form10k-90705_ubnk.htm
SECURITIES
AND EXCHANGE COMMISSION
450
Fifth Street, N.W.
Washington,
D.C. 20549
FORM
10-K
T
|
Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
|
|
For
the Fiscal Year Ended December 31,
2007
|
OR
£
|
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. 000-52947
United
Financial Bancorp, Inc.
(Exact
name of registrant as specified in its charter)
Maryland
|
74-3242562
|
(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 T NO
£.
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. £.
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
See
definition of “accelerated filer”, “large accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer £
|
Accelerated
filer T
|
Non-accelerated
filer £
|
Smaller
reporting company £
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES £ NO
T
Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. YES £ NO
T
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. YES £ NO
T
As
of
March 8, 2008, 17,763,747 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 29, 2007, as reported by the NASDAQ Global Select Market, was
approximately $100.2 million.
DOCUMENTS
INCORPORATED BY REFERENCE
1.
Portions of the definitive Proxy Statement to be used in connection with the
Annual Meeting of Stockholders expected to be held on June 10, 2008, and which
is expected to be filed with the Securities and Exchange Commission no later
than April 29, 2008, are incorporated by reference into Part III
hereof.
PART
I
Terminology
As
used
in this Annual Report, unless we specify otherwise, terms such as “we,” “us,”
and “our” refer to United Financial Bancorp, Inc., a Maryland corporation, or
United Bank, a federal savings bank and the wholly owned subsidiary of United
Financial Bancorp, Inc., as indicated by the context.
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
Financial Bancorp, Inc.
United
Financial Bancorp, Inc., a Maryland corporation (the “Company”) incorporated in
2007 as the holding company for United Bank, sold 9,564,570 shares of its common
stock in connection with the second-step conversion of United Financial Bancorp,
Inc., a Federal corporation (“United Financial - Federal”). The shares were sold
for $10.00 per share. In connection with the offering, each public stockholder
of United Financial - Federal received 1.04079 shares of the common stock of
the
Company in exchange for his or her shares of United Financial – Federal. United
Financial Bancorp, Inc. contributed $45.1 of the net proceeds of the offering
to
United Bank.
United
Financial Bancorp, Inc. 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. See “—Supervision and Regulation—Holding Company Regulation” for a
discussion of the activities that are permitted for savings and loan holding
companies. We currently have no understandings or agreements to
acquire other financial institutions. We may also borrow funds for
reinvestment in United Bank.
United
Financial Bancorp, Inc.’s cash flow depends on earnings from the investment of
the net proceeds of stock offerings and any dividends received from United
Bank.
United Financial Bancorp, Inc. 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 United Financial Bancorp, Inc.
United Financial Bancorp, Inc. may hire additional employees, as appropriate,
to
the extent it expands its business in the future.
United
Financial Bancorp, Inc.’s executive offices are located at 95 Elm Street, West
Springfield, Massachusetts, and its telephone number is
413-787-1700.
General
United
Bank is a federally chartered savings bank headquartered in West Springfield,
Massachusetts. United Bank was originally founded in 1882, as a
Massachusetts-chartered cooperative bank. Over the years, United Bank
has grown through internal growth as well as through a series of five
mutual-to-mutual business combinations that occurred between 1960 and
1994. In February 2004, United Bank completed its conversion to a
federal savings bank and, in April 2004, reorganized into the two-tier mutual
holding company structure. In July 2005, United Bank completed a
minority public stock offering through its holding company, United
Financial-Federal. In that offering, 7.7 million shares of common stock were
sold to the public at $10.00 per share, resulting in net proceeds of $74.8
million.
United
Bank’s 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, Northampton, Springfield (3)
and
in Westfield (2), Massachusetts. We invest 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. United Bank emphasizes exceptional personal service for its
customers. Our primary sources of funds are deposits, borrowings and principal
and interest payments on loans and securities.
United
Bank’s executive offices are located at 95 Elm Street, West Springfield,
Massachusetts, and our telephone number is 413-787-1700. 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 offer insurance and investment
products and financial planning services; these facilities are located in West
Springfield and Northampton. Our primary lending area is
significantly broader than our deposit-gathering area and includes all of
Hampden and Hampshire Counties in Western Massachusetts and Northern
Connecticut. At December 31, 2007, 95.9% 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 2006 population was approximately 28,721 and the estimated 2006 population for Hampden
and Hampshire Counties was 468,203 and 155,728, respectively. During the past
six years, the populations of Hampden and Hampshire Counties increased by 2.6%
and 2.3%, respectively, while the population of the Commonwealth of
Massachusetts increased by 3.0%. During the same period, the number of
households in Hampden and Hampshire Counties increased by 2.0% and 4.9%,
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, Smith & Wesson, 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 2006,
per
capita income for Hampden and Hampshire Counties was $24,007 and $29,196,
respectively, and the median household income was $47,691 and $57,926,
respectively. The December 2006 unemployment rate for Hampden County
of 6.0% was higher than the comparable Massachusetts rate and higher than the
United States rate, while the unemployment rate for Hampshire County of 3.7%
was
lower than the comparable Massachusetts and United States unemployment rates
of
4.9% and 4.5%, 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, 2007, the latest date for which information
is available, our market share of deposits represented 9.02% and 1.28% 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 generally originate loans for investment purposes. No loans
were held for sale at December 31, 2007 or 2006. One- to four-family residential
real estate mortgage loans amounted to $339.5 million, or 41.2% of our total
loan portfolio at December 31, 2007, and home equity loans and lines of credit
totaled $116.2 million or 14.1% of our loan portfolio. In addition to
real estate mortgage loans 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, 2007, commercial real estate
loans totaled $214.8 million, or 26.0% of our loan portfolio, construction
mortgage loans totaled $42.1 million, or 5.1% of our loan portfolio, commercial
and industrial loans totaled $81.6 million, or 9.9% of our loan portfolio and
automobile loans totaled $22.5 million, or 2.7% 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, 2007, such
loans totaled $8.1 million, or 1.0% 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Dollars
in thousands)
|
|
Types
of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to
four-family
|
|
$ |
339,470 |
|
|
|
41.16 |
% |
|
$ |
319,108 |
|
|
|
41.87 |
% |
|
$ |
285,236 |
|
|
|
44.86 |
% |
|
$ |
256,134 |
|
|
|
44.62 |
% |
|
$ |
233,131 |
|
|
|
46.50 |
% |
Commercial
|
|
|
214,776 |
|
|
|
26.04 |
% |
|
|
175,564 |
|
|
|
23.04 |
% |
|
|
150,099 |
|
|
|
23.61 |
% |
|
|
137,787 |
|
|
|
24.00 |
% |
|
|
117,766 |
|
|
|
23.49 |
% |
Construction
(1)
|
|
|
42,059 |
|
|
|
5.10 |
% |
|
|
54,759 |
|
|
|
7.19 |
% |
|
|
28,872 |
|
|
|
4.54 |
% |
|
|
29,836 |
|
|
|
5.20 |
% |
|
|
26,625 |
|
|
|
5.31 |
% |
Home
equity
|
|
|
116,241 |
|
|
|
14.10 |
% |
|
|
112,739 |
|
|
|
14.79 |
% |
|
|
86,045 |
|
|
|
13.53 |
% |
|
|
74,700 |
|
|
|
13.01 |
% |
|
|
63,824 |
|
|
|
12.73 |
% |
Commercial
and industrial
|
|
|
81,562 |
|
|
|
9.89 |
% |
|
|
69,762 |
|
|
|
9.15 |
% |
|
|
59,591 |
|
|
|
9.37 |
% |
|
|
56,291 |
|
|
|
9.81 |
% |
|
|
37,863 |
|
|
|
7.55 |
% |
Automobile
|
|
|
22,461 |
|
|
|
2.72 |
% |
|
|
24,456 |
|
|
|
3.21 |
% |
|
|
22,054 |
|
|
|
3.47 |
% |
|
|
17,460 |
|
|
|
3.04 |
% |
|
|
20,943 |
|
|
|
4.18 |
% |
Consumer
|
|
|
8,126 |
|
|
|
0.99 |
% |
|
|
5,725 |
|
|
|
0.75 |
% |
|
|
3,895 |
|
|
|
0.61 |
% |
|
|
1,862 |
|
|
|
0.32 |
% |
|
|
1,169 |
|
|
|
0.23 |
% |
Total
loans
|
|
$ |
824,695 |
|
|
|
100.00 |
% |
|
$ |
762,113 |
|
|
|
100.00 |
% |
|
$ |
635,792 |
|
|
|
100.00 |
% |
|
$ |
574,070 |
|
|
|
100.00 |
% |
|
$ |
501,321 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred loan costs and fees
|
|
|
2,136 |
|
|
|
|
|
|
|
1,285 |
|
|
|
|
|
|
|
1,148 |
|
|
|
|
|
|
|
923 |
|
|
|
|
|
|
|
852 |
|
|
|
|
|
Allowance
for loan losses
|
|
|
(7,714 |
) |
|
|
|
|
|
|
(7,218 |
) |
|
|
|
|
|
|
(6,382 |
) |
|
|
|
|
|
|
(5,750 |
) |
|
|
|
|
|
|
(5,095 |
) |
|
|
|
|
Total
loans, net
|
|
$ |
819,117 |
|
|
|
|
|
|
$ |
756,180 |
|
|
|
|
|
|
$ |
630,558 |
|
|
|
|
|
|
$ |
569,243 |
|
|
|
|
|
|
$ |
497,078 |
|
|
|
|
|
___________________________________
(1)
|
Includes
$33,603, $41,256, $17,506, $17,029 and $10,545 of commercial construction
loans at December 31, 2007, 2006, 2005, 2004 and 2003,
respectively.
|
Loan
Portfolio
Maturities and Yields. The following table summarizes the
scheduled repayments of our loan portfolio at December 31,
2007. Demand loans, loans having no stated repayment schedule or
maturity, and overdraft loans are reported as being due in one year or
less.
