
majority of our assets and liabilities are monetary in
nature. Consequently, our most significant form of market risk is
interest rate risk (“IRR”). 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 IRR and reduce the exposure of our net interest income
(“NII”) to changes in market interest rates. Accordingly, our Board
of Directors has established an Asset/Liability Management Committee which
is
responsible for evaluating the IRR 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 IRR management consultant, the
committee monitors the level of IRR on a regular basis and generally meets
at
least on a quarterly basis to review our asset/liability policies and
IRR position.
We
have
sought to manage our IRR 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 IRR: (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 home equity loans,
commercial real estate loans, construction loans and commercial and industrial
loans; (v) offering a variety of consumer loans, which typically have
shorter-terms and (vi) using cash flows from the investment portfolio to fund
loan growth. 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 NII 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
March 31, 2007 and December 31, 2006.
Net
Interest Income At-Risk
|
|
|
|
|
|
|
|
Estimated
Increase
|
|
Estimated
Increase
|
Change
in Interest Rates
|
|
(Decrease)
in NII
|
|
(Decrease)
in NII
|
(Basis
Points)
|
|
(March
31, 2007)
|
|
(December
31, 2006)
|
-200
|
|
2.7%
|
|
12.1%
|
Stable
|
|
0.0%
|
|
0.0%
|
+200
|
|
-5.5%
|
|
-10.9%
|
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
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 cash flows from the investment portfolio. 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. For the quarter ended March 31, 2007 our
liquidity ratio was 25.31%, compared to 27.14% at December 31,
2006.
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
generally invested 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 March 31, 2007, cash and cash equivalents totaled $42.0
million. Securities classified as available-for-sale, which provide
additional sources of liquidity, totaled $171.5 million at March 31,
2007.
At
March
31, 2007, we had $30.4 million in loan commitments outstanding. In addition
to
commitments to originate loans, we had $141.0 million in unused lines of credit
to borrowers. Certificates of deposit due within one year of March 31, 2007
totaled $297.1 million, or 41.4% 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 March 31, 2008. 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.
Capital
Resources
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 March 31, 2007, the Bank exceeded all regulatory capital
requirements. United Bank is considered “well capitalized” under regulatory
requirements.
As
of March 31, 2007:
|
|
|
|
|
|
|
|
Risk-based
capital
|
|
|
15.52 |
% |
|
|
|
|
|
Core
capital
|
|
|
14.50 |
% |
|
|
|
|
|
Leverage
capital
|
|
|
10.68 |
% |
|
|
|
|
|
As
of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
Risk-based
capital
|
|
|
15.86 |
% |
|
|
|
|
|
Core
capital
|
|
|
14.83 |
% |
|
|
|
|
|
Leverage
capital
|
|
|
10.82 |
% |
Off-Balance
Sheet Arrangements
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. For additional
information, see Note I, “Commitments,” to our Consolidated Financial
Statements.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
The
information required by this item
is included above in Item 2, Management’s Discussion and Analysis of Financial
Condition and Results of Operations, under the caption “Market Risk, Liquidity
and Capital Resources.”
Under
the
supervision and with the participation of the Company’s management, including
the Company’s Chief Executive Officer and Chief Financial Officer, the Company
has evaluated the effectiveness of the design and operation of its 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 period covered by this report. Based
upon
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that, as of the end of the period covered by this report, the
Company’s disclosure controls and procedures were effective to ensure that
information required to be disclosed in the reports that the Company files
or
submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SEC’s rules and forms and in a timely
manner alerting them to material information relating to the Company (or its
consolidated subsidiary) required to be filed in its periodic SEC
filings.
No
change in our internal controls over
financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the
Securities Exchange Act of 1934) occurred during the most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect,
our
internal control over financial reporting. In the ordinary course of
business, we routinely enhance our internal controls and procedures for
financial reporting by either upgrading our current systems or implementing
new
systems. Changes have been made and will be made to our internal
controls and procedures for financial reporting as a result of these
efforts.
PART
II. OTHER INFORMATION
At
March
31, 2007, the Company was not involved in any legal proceedings, the outcome
of
which would be material to the Company’s financial condition or results of
operations.
As
of
March 31, 2007, there have been no material changes to the risk factors set
forth in our Annual Report on Form 10-K for the year ended December 31,
2006.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
(a) No
Company unregistered securities were sold by the Company during the quarter
ended March 31, 2007.
(b)
Not
applicable
(c)
The
following table provides certain information with regard to shares repurchased
by the Company in the first quarter of 2007.
|
|
|
|
|
|
|
|
(c)
|
|
(d)
|
|
|
|
|
|
|
|
|
Total
Number of
|
|
Maximum
Number
|
|
|
|
|
|
|
|
|
Shares
|
|
(or
Approximate
|
|
|
(a)
|
|
(b)
|
|
(or
Units)
|
|
Dollar
Value) of
|
|
|
Total
Number
|
|
Average
Price
|
|
Purchased
as Part
|
|
Shares
(or Units) that
|
|
|
of
Shares
|
|
Paid
Per
|
|
of
Publicly
|
|
May
Yet Be
|
|
|
(or
Units)
|
|
Share
|
|
Announced
Plans
|
|
Purchased
Under the
|
Period
|
|
Purchased
|
|
(or
Unit)
|
|
or
Programs
|
|
Plans
or Programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
1 - 31, 2007
|
|
|
9,906
|
|
|
$ |
14.38
|
|
|
|
9,906
|
|
|
|
846,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
1 - 28, 2007
|
|
|
12,902
|
|
|
|
14.73
|
|
|
|
12,902
|
|
|
|
833,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
1 - 31, 2007
|
|
|
35,608
|
|
|
|
14.51
|
|
|
|
35,608
|
|
|
|
797,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
58,416
|
|
|
$ |
14.54
|
|
|
|
58,416
|
|
|
N/A
|
|
|
Defaults
Upon Senior Securities
|
Not
applicable.
|
Submission
of Matters to a Vote of Security
Holders
|
Not
applicable.
Not
applicable.
|
3.1
|
Charter
of United Financial Bancorp, Inc., as amended
(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.
|
|
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)
|
|
10.9
|
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
(2)
|
|
11
|
Statement
Regarding Computation of Per Share Earnings (refer to Note D of Part
I,
Item 1- Consolidated Financial
Statements)
|
|
21
|
Subsidiaries
of Registrant (1)
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
32.2
|
Certification
of 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.
|
|
(2)
|
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.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed by the undersigned thereunto duly
authorized.
|
|
|
|
United
Financial Bancorp, Inc.
|
|
|
|
|
|
|
Date:
May 9,
2007
|
By:
|
/s/
Richard B. Collins
|
|
|
Richard
B. Collins
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
|
Date:
May 9,
2007
|
By:
|
/s/
Mark A. Roberts
|
|
|
Mark
A. Roberts
|
|
|
Executive
Vice President and Chief Financial
Officer
|
19