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Real
Estate
|
|
|
Construction
|
|
|
Home
Equity
|
|
|
and
Industrial
|
|
|
Automobile
|
|
|
Other
Consumer
|
|
|
Total
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
|
(Dollars
in thousands)
|
|
Due
during the years ending after
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
year or less
|
|
$ |
11,193 |
|
|
|
5.56 |
% |
|
$ |
8,646 |
|
|
|
6.48 |
% |
|
$ |
18,928 |
|
|
|
7.89 |
% |
|
$ |
11,385 |
|
|
|
5.98 |
% |
|
$ |
38,660 |
|
|
|
7.23 |
% |
|
$ |
7,377 |
|
|
|
5.06 |
% |
|
$ |
1,031 |
|
|
|
8.61 |
% |
|
$ |
97,220 |
|
|
|
6.80 |
% |
More
than one to three years
|
|
|
24,141 |
|
|
|
5.56 |
% |
|
|
17,748 |
|
|
|
6.47 |
% |
|
|
9,475 |
|
|
|
7.25 |
% |
|
|
19,714 |
|
|
|
6.18 |
% |
|
|
19,690 |
|
|
|
6.55 |
% |
|
|
11,792 |
|
|
|
5.18 |
% |
|
|
1,152 |
|
|
|
6.12 |
% |
|
|
103,712 |
|
|
|
6.14 |
% |
More
than three to five years
|
|
|
26,184 |
|
|
|
5.55 |
% |
|
|
18,855 |
|
|
|
6.45 |
% |
|
|
1,138 |
|
|
|
7.16 |
% |
|
|
14,623 |
|
|
|
6.56 |
% |
|
|
10,190 |
|
|
|
6.89 |
% |
|
|
3,292 |
|
|
|
5.65 |
% |
|
|
725 |
|
|
|
7.11 |
% |
|
|
75,007 |
|
|
|
6.20 |
% |
More
than five to ten years
|
|
|
67,660 |
|
|
|
5.54 |
% |
|
|
49,787 |
|
|
|
6.47 |
% |
|
|
4,062 |
|
|
|
6.61 |
% |
|
|
23,624 |
|
|
|
6.54 |
% |
|
|
5,693 |
|
|
|
7.14 |
% |
|
|
- |
|
|
|
0.00 |
% |
|
|
1,588 |
|
|
|
8.04 |
% |
|
|
152,414 |
|
|
|
6.11 |
% |
More
than ten to fifteen years
|
|
|
51,906 |
|
|
|
5.73 |
% |
|
|
49,409 |
|
|
|
6.49 |
% |
|
|
1,732 |
|
|
|
5.40 |
% |
|
|
13,763 |
|
|
|
6.88 |
% |
|
|
732 |
|
|
|
7.75 |
% |
|
|
- |
|
|
|
0.00 |
% |
|
|
1,999 |
|
|
|
8.01 |
% |
|
|
119,541 |
|
|
|
6.22 |
% |
More
than fifteen years
|
|
|
158,386 |
|
|
|
5.79 |
% |
|
|
70,331 |
|
|
|
6.58 |
% |
|
|
6,724 |
|
|
|
6.01 |
% |
|
|
33,132 |
|
|
|
7.43 |
% |
|
|
6,597 |
|
|
|
7.16 |
% |
|
|
- |
|
|
|
0.00 |
% |
|
|
1,631 |
|
|
|
7.88 |
% |
|
|
276,801 |
|
|
|
6.24 |
% |
Total
|
|
$ |
339,470 |
|
|
|
5.69 |
% |
|
$ |
214,776 |
|
|
|
6.51 |
% |
|
$ |
42,059 |
|
|
|
7.20 |
% |
|
$ |
116,241 |
|
|
|
6.72 |
% |
|
$ |
81,562 |
|
|
|
7.02 |
% |
|
$ |
22,461 |
|
|
|
5.21 |
% |
|
$ |
8,126 |
|
|
|
7.72 |
% |
|
$ |
824,695 |
|
|
|
6.26 |
% |
The
following table sets forth the scheduled repayments of fixed- and
adjustable-rate loans at December 31, 2007 that are contractually due after
December 31, 2008.
|
|
Due
After December 31,
2008
|
|
|
|
Fixed
|
|
|
Adjustable
|
|
|
Total
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$ |
297,084 |
|
|
$ |
31,193 |
|
|
$ |
328,277 |
|
Commercial
real estate
|
|
|
87,046 |
|
|
|
119,084 |
|
|
|
206,130 |
|
Construction
|
|
|
15,454 |
|
|
|
7,677 |
|
|
|
23,131 |
|
Home
equity
|
|
|
71,316 |
|
|
|
33,540 |
|
|
|
104,856 |
|
Commercial
and industrial
|
|
|
33,335 |
|
|
|
9,567 |
|
|
|
42,902 |
|
Automobile
|
|
|
15,084 |
|
|
|
- |
|
|
|
15,084 |
|
Consumer
|
|
|
7,095 |
|
|
|
- |
|
|
|
7,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
$ |
526,414 |
|
|
$ |
201,061 |
|
|
$ |
727,475 |
|
One-
to
Four-Family Residential Mortgage 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, 2007, $339.5 million, or 41.2%
of our loan portfolio, consisted of one- to four-family residential mortgage
loans. We generally retain in 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%. Further, we generally limit the loan-to-value ratio to 70% on
a
cash-out refinance transaction.
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 adjust annually after a five-, seven- or ten-year initial
fixed-rate period. For the year ended December 31, 2007 we originated $44.9
million of one-to four-family residential loans and $1.3 million of
adjustable-rate one- to four-family residential loans. 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
also is 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, 2007, $31.9 million, or 9.4% of our
one- to four-family residential mortgage 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,
and reduced 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.
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, 2007, commercial real
estate mortgage loans totaled $214.8 million, which amounted to 26.0% of total
loans. Our real estate underwriting policies provide that such loans
may be made in amounts of up to 85% of the appraised value of the property,
though such loans are generally limited to amounts of 80% of appraised value.
In
addition, these loans must comply with our loan policy guidelines and with
our
current loans-to-one borrower limit for these types of loans which is generally
15% of our unimpaired capital and surplus which, at December 31, 2007, was
$23.4
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, 2007 was a $6.8 million loan secured by property
located in Northern Connecticut. This loan is part of our largest commercial
relationship as of December 31, 2007, a group of six loans to one real estate
developer with $16.8 million of total commitments, of which $16.5 million was
outstanding. All of the loans were performing in accordance with their terms
at
December 31, 2007.
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 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, 2007, residential construction loans totaled $8.5 million, or
1.0%
of total loans, compared to $13.5 million, or 1.8% at December 31, 2006. At
December 31, 2007, the unadvanced portion of these construction loans totaled
$1.6 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 up to a maximum loan-to-value ratio of 90%,
provided that the borrower obtains private mortgage insurance 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, 2007, commercial construction loans totaled $33.6 million, or
4.1%
of total loans, compared to $41.3 million, or 5.4% of total loans, at December
31, 2006. At December 31, 2007, the largest outstanding commercial
construction loan balance was for $4.7 million. It was secured by a residential
condominium development located in Hampden County, Massachusetts. This loan
was
performing according to its terms at December 31, 2007. At December 31, 2007,
the unadvanced portion of all commercial construction loans totaled $29.5
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 generally 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 of
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. Management has become
more cautious in evaluating and approving funding for construction
loans.
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, the value of the a project, when completed, may be insufficient
to
assure full repayment of the loan.
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, 2007, home equity loans and equity lines
of credit totaled $116.2 million, or 14.1% of total
loans. Additionally, at December 31, 2007, the unadvanced amounts of
home equity lines of credit totaled $97.7 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 loaned $58.6 million under home equity lines of
credit and other home equity loans during the year ended December 31, 2007,
as
compared to total originations of $83.0 million home equity lines of credit
during the same period in 2006.
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, 2007, we had $81.6 million of commercial and industrial loans,
which amounted to 9.9% 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 loan 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 15% of our unimpaired capital and surplus and which,
at
December 31, 2007, was $23.4 million. Such loans are generally used for working
capital and purchasing equipment or furniture. Commercial and industrial loans
are made with either adjustable or fixed rates of interest with a maximum term
of twenty 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, 2007, our largest
commercial and industrial loan was a $1.9 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,
2007. Our largest commercial and industrial relationship was $3.5 million to
a
lumber wholesale/retail operator located in our primary market area which was
also performing in accordance with loan terms as of December 31,
2007.
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, 2007, we had $22.5 million in
automobile loans, which amounted to 2.7% of the total loans.
We
offer
a variety of other consumer loans, principally to existing 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 $8.1 million, or 1.0% of our
total loan portfolio at December 31, 2007. At December 31, 2007, $322,000 of
such consumer loans were unsecured.
Consumer
loans have greater credit risk than 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,
2007 or 2006. 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, 2007, we had $3.8 million in loan
participation interests in which we were the lead bank and $7.1 million in
loan
participations in which we were not the lead bank.
At
December 31, 2007, we were servicing loans sold in the amount of $33.8
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands)
|
|
Total
loans at beginning of period
|
|
$ |
762,113 |
|
|
$ |
635,792 |
|
|
$ |
574,070 |
|
Loan
originations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
|
46,191 |
|
|
|
59,576 |
|
|
|
57,756 |
|
Commercial
mortgages
|
|
|
45,449 |
|
|
|
51,141 |
|
|
|
37,185 |
|
Construction
(1)
|
|
|
50,089 |
|
|
|
59,719 |
|
|
|
43,672 |
|
Home
equity
|
|
|
58,634 |
|
|
|
83,041 |
|
|
|
60,693 |
|
Commercial
and industrial
|
|
|
87,869 |
|
|
|
85,105 |
|
|
|
73,006 |
|
Automobile
|
|
|
9,364 |
|
|
|
13,702 |
|
|
|
15,166 |
|
Other
consumer
|
|
|
6,106 |
|
|
|
4,712 |
|
|
|
2,621 |
|
Total
loans originated
|
|
|
303,702 |
|
|
|
356,996 |
|
|
|
290,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and loan principal repayment deductions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
repayments
|
|
|
239,063 |
|
|
|
232,266 |
|
|
|
229,513 |
|
Loan
sales
|
|
|
2,046 |
|
|
|
190 |
|
|
|
170 |
|
Decrease
(increase) due to other items
|
|
|
11 |
|
|
|
(1,781 |
) |
|
|
(1,306 |
) |
Total
deductions
|
|
|
241,120 |
|
|
|
230,675 |
|
|
|
228,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loan activity
|
|
|
62,582 |
|
|
|
126,321 |
|
|
|
61,722 |
|
Total
loans at end of period
|
|
$ |
824,695 |
|
|
$ |
762,113 |
|
|
$ |
635,792 |
|
___________________________________
|
|
Includes
$41,708, $46,904 and $29,107 of commercial construction loans for
the
years ended December 31, 2007, 2006
and 2005, respectively.
|
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 four 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
initiate 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars
in thousands)
|
|
Non-accrual
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
$ |
328 |
|
|
$ |
- |
|
|
$ |
1,016 |
|
|
$ |
1,383 |
|
|
$ |
734 |
|
Commercial
mortgages
|
|
|
553 |
|
|
|
1,144 |
|
|
|
141 |
|
|
|
1,376 |
|
|
|
455 |
|
Construction
|
|
|
577 |
|
|
|
- |
|
|
|
113 |
|
|
|
- |
|
|
|
- |
|
Home
equity
|
|
|
52 |
|
|
|
20 |
|
|
|
- |
|
|
|
- |
|
|
|
38 |
|
Commercial
and industrial
|
|
|
275 |
|
|
|
123 |
|
|
|
447 |
|
|
|
1,025 |
|
|
|
599 |
|
Automobile
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
consumer
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
non-accrual loans
|
|
|
1,785 |
|
|
|
1,288 |
|
|
|
1,717 |
|
|
|
3,784 |
|
|
|
1,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing
loans 90 days or more past due
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing loans
|
|
|
1,785 |
|
|
|
1,288 |
|
|
|
1,717 |
|
|
|
3,784 |
|
|
|
1,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
real estate owned
|
|
|
880 |
|
|
|
562 |
|
|
|
1,602 |
|
|
|
- |
|
|
|
39 |
|
Total
non-performing assets
|
|
$ |
2,665 |
|
|
$ |
1,850 |
|
|
$ |
3,319 |
|
|
$ |
3,784 |
|
|
$ |
1,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing loans to total loans
|
|
|
0.22 |
% |
|
|
0.17 |
% |
|
|
0.27 |
% |
|
|
0.66 |
% |
|
|
0.36 |
% |
Total
non-performing assets to total assets
|
|
|
0.25 |
% |
|
|
0.18 |
% |
|
|
0.37 |
% |
|
|
0.49 |
% |
|
|
0.25 |
% |
Allowance
for loan losses to non-performing loans
|
|
|
432.16 |
% |
|
|
560.40 |
% |
|
|
371.69 |
% |
|
|
151.96 |
% |
|
|
278.97 |
% |
As
noted
in the above table, non-accrual loans amounted to approximately $1.8 million
and
$1.3 million at December 31, 2007 and 2006, respectively. Additional
interest income of approximately $69,000, $71,000, $158,000, $110,000 and
$87,000, respectively, would have been recorded during the years ended December
31, 2007, 2006, 2005, 2004, and 2003, 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, 2007 and 2006, the recorded investment in impaired loans was $1.8
million and $1.3 million, respectively, all of which were accounted for on
a
non-accrual basis. An allowance for loan losses was established on $1.8 million
and $1.3 million of the impaired loans at December 31, 2007 and 2006,
respectively, which allowances amounted to $223,000 and $295,000 at the
respective year-ends. The average balance of impaired loans was $2.2 million,
$2.1 million and $2.1 million for the years ended December 31, 2007, 2006 and
2005, respectively. Interest income recognized on impaired loans
during 2007, 2006 and 2005 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,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
|
2 |
|
|
$ |
595 |
|
|
|
4 |
|
|
$ |
328 |
|
|
|
6 |
|
|
$ |
923 |
|
Commercial
mortgages
|
|
|
11 |
|
|
|
1,546 |
|
|
|
5 |
|
|
|
555 |
|
|
|
16 |
|
|
|
2,101 |
|
Construction
|
|
|
- |
|
|
|
- |
|
|
|
3 |
|
|
|
578 |
|
|
|
3 |
|
|
|
578 |
|
Home
equity
|
|
|
11 |
|
|
|
489 |
|
|
|
3 |
|
|
|
52 |
|
|
|
14 |
|
|
|
541 |
|
Commercial
and industrial
|
|
|
20 |
|
|
|
948 |
|
|
|
10 |
|
|
|
272 |
|
|
|
30 |
|
|
|
1,220 |
|
Automobile
|
|
|
5 |
|
|
|
46 |
|
|
|
- |
|
|
|
- |
|
|
|
5 |
|
|
|
46 |
|
Other
consumer
|
|
|
4 |
|
|
|
58 |
|
|
|
- |
|
|
|
- |
|
|
|
4 |
|
|
|
58 |
|
Total
|
|
|
53 |
|
|
$ |
3,682 |
|
|
|
25 |
|
|
$ |
1,785 |
|
|
|
78 |
|
|
$ |
5,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
|
12 |
|
|
$ |
1,197 |
|
|
|
- |
|
|
$ |
- |
|
|
|
12 |
|
|
$ |
1,197 |
|
Commercial
mortgages
|
|
|
6 |
|
|
|
524 |
|
|
|
7 |
|
|
|
1,144 |
|
|
|
13 |
|
|
|
1,668 |
|
Construction
|
|
|
1 |
|
|
|
108 |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
108 |
|
Home
equity
|
|
|
7 |
|
|
|
157 |
|
|
|
1 |
|
|
|
20 |
|
|
|
8 |
|
|
|
177 |
|
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
|
|
|
8 |
|
|
$ |
755 |
|
|
|
5 |
|
|
$ |
998 |
|
|
|
13 |
|
|
$ |
1,753 |
|
Commercial
mortgages
|
|
|
4 |
|
|
|
546 |
|
|
|
2 |
|
|
|
141 |
|
|
|
6 |
|
|
|
687 |
|
Construction
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
113 |
|
|
|
1 |
|
|
|
113 |
|
Home
equity
|
|
|
1 |
|
|
|
100 |
|
|
|
1 |
|
|
|
18 |
|
|
|
2 |
|
|
|
118 |
|
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 |
|
|
$ |
48 |
|
|
|
7 |
|
|
$ |
1,383 |
|
|
|
8 |
|
|
$ |
1,431 |
|
Commercial
mortgages
|
|
|
1 |
|
|
|
114 |
|
|
|
7 |
|
|
|
1,376 |
|
|
|
8 |
|
|
|
1,490 |
|
Construction
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Home
equity
|
|
|
1 |
|
|
|
5 |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
5 |
|
Commercial
and industrial
|
|
|
9 |
|
|
|
330 |
|
|
|
10 |
|
|
|
1,025 |
|
|
|
19 |
|
|
|
1,355 |
|
Automobile
|
|
|
3 |
|
|
|
13 |
|
|
|
- |
|
|
|
- |
|
|
|
3 |
|
|
|
13 |
|
Other
consumer
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
15 |
|
|
$ |
510 |
|
|
|
24 |
|
|
$ |
3,784 |
|
|
|
39 |
|
|
$ |
4,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31,
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
|
8 |
|
|
$ |
771 |
|
|
|
5 |
|
|
$ |
734 |
|
|
|
13 |
|
|
$ |
1,505 |
|
Commercial
mortgages
|
|
|
5 |
|
|
|
438 |
|
|
|
2 |
|
|
|
455 |
|
|
|
7 |
|
|
|
893 |
|
Construction
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Home
equity
|
|
|
7 |
|
|
|
92 |
|
|
|
2 |
|
|
|
38 |
|
|
|
9 |
|
|
|
130 |
|
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 |
|
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, 2007, we had $880,000
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
potential 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
dates indicated for both loans and foreclosed assets. Classisfied loans
increased $13.0 million to $35.6 million at December 31, 2007 due to downgrades
of three commercial relationships as a result of not maintaining certain
required covenants. The value of the underlying collateral has not declined
and
the loans are all performing according to contractual terms
|
|
At
December 31,
|
|
|
At
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Residential
Real Estate
(1):
|
|
|
|
|
|
|
Substandard
assets
|
|
$ |
1,278 |
(2,
3) |
|
$ |
1,252 |
|
|
|
|
|
|
|
|
|
|
All
Other Loans:
|
|
|
|
|
|
|
|
|
Special
mention assets
|
|
|
13,800 |
|
|
|
8,990 |
|
Substandard
assets
|
|
|
19,377 |
|
|
|
10,449 |
|
Doubtful
assets
|
|
|
244 |
|
|
|
1,290 |
|
Loss
assets
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Foreclosed
Assets:
|
|
|
|
|
|
|
|
|
Other
real estate owned
|
|
|
880 |
|
|
|
562 |
|
|
|
|
|
|
|
|
|
|
Total
classified assets
|
|
$ |
35,579 |
|
|
$ |
22,543 |
|
___________________________________
(1)
|
Includes
one-to-four family loans and home equity loans and lines of
credit.
|
(2)
|
Includes
ten residential loans,
seven of which are in foreclosure or liquidation
proceedings.
|
(3)
|
Includes
three 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, 2007 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$ |
7,218 |
|
|
$ |
6,382 |
|
|
$ |
5,750 |
|
|
$ |
5,094 |
|
|
$ |
4,923 |
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial
mortgages
|
|
|
39 |
|
|
|
- |
|
|
|
60 |
|
|
|
- |
|
|
|
- |
|
Construction
|
|
|
326 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Home
equity
|
|
|
- |
|
|
|
10 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial
and industrial
|
|
|
593 |
|
|
|
164 |
|
|
|
377 |
|
|
|
501 |
|
|
|
116 |
|
Automobile
|
|
|
21 |
|
|
|
1 |
|
|
|
15 |
|
|
|
46 |
|
|
|
44 |
|
Other
consumer
|
|
|
4 |
|
|
|
11 |
|
|
|
3 |
|
|
|
11 |
|
|
|
2 |
|
Total
charge-offs
|
|
|
983 |
|
|
|
186 |
|
|
|
455 |
|
|
|
558 |
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial
mortgages
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
175 |
|
|
|
24 |
|
Construction
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Home
equity
|
|
|
4 |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
Commercial
and industrial
|
|
|
47 |
|
|
|
47 |
|
|
|
157 |
|
|
|
32 |
|
|
|
5 |
|
Automobile
|
|
|
1 |
|
|
|
2 |
|
|
|
6 |
|
|
|
21 |
|
|
|
- |
|
Other
consumer
|
|
|
2 |
|
|
|
3 |
|
|
|
7 |
|
|
|
2 |
|
|
|
10 |
|
Total
recoveries
|
|
|
54 |
|
|
|
53 |
|
|
|
170 |
|
|
|
231 |
|
|
|
39 |
|
Net
charge-offs
|
|
|
(929 |
) |
|
|
(133 |
) |
|
|
(285 |
) |
|
|
(327 |
) |
|
|
(123 |
) |
Provision
for loan losses
|
|
|
1,425 |
|
|
|
969 |
|
|
|
917 |
|
|
|
983 |
|
|
|
294 |
|
Balance
at end of period
|
|
$ |
7,714 |
|
|
$ |
7,218 |
|
|
$ |
6,382 |
|
|
$ |
5,750 |
|
|
$ |
5,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs to average loans outstanding
|
|
|
0.12 |
% |
|
|
0.02 |
% |
|
|
0.05 |
% |
|
|
0.06 |
% |
|
|
0.03 |
% |
Allowance
for loan losses to non-performing loans at end of period
|
|
|
432.16 |
% |
|
|
560.40 |
% |
|
|
371.69 |
% |
|
|
151.96 |
% |
|
|
278.97 |
% |
Allowance
for loan losses to total loans at end of period
|
|
|
0.94 |
% |
|
|
0.95 |
% |
|
|
1.00 |
% |
|
|
1.00 |
% |
|
|
1.02 |
% |
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Percent
of
|
|
|
Percent
of
|
|
|
|
|
|
Percent
of
|
|
|
Percent
of
|
|
|
|
|
|
Percent
of
|
|
|
Percent
of
|
|
|
|
|
|
|
Allowance
|
|
|
Loans
in
|
|
|
|
|
|
Allowance
|
|
|
Loans
in
|
|
|
|
|
|
Allowance
|
|
|
Loans
in
|
|
|
|
|
|
|
to
Total
|
|
|
Category
to
|
|
|
|
|
|
to
Total
|
|
|
Category
to
|
|
|
|
|
|
to
Total
|
|
|
Category
to
|
|
|
|
Amount
|
|
|
Allowance
|
|
|
Total
Loans
|
|
|
Amount
|
|
|
Allowance
|
|
|
Total
Loans
|
|
|
Amount
|
|
|
Allowance
|
|
|
Total
Loans
|
|
|
|
(Dollars
in thousands)
|
|
At
end of period allocated to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
$ |
849 |
|
|
|
11.00 |
% |
|
|
41.16 |
% |
|
$ |
957 |
|
|
|
13.26 |
% |
|
|
41.87 |
% |
|
$ |
297 |
|
|
|
4.65 |
% |
|
|
44.86 |
% |
Commercial
mortgages
|
|
|
3,164 |
|
|
|
41.02 |
% |
|
|
26.04 |
% |
|
|
2,588 |
|
|
|
35.86 |
% |
|
|
23.04 |
% |
|
|
2,944 |
|
|
|
46.13 |
% |
|
|
23.61 |
% |
Construction
|
|
|
1,229 |
|
|
|
15.93 |
% |
|
|
5.10 |
% |
|
|
1,255 |
|
|
|
17.39 |
% |
|
|
7.19 |
% |
|
|
316 |
|
|
|
4.95 |
% |
|
|
4.54 |
% |
Home
equity
|
|
|
523 |
|
|
|
6.78 |
% |
|
|
14.10 |
% |
|
|
512 |
|
|
|
7.09 |
% |
|
|
14.79 |
% |
|
|
257 |
|
|
|
4.03 |
% |
|
|
13.53 |
% |
Commercial
and industrial
|
|
|
1,667 |
|
|
|
21.61 |
% |
|
|
9.89 |
% |
|
|
1,633 |
|
|
|
22.62 |
% |
|
|
9.15 |
% |
|
|
2,487 |
|
|
|
38.97 |
% |
|
|
9.37 |
% |
Automobile
|
|
|
202 |
|
|
|
2.62 |
% |
|
|
2.72 |
% |
|
|
220 |
|
|
|
3.05 |
% |
|
|
3.21 |
% |
|
|
78 |
|
|
|
1.22 |
% |
|
|
3.47 |
% |
Other
consumer
|
|
|
80 |
|
|
|
1.04 |
% |
|
|
0.99 |
% |
|
|
53 |
|
|
|
0.73 |
% |
|
|
0.75 |
% |
|
|
3 |
|
|
|
0.05 |
% |
|
|
0.61 |
% |
Total
allowance
|
|
$ |
7,714 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
$ |
7,218 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
$ |
6,382 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
At
December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
Percent
of
|
|
|
Percent
of
|
|
|
|
|
|
Percent
of
|
|
|
Percent
of
|
|
|
|
|
|
|
Allowance
|
|
|
Loans
in
|
|
|
|
|
|
Allowance
|
|
|
Loans
in
|
|
|
|
|
|
|
to
Total
|
|
|
Category
to
|
|
|
|
|
|
to
Total
|
|
|
Category
to
|
|
|
|
Amount
|
|
|
Allowance
|
|
|
Total
Loans
|
|
|
Amount
|
|
|
Allowance
|
|
|
Total
Loans
|
|
|
|
(Dollars
in thousands)
|
|
At
end of period allocated to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
$ |
302 |
|
|
|
5.25 |
% |
|
|
44.62 |
% |
|
$ |
539 |
|
|
|
10.58 |
% |
|
|
46.50 |
% |
Commercial
mortgages
|
|
|
3,217 |
|
|
|
55.95 |
% |
|
|
24.00 |
% |
|
|
2,304 |
|
|
|
45.23 |
% |
|
|
23.49 |
% |
Construction
|
|
|
259 |
|
|
|
4.50 |
% |
|
|
5.20 |
% |
|
|
170 |
|
|
|
3.34 |
% |
|
|
5.31 |
% |
Home
equity
|
|
|
224 |
|
|
|
3.90 |
% |
|
|
13.01 |
% |
|
|
435 |
|
|
|
8.54 |
% |
|
|
12.73 |
% |
Commercial
and industrial
|
|
|
1,682 |
|
|
|
29.25 |
% |
|
|
9.81 |
% |
|
|
1,483 |
|
|
|
29.11 |
% |
|
|
7.55 |
% |
Automobile
|
|
|
60 |
|
|
|
1.04 |
% |
|
|
3.04 |
% |
|
|
155 |
|
|
|
3.04 |
% |
|
|
4.18 |
% |
Other
consumer
|
|
|
6 |
|
|
|
0.11 |
% |
|
|
0.32 |
% |
|
|
8 |
|
|
|
0.16 |
% |
|
|
0.23 |
% |
Total
allowance
|
|
$ |
5,750 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
$ |
5,094 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
Investments
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 that 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 savings and loan 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 obligations, 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, 2007, consisted of $45.5 million in federal
agency obligations, $2.8 million of corporate debt instruments, $140,000 of
equity securities, consisting of Fannie Mae and Freddie Mac common and preferred
stock, $7.7 million of municipal bonds and $1.2 million of industrial revenue
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, 2007, our mortgage-backed securities
portfolio totaled $147.6 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, 2007, our U.S. Government Agency
securities portfolio totaled $45.5 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 slightly 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, 2007, our mortgage-backed securities totaled $147.6 million, or
13.7% of total assets and 14.3% of interest earning assets. All of our
mortgage-backed securities at December 31, 2007 were classified as
available-for-sale. At December 31, 2007, 34.5% of the mortgage-backed
securities were backed by adjustable-rate mortgage loans and 65.5% were backed
by fixed-rate mortgage loans. The mortgage-backed securities
portfolio had a weighted average yield of 5.06% at December 31,
2007. The estimated fair value of our mortgage-backed securities at
December 31, 2007 was $147.6 million, which was $817,000 more than the amortized
cost of $146.8 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, 2007, our corporate bond portfolio
totaled $2.8 million, all of which was classified as available-for-sale,
consisting of trust preferred securities issued by financial services
companies. 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, 2007, our equity securities
portfolio totaled $140,000, 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, 2007, our
municipal obligations portfolio consisted of both available-for-sale and
held-to-maturity securities. Our municipal obligations that are classified
as
available-for-sale at December 31, 2007 totaled $5.3 million and our industrial
revenue and municipal obligations that are classified as held-to-maturity
totaled $3.6 million.
Investment
Securities Portfolio. The following table sets forth the
amortized cost and fair value of our securities portfolio at the dates
indicated.
|
|
At
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Amortized
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
|
(In
thousands)
|
|
Investment
securities available-for-sale:
|
|
|
|
Government-sponsored
enterprises
|
|
$ |
45,447 |
|
|
$ |
45,474 |
|
|
$ |
78,248 |
|
|
$ |
77,369 |
|
|
$ |
99,957 |
|
|
$ |
98,561 |
|
Mortgage-backed
securities
|
|
|
146,764 |
|
|
|
147,581 |
|
|
|
111,481 |
|
|
|
109,274 |
|
|
|
117,259 |
|
|
|
114,702 |
|
Corporate
debt obligations
|
|
|
2,820 |
|
|
|
2,778 |
|
|
|
3,415 |
|
|
|
3,309 |
|
|
|
13,011 |
|
|
|
12,930 |
|
Municipal
bonds
|
|
|
5,295 |
|
|
|
5,284 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Equity
securities
|
|
|
140 |
|
|
|
140 |
|
|
|
293 |
|
|
|
285 |
|
|
|
294 |
|
|
|
272 |
|
Total
available-for-sale
|
|
$ |
200,466 |
|
|
$ |
201,257 |
|
|
$ |
193,437 |
|
|
$ |
190,237 |
|
|
$ |
230,521 |
|
|
$ |
226,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRB
|
|
$ |
1,197 |
|
|
$ |
1,197 |
|
|
$ |
1,271 |
|
|
$ |
1,271 |
|
|
$ |
1,346 |
|
|
$ |
1,346 |
|
Municipal
bonds
|
|
|
2,435 |
|
|
|
2,434 |
|
|
|
1,970 |
|
|
|
1,956 |
|
|
|
1,979 |
|
|
|
1,952 |
|
Total
held-to-maturity
|
|
$ |
3,632 |
|
|
$ |
3,631 |
|
|
$ |
3,241 |
|
|
$ |
3,227 |
|
|
$ |
3,325 |
|
|
$ |
3,298 |
|
Portfolio
Maturities and Yields. The composition and maturities of the
investment securities portfolio at December 31, 2007 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.
|
|
At
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
Cost
|
|
|
Yield
|
|
|
Cost
|
|
|
Yield
|
|
|
Cost
|
|
|
Yield
|
|
|
Cost
|
|
|
Yield
|
|
|
Cost
|
|
|
Yield
|
|
|
Fair
Value
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored
enterprises
|
|
$ |
15,083 |
|
|
|
4.07 |
% |
|
$ |
29,828 |
|
|
|
4.82 |
% |
|
$ |
- |
|
|
|
0.00 |
% |
|
$ |
536 |
|
|
|
4.65 |
% |
|
$ |
45,447 |
|
|
|
4.57 |
% |
|
$ |
45,474 |
|
Mortgage-backed
securities
|
|
|
3,460 |
|
|
|
2.86 |
% |
|
|
19,949 |
|
|
|
3.67 |
% |
|
|
9,947 |
|
|
|
4.15 |
% |
|
|
113,408 |
|
|
|
5.45 |
% |
|
|
146,764 |
|
|
|
5.06 |
% |
|
|
147,581 |
|
Corporate
debt obligations
|
|
|
- |
|
|
|
0.00 |
% |
|
|
- |
|
|
|
4.34 |
% |
|
|
- |
|
|
|
0.00 |
% |
|
|
2,820 |
|
|
|
6.03 |
% |
|
|
2,820 |
|
|
|
6.03 |
% |
|
|
2,778 |
|
Municipal
bonds
|
|
|
- |
|
|
|
0.00 |
% |
|
|
- |
|
|
|
0.00 |
% |
|
|
- |
|
|
|
0.00 |
% |
|
|
5,295 |
|
|
|
4.19 |
% |
|
|
5,295 |
|
|
|
4.19 |
% |
|
|
5,284 |
|
Total
available-for-sale
|
|
$ |
18,543 |
|
|
|
3.84 |
% |
|
$ |
49,777 |
|
|
|
4.36 |
% |
|
$ |
9,947 |
|
|
|
4.15 |
% |
|
$ |
122,059 |
|
|
|
5.41 |
% |
|
$ |
200,326 |
|
|
|
4.94 |
% |
|
$ |
201,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRB
|
|
$ |
- |
|
|
|
0.00 |
% |
|
$ |
397 |
|
|
|
5.00 |
% |
|
$ |
- |
|
|
|
0.00 |
% |
|
$ |
800 |
|
|
|
4.00 |
% |
|
$ |
1,197 |
|
|
|
4.33 |
% |
|
$ |
1,197 |
|
Municipal
bonds
|
|
|
363 |
|
|
|
2.70 |
% |
|
|
921 |
|
|
|
3.22 |
% |
|
|
476 |
|
|
|
3.81 |
% |
|
|
675 |
|
|
|
3.86 |
% |
|
|
2,435 |
|
|
|
3.44 |
% |
|
|
2,434 |
|
Total
held-to-maturity
|
|
$ |
363 |
|
|
|
2.70 |
% |
|
$ |
1,318 |
|
|
|
3.76 |
% |
|
$ |
476 |
|
|
|
3.81 |
% |
|
$ |
1,475 |
|
|
|
3.94 |
% |
|
$ |
3,632 |
|
|
|
3.73 |
% |
|
$ |
3,631 |
|
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. We rely on
personalized customer service, long-standing relationships with customers and
an
active marketing program 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, 2007,
$347.6 million, or 48.4% of our deposit accounts were certificates of deposit,
of which $312.3 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Percent
|
|
|
Rate
|
|
|
Balance
|
|
|
Percent
|
|
|
Rate
|
|
|
Balance
|
|
|
Percent
|
|
|
Rate
|
|
|
|
(Dollars
in thousands)
|
|
Deposit
type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
|
|
$ |
102,010 |
|
|
|
14.20 |
% |
|
|
- |
% |
|
$ |
97,190 |
|
|
|
14.17 |
% |
|
|
- |
% |
|
$ |
93,301 |
|
|
|
14.27 |
% |
|
|
- |
% |
NOW
|
|
|
35,207 |
|
|
|
4.90 |
% |
|
|
0.51 |
% |
|
|
37,523 |
|
|
|
5.47 |
% |
|
|
0.57 |
% |
|
|
39,922 |
|
|
|
6.11 |
% |
|
|
0.25 |
% |
Regular
savings
|
|
|
65,711 |
|
|
|
9.14 |
% |
|
|
1.15 |
% |
|
|
65,475 |
|
|
|
9.55 |
% |
|
|
0.83 |
% |
|
|
87,253 |
|
|
|
13.35 |
% |
|
|
0.83 |
% |
Money
market
|
|
|
168,107 |
|
|
|
23.39 |
% |
|
|
2.94 |
% |
|
|
165,984 |
|
|
|
24.21 |
% |
|
|
3.18 |
% |
|
|
155,492 |
|
|
|
23.79 |
% |
|
|
2.92 |
% |
Certificates
of deposit
|
|
|
347,647 |
|
|
|
48.37 |
% |
|
|
4.58 |
% |
|
|
319,514 |
|
|
|
46.60 |
% |
|
|
4.52 |
% |
|
|
277,643 |
|
|
|
42.48 |
% |
|
|
3.56 |
% |
Total
deposits
|
|
$ |
718,682 |
|
|
|
100.00 |
% |
|
|
3.03 |
% |
|
$ |
685,686 |
|
|
|
100.00 |
% |
|
|
2.99 |
% |
|
$ |
653,611 |
|
|
|
100.00 |
% |
|
|
2.33 |
% |
The
following table sets forth the time deposits classified by interest rate as
of
the dates indicated.
|
|
|
At
December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate
|
|
|
|
|
|
|
|
|
|
|
Less
than 2.00%
|
|
|
$ |
3 |
|
|
$ |
2,788 |
|
|
$ |
27,132 |
|
2.00-2.99%
|
|
|
|
9,280 |
|
|
|
35,404 |
|
|
|
35,047 |
|
3.00-3.99%
|
|
|
|
37,040 |
|
|
|
21,682 |
|
|
|
122,275 |
|
4.00-4.99%
|
|
|
|
247,487 |
|
|
|
161,688 |
|
|
|
74,111 |
|
5.00-5.99%
|
|
|
|
53,837 |
|
|
|
97,952 |
|
|
|
19,078 |
|
Total
time deposits
|
|
|
$ |
347,647 |
|
|
$ |
319,514 |
|
|
$ |
277,643 |
|
The
following table sets forth the amount and maturities of time deposits at
December 31, 2007.
|
|
|
|
|
|
Over
one
|
|
|
Over
two
|
|
|
|
|
|
|
|
|
|
|
Less
than
|
|
|
year
to two
|
|
|
years
to
|
|
|
Over
three
|
|
|
|
|
|
|
|
one
year
|
|
|
years
|
|
|
three
years
|
|
|
years
|
|
|
Total
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
than 2.00%
|
|
|
$ |
3 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3 |
|
2.00-2.99%
|
|
|
|
9,258 |
|
|
|
22 |
|
|
|
- |
|
|
|
- |
|
|
|
9,280 |
|
3.00-3.99%
|
|
|
|
26,877 |
|
|
|
9,096 |
|
|
|
1,039 |
|
|
|
28 |
|
|
|
37,040 |
|
4.00-4.99%
|
|
|
|
223,624 |
|
|
|
12,564 |
|
|
|
6,776 |
|
|
|
4,523 |
|
|
|
247,487 |
|
5.00-5.99%
|
|
|
|
52,530 |
|
|
|
206 |
|
|
|
1,000 |
|
|
|
101 |
|
|
|
53,837 |
|
Total
|
|
|
$ |
312,292 |
|
|
$ |
21,888 |
|
|
$ |
8,815 |
|
|
$ |
4,652 |
|
|
$ |
347,647 |
|
The
following table sets forth the interest-bearing deposit activities for the
periods indicated.
|
|
For
the Years Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
588,496 |
|
|
$ |
560,310 |
|
|
$ |
527,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deposits before interest credited
|
|
|
6,124 |
|
|
|
9,563 |
|
|
|
20,627 |
|
Interest
credited
|
|
|
22,052 |
|
|
|
18,623 |
|
|
|
12,257 |
|
Net
increase in deposits
|
|
|
28,176 |
|
|
|
28,186 |
|
|
|
32,884 |
|
Ending
balance
|
|
$ |
616,672 |
|
|
$ |
588,496 |
|
|
$ |
560,310 |
|
As
of
December 31, 2007, the aggregate amount of outstanding certificates of deposit
in amounts greater than or equal to $100,000 was approximately $126.9
million. The following table sets forth the maturity of those
certificates as of December 31, 2007, in thousands.
Three
months or less
|
|
$ |
74,055 |
|
Over
three months through six months
|
|
|
28,034 |
|
Over
six months through one year
|
|
|
16,142 |
|
Over
one year to three years
|
|
|
7,278 |
|
Over
three years
|
|
|
1,371 |
|
Total
|
|
$ |
126,880 |
|
Borrowings. Our
borrowings consist of advances from the Federal Home Loan Bank of Boston and
collateralized repurchase agreements with our customers. As of
December 31, 2007, we had Federal Home Loan Bank advances in the amount of
$108.0 million, which represented 12.7% of total liabilities with a weighted
average maturity of 2.1 years and a weighted average rate of
4.55%. As a member of the Federal Home Loan Bank of Boston, we can
currently borrow up to approximately $413.6 million from the Federal Home Loan
Bank.
The
following table summarizes information concerning balances and interest rates
on
our Federal Home Loan Bank advances at and for the periods
indicated:
|
|
For
the Years Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
$ |
107,997 |
|
|
$ |
169,806 |
|
|
$ |
101,880 |
|
Average
amount outstanding during year
|
|
|
158,595 |
|
|
|
127,397 |
|
|
|
96,743 |
|
Interest
expense incurred during year
|
|
|
7,617 |
|
|
|
5,621 |
|
|
|
3,671 |
|
Maximum
amount outstanding at any month-end
|
|
|
187,941 |
|
|
|
169,806 |
|
|
|
106,944 |
|
Average
interest rate during the year
|
|
|
4.80 |
% |
|
|
4.41 |
% |
|
|
3.79 |
% |
Weighted
average interest rate on end of period balances
|
|
|
4.55 |
% |
|
|
4.73 |
% |
|
|
3.98 |
% |
The
following table sets forth the balances and interest rates by maturity on our
Federal Home Loan Bank advances at and for the periods shown:
|
|
For
the Years Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Amount
|
|
|
Average
Rate
|
|
|
Amount
|
|
|
Average
Rate
|
|
|
Amount
|
|
|
Average
Rate
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
1 year
|
|
$ |
17,152 |
|
|
|
5.00 |
% |
|
$ |
65,000 |
|
|
|
5.16 |
% |
|
$ |
13,799 |
|
|
|
3.40 |
% |
Over
1 year to 2 years
|
|
|
13,000 |
|
|
|
5.13 |
% |
|
|
16,411 |
|
|
|
5.06 |
% |
|
|
10,000 |
|
|
|
4.37 |
% |
Over
2 years to 3 years
|
|
|
26,767 |
|
|
|
4.15 |
% |
|
|
13,000 |
|
|
|
5.13 |
% |
|
|
19,393 |
|
|
|
4.95 |
% |
Over
3 years to 4 years
|
|
|
23,267 |
|
|
|
4.60 |
% |
|
|
16,111 |
|
|
|
3.20 |
% |
|
|
- |
|
|
|
- |
% |
Over
4 years to 5 years
|
|
|
9,968 |
|
|
|
4.34 |
% |
|
|
39,184 |
|
|
|
4.60 |
% |
|
|
20,318 |
|
|
|
3.19 |
% |
Over
5 years
|
|
|
17,843 |
|
|
|
4.36 |
% |
|
|
20,100 |
|
|
|
4.32 |
% |
|
|
38,370 |
|
|
|
4.02 |
% |
|
|
$ |
107,997 |
|
|
|
4.55 |
% |
|
$ |
169,806 |
|
|
|
4.73 |
% |
|
$ |
101,880 |
|
|
|
3.98 |
% |
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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
$ |
13,864 |
|
|
$ |
10,425 |
|
|
$ |
8,434 |
|
Average
amount outstanding during year
|
|
|
7,788 |
|
|
|
5,546 |
|
|
|
5,572 |
|
Interest
expense incurred during year
|
|
|
259 |
|
|
|
167 |
|
|
|
90 |
|
Maximum
amount outstanding at any month-end
|
|
|
13,864 |
|
|
|
10,425 |
|
|
|
8,675 |
|
Average
interest rate during the year
|
|
|
3.33 |
% |
|
|
3.01 |
% |
|
|
1.62 |
% |
Weighted
average interest rate on end of period balances
|
|
|
3.12 |
% |
|
|
3.38 |
% |
|
|
2.12 |
% |
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, 2007, UCB Securities, Inc.
had total assets of $125.3 million, all of which were qualifying securities
under the applicable regulations.
United
Wealth Management
United
Bank, through its division, United Wealth Management, 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 Wealth Management from sales to customers.
Expense
and Tax Allocation
United
Bank has entered into an agreement with United Financial Bancorp, Inc. to
provide it 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.
United
Charitable Foundation
We
established the United Charitable Foundation in 2005 in connection with our
minority stock offering. At December 31, 2007, the foundation owned
358,156 shares of our common stock, or 2.0% of the shares
outstanding. To maintain favorable tax status, the foundation must
make annual grants equal to 5% of its assets, and grants are made to community
activities and charitable causes in the communities in which we
operate. Six of the foundation’s seven directors are directors of
United Bank. All shares of common stock owned by the foundation must
be voted in the same proportion as all other shares of our common stock are
voted on any matter to come before the stockholders.
Personnel
As
of
December 31, 2007, we had 186 full-time employees and 21 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 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. Office 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, 2007, 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. 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, 2007, 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 months
of the most recent 12 months. “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,
2007, 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 may 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. The Company 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 savings bank’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
a
savings bank 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
a
savings bank 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 a savings bank’s assets at the time it was notified or deemed to be
undercapitalized 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 savings banks, including the
issuance of a capital directive and the replacement of senior executive officers
and directors.
At
December 31, 2007, 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 and up to a maximum
of $250,000 for self-directed retirement accounts. United Bank’s
deposits, therefore, are subject to Federal Deposit Insurance Corporation
deposit insurance assessments.
In
February 2006, federal legislation to reform federal deposit insurance was
enacted. This new legislation, among other things, increased the
amount of federal deposit insurance coverage from $100,000 to $130,000 (with
a
cost of living adjustment to become effective in five years). The legislation
also requires the reserve ratio to be modified to provide for a range between
1.15% and 1.50% of estimated insured deposits.
In
November 2006, the Federal Deposit Insurance Corporation adopted final
regulations that assess insurance premiums based on risk. As a
result, the new regulation will enable the Federal Deposit Insurance Corporation
to more closely tie each financial institution’s deposit insurance premiums to
the risk it poses to the deposit insurance fund. Under the new
risk-based assessment system, the Federal Deposit Insurance Corporation will
evaluate the risk of each financial institution based on its supervisory rating,
its financial ratios, and its long-term debt issuer rating. The new
rates for nearly all of the financial institutions industry vary between five
and seven cents for every $100 of domestic deposits. The assessment
to be paid during the year ending December 31, 2007 will be offset by a credit
from the Federal Deposit Insurance Corporation. At the same time, the
Federal Deposit Insurance Corporation also adopted final regulations designating
the reserve ratio for the deposit insurance fund during 2007 at 1.25% of
estimated insured deposits.
Effective
March 31, 2006, the Federal Deposit Insurance Corporation merged the Bank
Insurance Fund (“BIF”) and the Savings Association Insurance Fund (“SAIF”) into
a single fund called the Deposit Insurance Fund. As a result of the
merger, the BIF and the SAIF were abolished. The merger of the BIF
and the SAIF into the Deposit Insurance Fund does not affect the authority
of
the Financing Corporation (“FICO”) to impose and collect, with the approval of
the Federal Deposit Insurance Corporation, assessments for anticipated payments,
issuance costs and custodial fees on bonds issued by the FICO in the 1980s
to
recapitalize the Federal Savings and Loan Insurance Corporation. The
bonds issued by the FICO are due to mature in 2017 through 2019. For
the year ended December 31, 2007, the annualized FICO assessment was equal
to
1.14 basis points for each $100 in domestic deposits maintained at an
institution.
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),
the
Bank is required to invest in stock of the FHLBB. 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 its stock prior
to expiration of the five year redemption notice. 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
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, 2007, 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 (“Sarbanes-Oxley”), was enacted to implement
corporate governance, accounting and reporting reforms to address corporate
and
accounting fraud. 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,
Sarbanes-Oxley 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 require preapproval by the company’s audit committee. In
addition, Sarbanes-Oxley makes certain changes to the requirements for partner
rotation after a period of time. Sarbanes-Oxley 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
Sarbanes-Oxley, 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
Sarbanes-Oxley, 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 Sarbanes-Oxley be deposited to
a
fund for the benefit of harmed investors. Sarbanes-Oxley 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.
Sarbanes-Oxley
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 Sarbanes-Oxley, 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. Sarbanes-Oxley 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. Sarbanes-Oxley 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. Finally, Sarbanes-Oxley requires the company’s
registered public accounting firm that issues the audit report to attest to
and
report on the effectiveness of internal control over financial
reporting.
Holding
Company Regulation
The
Company is a unitary savings and loan holding company, subject to regulation
and
supervision by the Office of Thrift Supervision. The Office of Thrift
Supervision has enforcement authority over the Company and its non-savings
institution subsidiaries. Among other things, this authority permits
the Office of Thrift Supervision to restrict or prohibit activities that are
determined to be a risk to United Bank.
Under
federal law, unitary savings and loan holding companies not existing on, or
applied for before, May 4, 1999, such as the Company, are limited to those
activities permissible for financial holding companies or for multiple savings
and loan holding companies. A financial holding company may engage in
activities that are financial in nature, including underwriting equity
securities and insurance, incidental to financial activities or complementary
to
a financial activity. A multiple savings and loan holding company is
generally limited to activities permissible for bank holding companies under
Section 4(c)(8) of the Bank Holding Company Act, subject to the prior approval
of the Office of Thrift Supervision, and certain additional activities
authorized by Office of Thrift Supervision regulations.
Federal
law prohibits a savings and loan holding company, directly or indirectly, or
through one or more subsidiaries, from acquiring control 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 specified exceptions, more than 5% of the equity securities
of a company engaged in activities that are not closely related to banking
or
financial in nature 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 and future prospects of the
savings institution involved, the effect of the acquisition on the risk to
the
insurance fund, the convenience and needs of the community and competitive
factors.
Federal
Securities Laws
The
Company’s common stock is registered with the Securities and Exchange Commission
under the Securities Exchange Act of 1933. The Company is subject to the
information, proxy solicitation, insider trading restrictions and other
requirements under the Securities Exchange Act of 1934.
TAXATION
Federal
Taxation
General. The
Company and
United Bank are subject to federal income taxation in the same general manner
as
other corporations, with some exceptions discussed below. 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 or United Bank.
In
March
2007, the Internal Revenue Service commenced examinations of the Company’s
consolidated federal tax returns for the 2005 and 2006 tax years. The Company
anticipates that the IRS will complete its examinations during 2008.
Method
of
Accounting. For federal
income tax purposes, the Company 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 bad debt tax 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 Company’s 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 if United Bank failed to meet certain thrift
asset
and definitional tests.
At
December 31, 2007, United Bank’s total federal pre-base year reserve was
approximately $6.2 million. However, under current law, base-year
reserves remain subject to recapture if United Bank makes certain non-dividend
distributions, repurchases any of its stock, pays dividends in excess of tax
earnings and profits, or ceases 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. The Company and United Bank have not been subject to the
alternative minimum tax and have no such amounts available as credits for
carryover.
Contribution
Carryforwards. The Company’s
consolidated return had a $1.8 million contribution carryforward at December
31,
2006. The carryforward relates to the $3.6 million contribution to
fund United Charitable Foundation in 2005. The carryforward may be
utilized 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.
Corporate
Dividends-Received Deduction. The Company
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, 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. The
years after 2003 are open for exam.
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 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. As a Maryland business
corporation, United Financial Bancorp is required to file annual returns and
pay
annual fees to the State of Maryland.
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, 2007, the
fair value of our available-for-sale securities portfolio, consisting of agency
securities, mortgage-backed securities, corporate debt obligations, municipal
obligations and preferred stock totaled $201.3 million. Unrealized
net losses on these available-for-sale securities totaled $791,000 at December
31, 2007 and are reported as a separate component of stockholders’ 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 estimate
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, 2007, 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 4.2% decrease
in net interest income over the following twelve months.
Because
We Intend to Increase Our Commercial Real Estate 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, 2007, our portfolio of commercial real estate loans totaled $214.8
million, or 26.0% of our total loans, and our portfolio of commercial and
industrial loans totaled $81.6 million, or 9.9% 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 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 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. 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, 2007, loans secured by residential
real estate, including home equity loans and lines of credit, represented 55.3%
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, 2006, the unemployment rates in Hampden and Hampshire Counties,
Massachusetts were 6.0% and 3.7%, 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 0.94% of total loans and 432.16% of non-performing
loans at December 31, 2007. 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.
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS Not
applicable.
|
The
following table provides certain information as of December 31, 2007
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:
|
|
|
|
Year
Acquired
|
|
|
|
|
|
Net
Book Value of
|
|
Location
|
|
Leased
or Owned
|
|
or
Leased
|
|
|
Square
Footage
|
|
|
Real
Property
|
|
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
Main
Office:
|
|
|
|
|
|
|
|
|
|
|
|
95
Elm Street
West
Springfield, MA 01089
|
|
Owned
|
|
1999
|
|
|
|
46,147 |
|
|
$ |
1,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
Service Branches:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115
State Street
Springfield,
MA 01103
|
|
Leased
|
|
(1)
|
|
|
|
3,401 |
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1077
St. James Avenue
Springfield,
MA 01104
|
|
Owned
|
|
2003
|
|
|
|
8,354 |
|
|
|
823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
459
Main Street
Indian
Orchard, MA 01151
|
|
Leased
|
|
(2)
|
|
|
|
2,560 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
528
Center Street
Ludlow,
MA 01056
|
|
Owned
|
|
2002
|
|
|
|
3,000 |
|
|
|
999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1930
Wilbraham Road
Springfield,
MA 01129
|
|
Owned
|
|
2001
|
|
|
|
2,304 |
|
|
|
702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
670
Bliss Road
Longmeadow,
MA 01106
|
|
Leased
|
|
(3)
|
|
|
|
1,652 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1325
Springfield Street
Feeding
Hills, MA 01030
|
|
Leased
|
|
(4)
|
|
|
|
2,400 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180
Main Street
Northampton,
MA 01060
|
|
Leased
|
|
(5)
|
|
|
|
2,800 |
|
|
|
227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Elm Street
Westfield,
MA 01085
|
|
Owned
|
|
1981
|
|
|
|
8,500 |
|
|
|
752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Russell Road
Huntington,
MA 01050
|
|
Owned
|
|
2001
|
|
|
|
720 |
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
Southampton Road
Westfield,
MA 01085
|
|
Leased
|
|
(6)
|
|
|
|
2,890 |
|
|
|
1,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1830
Northampton Street
Holyoke,
MA 01040
|
|
Owned
|
|
1994
|
|
|
|
6,409 |
|
|
|
591 |
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
Van Deene Avenue
West
Springfield, MA 01089
|
|
Owned
|
|
|
2005
(7)
|
|
|
|
547
|
|
|
|
652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Westfield Street
West
Springfield, MA 01089
|
|
Owned
|
|
|
(8)
|
|
|
|
1,720
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140
Main Street
Northampton,
MA 01060
|
|
Leased
|
|
|
2006
(9)
|
|
|
|
1,375
|
|
|
|
-
|
|
___________________________________
(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.
|
(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. This lease is classified as a capitalized
lease for accounting and reporting
purposes.
|
(7)
|
This
office is a drive-up facility only.
|
(8)
|
A
portion of this facility is
used as a Wealth Management office which offers insurance, investment
products and financial planning
services.
|
(9)
|
United
Bank has a two-year lease for this Wealth Management services facility
which expires in November 2008 and has two two-year renewal
options.
|
The
net
book value of our premises, land and equipment was $9.3 million at December
31,
2007.
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, 2007, 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
|
The
Company is the successor to United Financial Federal. A Special
Meeting of the stockholders of United Financial – Federal was held on November
27, 2007 at which stockholders voted on a proposal to approve the Plan of
Conversion and Reorganization pursuant to which the second step conversion
and
offering was effectuated. Following are the results cast for the
United Financial – Federal Plan of Conversion and Reorganization.
|
|
For
|
|
|
Against,
Abstain or Not
Voted
|
|
|
|
|
|
|
|
|
Number
of Votes
|
|
|
13,925,565 |
|
|
|
3,142,595 |
|
|
|
|
|
|
|
|
|
|
Number
of Votes Cast by Persons Other than the Mutual Holding
Company
|
|
|
4,735,843 |
|
|
|
3,142,595 |
|
|
|
|
|
|
|
|
|
|
Percentage
of 17,068,160 outstanding shares
|
|
|
81.6 |
% |
|
|
18.4 |
% |
|
|
|
|
|
|
|
|
|
Percentage
of 7,878,438 shares owned by stockholders other than the Mutual Holding
Company
|
|
|
60.1 |
% |
|
|
39.9 |
% |
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 4, 2008 was 2,982. Certain shares of
United Financial Bancorp, Inc. are held in “nominee” or “street” name;
accordingly, the number of beneficial owners of such shares is not known or
included in the foregoing number. The following table presents
quarterly market information for the common stock of the Company and of its
predecessor, United Financial – Federal, for the years ended December 31, 2007
and 2006.
At
the
close of business on December 31, 2007, there were 17,763,747 shares
outstanding. The high and low sales price for the quarterly periods noted below
were obtained from the NASDAQ Global Select Market.
|
|
Price
Per Share (1)
|
|
|
Cash
|
|
|
|
High
|
|
|
Low
|
|
|
Dividend
Declared
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Fourth
quarter
|
|
$ |
12.27 |
|
|
$ |
9.60 |
|
|
$ |
0.06 |
|
Third
quarter
|
|
|
13.43 |
|
|
|
10.16 |
|
|
|
0.06 |
|
Second
quarter
|
|
|
14.77 |
|
|
|
12.36 |
|
|
|
0.06 |
|
First
quarter
|
|
|
13.78 |
|
|
|
12.66 |
|
|
|
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
quarter
|
|
$ |
13.82 |
|
|
$ |
11.66 |
|
|
$ |
0.05 |
|
Third
quarter
|
|
|
13.14 |
|
|
|
11.18 |
|
|
|
0.05 |
|
Second
quarter
|
|
|
12.29 |
|
|
|
10.64 |
|
|
|
0.05 |
|
First
quarter
|
|
|
11.50 |
|
|
|
10.46 |
|
|
|
0.05 |
|
|
(1)
|
As
a result of the Company's second-step conversion and offering, all
share
prices have been adjusted for the exchange ratio of
1.04079.
|
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, 2007, (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
Ending
|
|
|
|
|
Index
|
|
07/13/05
|
|
|
12/31/05
|
|
|
06/30/06
|
|
|
12/31/06
|
|
|
06/30/07
|
|
|
12/31/07
|
|
United
Financial Bancorp, Inc.
|
|
|
100.00 |
|
|
|
98.13 |
|
|
|
114.23 |
|
|
|
119.32 |
|
|
|
123.26 |
|
|
|
101.73 |
|
Russell
2000
|
|
|
100.00 |
|
|
|
101.41 |
|
|
|
109.74 |
|
|
|
120.04 |
|
|
|
127.77 |
|
|
|
118.16 |
|
SNL
Thrift MHCs Index
|
|
|
100.00 |
|
|
|
100.48 |
|
|
|
113.85 |
|
|
|
137.60 |
|
|
|
127.65 |
|
|
|
119.19 |
|
SNL
Thrift Index
|
|
|
100.00 |
|
|
|
100.76 |
|
|
|
108.60 |
|
|
|
117.45 |
|
|
|
107.43 |
|
|
|
70.46 |
|
On
January 17, 2008, 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, 2008 to shareholders of record as of February 12,
2008.
Dividend
payments by United Financial Bancorp, Inc. are dependent primarily on cash
flows
from the investment portfolio, debt service payments from United Bank in
connection with its loan to the Employee Stock Ownership Plan, and dividends
or
capital distributions from United Bank.
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, 2007 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
|
|
|
785,275 |
|
|
$ |
12.36 |
|
|
|
92,206 |
|
Equity
compensation plans
not approved
by security
holders
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
|
785,275 |
|
|
$ |
12.36 |
|
|
|
92,206 |
|
ITEM
6.
|
SELECTED
FINANCIAL
DATA
|
The
summary financial information presented below is derived in part from the
consolidated financial statements of United Financial Bancorp, Inc. The
following is only a summary and you should read it in conjunction with the
consolidated financial statements and notes beginning on page F-1. The
information at December 31, 2007 and 2006 and for the years ended December
31,
2007, 2006 and 2005 is derived in part from the audited consolidated financial
statements of United Financial Bancorp, Inc. that appear in this Annual Report.
The information for the years ended December 31, 2004 and 2003 is derived in
part from audited consolidated financial statements that do not appear in this
Annual Report.
|
|
At
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In
thousands)
|
|
Selected
Financial Condition Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
1,079,281 |
|
|
$ |
1,009,433 |
|
|
$ |
906,513 |
|
|
$ |
772,008 |
|
|
$ |
737,424 |
|
Cash
and cash equivalents
|
|
|
14,254 |
|
|
|
25,419 |
|
|
|
15,843 |
|
|
|
23,233 |
|
|
|
16,144 |
|
Short-term
investments
|
|
|
1,030 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Investment
securities available-for-sale
|
|
|
53,676 |
|
|
|
80,963 |
|
|
|
111,763 |
|
|
|
50,650 |
|
|
|
73,191 |
|
Investment
securities held-to-maturity
|
|
|
3,632 |
|
|
|
3,241 |
|
|
|
3,325 |
|
|
|
2,498 |
|
|
|
2,175 |
|
Mortgage-backed
securities available-for-sale
|
|
|
147,581 |
|
|
|
109,274 |
|
|
|
114,702 |
|
|
|
101,679 |
|
|
|
123,774 |
|
Loans,
net (1)
|
|
|
819,117 |
|
|
|
756,180 |
|
|
|
630,558 |
|
|
|
569,243 |
|
|
|
497,078 |
|
Deposits
|
|
|
718,682 |
|
|
|
685,686 |
|
|
|
653,611 |
|
|
|
613,672 |
|
|
|
594,748 |
|
FHLB
advances
|
|
|
107,997 |
|
|
|
169,806 |
|
|
|
101,880 |
|
|
|
86,694 |
|
|
|
76,820 |
|
Repurchase
agreements
|
|
|
13,864 |
|
|
|
10,425 |
|
|
|
8,434 |
|
|
|
4,317 |
|
|
|
4,218 |
|
Stockholders'
equity
|
|
|
226,120 |
|
|
|
137,711 |
|
|
|
137,005 |
|
|
|
62,255 |
|
|
|
57,050 |
|
Non-performing
assets (2)
|
|
|
2,665 |
|
|
|
1,850 |
|
|
|
3,319 |
|
|
|
3,784 |
|
|
|
1,865 |
|
|
|
Years
Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars
in thousands, except per share amounts)
|
|
Selected
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and dividend income
|
|
$ |
59,250 |
|
|
$ |
52,202 |
|
|
$ |
43,233 |
|
|
$ |
36,532 |
|
|
$ |
33,776 |
|
Interest
expense
|
|
|
30,083 |
|
|
|
24,647 |
|
|
|
16,206 |
|
|
|
12,148 |
|
|
|
11,583 |
|
Net
interest income before provision for loan losses
|
|
|
29,167 |
|
|
|
27,555 |
|
|
|
27,027 |
|
|
|
24,384 |
|
|
|
22,193 |
|
Provision
for loan losses
|
|
|
1,425 |
|
|
|
969 |
|
|
|
917 |
|
|
|
983 |
|
|
|
294 |
|
Net
interest income after provision for loan losses
|
|
|
27,742 |
|
|
|
26,586 |
|
|
|
26,110 |
|
|
|
23,401 |
|
|
|
21,899 |
|
Non-interest
income
|
|
|
5,735 |
|
|
|
5,392 |
|
|
|
5,020 |
|
|
|
5,134 |
|
|
|
5,703 |
|
Non-interest
expense
|
|
|
26,039 |
|
|
|
24,036 |
|
|
|
24,112 |
|
|
|
19,179 |
|
|
|
17,785 |
|
Income
before taxes
|
|
|
7,438 |
|
|
|
7,942 |
|
|
|
7,018 |
|
|
|
9,356 |
|
|
|
9,817 |
|
Income
tax expense
|
|
|
3,061 |
|
|
|
3,018 |
|
|
|
2,649 |
|
|
|
3,828 |
|
|
|
3,917 |
|
Net
income
|
|
$ |
4,377 |
|
|
$ |
4,924 |
|
|
$ |
4,369 |
(4) |
|
$ |
5,528 |
|
|
$ |
5,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share (11)
|
|
$ |
0.26 |
|
|
$ |
0.29 |
|
|
$ |
0.33 |
|
|
$ |
0.58 |
|
|
$ |
0.62 |
|
Diluted
earnings per share (11)
|
|
$ |
0.26 |
|
|
$ |
0.29 |
|
|
$ |
0.33 |
|
|
$ |
0.58 |
|
|
$ |
0.62 |
|
Dividends
per share (3)
|
|
$ |
0.24 |
|
|
$ |
0.20 |
|
|
NA
|
|
|
NA
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares outstanding (11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,852,566 |
|
|
|
17,139,599 |
|
|
|
13,193,088 |
|
|
|
9,564,571 |
|
|
|
9,564,571 |
|
Diluted
|
|
|
16,905,713 |
|
|
|
17,149,027 |
|
|
|
13,193,088 |
|
|
|
9,564,571 |
|
|
|
9,564,571 |
|
|
|
At
or For the Years Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
2004
|
|
|
2003
|
|
Selected
Financial Ratios and Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Ratios (5):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets
|
|
|
0.42 |
% |
|
|
0.51 |
% |
|
|
0.51 |
% |
|
|
(10 |
) |
|
|
0.73 |
% |
|
|
0.86 |
% |
Return
on average equity
|
|
|
2.99 |
% |
|
|
3.59 |
% |
|
|
4.45 |
% |
|
|
(10 |
) |
|
|
9.25 |
% |
|
|
10.72 |
% |
Average
equity to average assets
|
|
|
14.17 |
% |
|
|
14.35 |
% |
|
|
11.42 |
% |
|
|
|
|
|
|
7.87 |
% |
|
|
8.07 |
% |
Equity
to total assets at end of period (5)
|
|
|
20.95 |
% |
|
|
13.64 |
% |
|
|
15.11 |
% |
|
|
|
|
|
|
8.06 |
% |
|
|
7.74 |
% |
Interest
rate spread (6)
|
|
|
2.08 |
% |
|
|
2.23 |
% |
|
|
2.77 |
% |
|
|
|
|
|
|
3.03 |
% |
|
|
3.12 |
% |
Net
interest margin (7)
|
|
|
2.91 |
% |
|
|
2.97 |
% |
|
|
3.27 |
% |
|
|
|
|
|
|
3.33 |
% |
|
|
3.41 |
% |
Average
interest-earning assets to average interest-bearing
liabilitites
|
|
|
127.77 |
% |
|
|
128.10 |
% |
|
|
125.61 |
% |
|
|
|
|
|
|
118.30 |
% |
|
|
116.42 |
% |
Total
non-interest expense to average total assets
|
|
|
2.52 |
% |
|
|
2.51 |
% |
|
|
2.81 |
% |
|
|
(10 |
) |
|
|
2.53 |
% |
|
|
2.61 |
% |
Efficiency
ratio (8)
|
|
|
74.02 |
% |
|
|
72.95 |
% |
|
|
75.25 |
% |
|
|
(10 |
) |
|
|
64.98 |
% |
|
|
63.75 |
% |
Dividend
payout ratio
|
|
|
40.15 |
% |
|
|
29.69 |
% |
|
NA
|
|
|
|
|
|
|
NA
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory
Capital Ratios
(5,9):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I risk-based capital
|
|
|
19.25 |
% |
|
|
14.83 |
% |
|
|
17.21 |
% |
|
|
|
|
|
|
11.67 |
% |
|
|
12.33 |
% |
Tier
I (leverage) capital
|
|
|
14.00 |
% |
|
|
10.57 |
% |
|
|
11.63 |
% |
|
|
|
|
|
|
8.11 |
% |
|
|
7.76 |
% |
Total
risk-based capital
|
|
|
20.25 |
% |
|
|
15.86 |
% |
|
|
18.28 |
% |
|
|
|
|
|
|
12.76 |
% |
|
|
13.43 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
Quality Ratios
(5):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing
assets as a percent of total assets (2)
|
|
|
0.25 |
% |
|
|
0.18 |
% |
|
|
0.37 |
% |
|
|
|
|
|
|
0.49 |
% |
|
|
0.25 |
% |
Non-performing
loans as a percent of total loans (2)
|
|
|
0.22 |
% |
|
|
0.17 |
% |
|
|
0.27 |
% |
|
|
|
|
|
|
0.66 |
% |
|
|
0.36 |
% |
Allowance
for loan losses as a percent of total loans
|
|
|
0.94 |
% |
|
|
0.95 |
% |
|
|
1.00 |
% |
|
|
|
|
|
|
1.00 |
% |
|
|
1.02 |
% |
Allowance
for loan losses as a percent of non- performing loans (2)
|
|
|
432.16 |
% |
|
|
560.40 |
% |
|
|
371.69 |
% |
|
|
|
|
|
|
151.96 |
% |
|
|
278.97 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of full service customer facilities
|
|
|
13 |
|
|
|
13 |
|
|
|
11 |
|
|
|
|
|
|
|
11 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The
allowance for loan losses at December 31, 2007, 2006, 2005, 2004
and 2003
was $7.7 million, $7.2 million, $6.4 million, $5.8 million and $5.1
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)
|
The
following table sets forth aggregate cash dividends paid per period,
which
is calculated by multiplying the dividend declared per share by the
number
of shares outstanding as of the applicable record
date:
|
|
|
For
the Years Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid to public stockholders
|
|
$ |
1,757 |
|
|
$ |
1,462 |
|
Dividends
paid to United Mutual
|
|
|
|
|
|
|
|
|
Holding
Company
|
|
|
- |
|
|
|
- |
|
Total
dividends paid
|
|
$ |
1,757 |
|
|
$ |
1,462 |
|
Payments
listed above exclude cash dividends waived by United Mutual Holding Company
of
$2.2 million and $1.8 million during the years ended December 31, 2007 and
2006,
respectively. United Mutual Holding Company began waiving dividends on January
20, 2006 and, as of December 31, 2007, had waived dividends totaling $4.0
million.
(4)
|
Excluding
the effect of a $3,591,000 charitable contribution ($2,199,000 after
taxes) to fund the newly-formed United Charitable Foundation, net
income
in 2005 would have amounted to $6,568,000 or $0.50 per
share.
|
(5)
|
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.
|
(6)
|
The
interest rate spread represents the difference between weighted-average
yield on interest-earning assets and the weighted-average cost of
interest-bearing liabilities.
|
(7)
|
The
net interest margin represents net interest income as a percent of
average
interest-earning assets.
|
(8)
|
The
efficiency ratio represents non-interest expense divided by the sum
of net
interest income and non-interest
income.
|
(9)
|
Regulatory
Capital Ratios are reported for United Bank
only.
|
(10)
|
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.
|
(11)
|
The
Company issued 17,205,995 shares of common stock in its July, 2005
initial
public offering, including 9,189,722 shares held by United Mutual
Holding
Company. In December 2007, the Company completed a second step
conversion and offering in which each outstanding minority share
was
exchanged for 1.04079 shares and 9,564,570 shares were sold in a
subscription and syndicate offering. All earnings per share
data and share information have been adjusted by the exchange ratio
for
all periods.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
This
discussion and analysis reflects our consolidated financial statements and
other
relevant statistical data, and is intended to enhance your understanding of
our
financial condition and results of operations. The information in
this section has been derived from the audited consolidated financial
statements, which appear beginning on page F-1 of this Annual
Report. You should read the information in this section in
conjunction with the business and financial information regarding United
Financial Bancorp, Inc. provided in this Annual Report.
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 $1.6 million, or 5.9%, to $29.2 million for the year ended December
31, 2007 from $27.6 million for the year ended December 31, 2006. The
primary reason for the improvement in our net interest income was a $75.2
million, or 8.1%, increase in our average interest earning assets to $1.0
billion for the year ended December 31, 2007, 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 6 basis points
to
2.91% for the year ended December 31, 2007 compared to 2.97% in the same period
last year. 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 higher short-term market interest rates on the cost to fund
earning assets.
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. 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 sufficiant taxable income to realize the deferred tax assets, including
the tax effect of the Company’s unrealized charitable contribution carryforward
related to the 2005 funding of the United Charitable Foundation. Therefore
no
valuation allowance was necessary at December 31, 2007 or 2006. 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 and the
charitable contribution carryforwards.
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 and intend to open two new branches
in 2008. 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.
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 $45.4 million of
commercial real estate and $87.9 million of commercial and industrial loans
during the year ended December 31, 2007. At December 31, 2007, our
commercial real estate and commercial and industrial loans totaled $214.8
million and $81.6 million, respectively. The additional capital
raised from our recently completed second step offering 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 Annual Report.
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, 2007 were $2.7
million, or 0.25% of total assets, and our net charge-offs were 0.12% of our
average loans outstanding for the year ended December 31, 2007.
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 2006 and 2007 as many customers have
elected to shift transaction, savings and money market balances to higher
yielding certificates of deposits as market interest rates
increased. At December 31, 2007, core deposits (demand deposits, NOW
accounts, money market accounts and savings accounts) amounted to $371.0
million, or 51.6% of total deposits, compared to $366.2 million, or 53.4% of
our
total deposits, at December 31, 2006.
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 United Wealth Management 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 Wealth Management 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, 2007 and 2006
Total
assets increased $69.8 million, or 6.9%, to $1.1 billion at December 31, 2007
from $1.0 billion at December 31, 2006 as a result of growth in total loans
of
$63.3 million, or 8.3%. Balance sheet expansion was funded by an
increase of $33.0 million, or 4.8%, in total deposits and a portion of the
$83.0
million in net proceeds received from the second-step conversion and stock
offering that was completed on December 3, 2007. The funds obtained
from second-step conversion and stock offering were also used to pay down
short-term FHLB advances.
Net
loans
increased $62.9 million, or 8.3%, to $819.1 million at December 31, 2007 from
$756.2 million at December 31, 2006. One- to four-family residential mortgage
loans increased $20.4 million, or 6.4%, to $339.5 million at December 31, 2007,
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 also attributable to our practice of originating residential loans
almost exclusively for portfolio. Commercial real estate and commercial and
industrial loans increased $39.2 million, or 22.3%, to $214.8 million and $11.8
million, or 16.9%, to $81.6 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 decreased $12.7 million, or 23.2%,
to
$42.1 million as several credits converted to fixed-rate commercial mortgages
or
were paid-in-full and management elected to be more cautious in evaluating
and
approving funding for construction projects. A significant portion of these
loans mature in less than two years and will either convert to permanent
financing or pay-off in full. We continued to focus our efforts on
growing the commercial real estate and commercial and industrial loan portfolios
in order to increase interest income and improve net interest rate
spread.
Total
deposits increased $33.0 million, or 4.8%, to $718.7 million at December 31,
2007 from $685.7 million at December 31, 2006, mainly due to the introduction
of
new products and services, competitive pricing, targeted promotional activities
and the December 2006 opening of a second branch in Westfield, Massachusetts.
The growth of $28.1 million in certificates of deposit balances during the
period also reflected a shift in customer demand from core deposit accounts
towards these higher-yielding deposits. Demand deposits grew $4.8 million,
or
5.0%, due to increased marketing and promotional activity in an effort to
attract new customers and retain existing funds. At December 31, 2007, core
deposits totaled $371.0 million, or 51.6% of deposits. Federal Home Loan Bank
advances decreased $61.8 million, or 36.4%, to $108.0 million at December
31, 2007 from $169.8 million at December 31, 2006 reflecting the use
of a portion of the net proceeds from the 2007 second step offering to pay
down
higher cost short-term borrowings. Repurchase agreements increased $3.4 million
to $13.9 million at December 31, 2007 from $10.4 million at
December 31, 2006, reflecting routine fluctuations in these overnight
accounts.
Total
stockholders’ equity increased $88.4 million, or 64.2%, to $226.1 million at
December 31, 2007 from $137.7 million at December 31, 2006, mainly as
a result of net proceeds totaling $82.7 million raised from the 2007 second
step
offering. This increase also reflected net income of $4.4 million for the year
ended December 31, 2007, the equity offset to the recognition of $2.5 million
in
ESOP and stock-based compensation expenses and a $2.5 million decrease in the
net unrealized loss on securities available for sale. These items
were partially offset by payment of cash dividends aggregating $1.8
million and share repurchases totaling $1.3 million.
Comparison
of Operating Results for the Years Ended December 31, 2007 and 2006
Net
Income. Our net income for the year ended December 31, 2007
amounted to $4.4 million, or $0.26 per diluted share, compared to $4.9 million,
or $0.29 per diluted share, for the same period in 2006. Our lower net income
and earnings per share were due in large part to net interest margin
contraction increases
in provision for loan losses and non-interest expenses and a higher effective
tax rate in the 2007 period. These items were partially offset 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.
|
|
Years
Ended December 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
|
|
$ |
342,719 |
|
|
$ |
19,380 |
|
|
|
5.65 |
% |
|
$ |
309,517 |
|
|
$ |
17,292 |
|
|
|
5.59 |
% |
Commercial
real estate
|
|
|
235,600 |
|
|
|
15,590 |
|
|
|
6.62 |
% |
|
|
189,694 |
|
|
|
12,485 |
|
|
|
6.58 |
% |
Home
equity loans
|
|
|
117,640 |
|
|
|
7,704 |
|
|
|
6.55 |
% |
|
|
100,823 |
|
|
|
6,525 |
|
|
|
6.47 |
% |
Commercial
and industrial
|
|
|
75,348 |
|
|
|
5,513 |
|
|
|
7.32 |
% |
|
|
64,164 |
|
|
|
4,595 |
|
|
|
7.16 |
% |
Consumer
and other
|
|
|
30,586 |
|
|
|
1,625 |
|
|
|
5.31 |
% |
|
|
29,005 |
|
|
|
1,441 |
|
|
|
4.97 |
% |
Total
loans
|
|
|
801,893 |
|
|
|
49,812 |
|
|
|
6.21 |
% |
|
|
693,203 |
|
|
|
42,338 |
|
|
|
6.11 |
% |
Investment
securities
|
|
|
177,000 |
|
|
|
8,200 |
|
|
|
4.63 |
% |
|
|
213,430 |
|
|
|
8,843 |
|
|
|
4.14 |
% |
Other
interest-earning assets
|
|
|
22,543 |
|
|
|
1,238 |
|
|
|
5.49 |
% |
|
|
19,641 |
|
|
|
1,021 |
|
|
|
5.20 |
% |
Total
interest-earning assets
|
|
|
1,001,436 |
|
|
|
59,250 |
|
|
|
5.92 |
% |
|
|
926,274 |
|
|
|
52,202 |
|
|
|
5.64 |
% |
Noninterest-earning
assets
|
|
|
32,744 |
|
|
|
|
|
|
|
|
|
|
|
30,280 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
1,034,180 |
|
|
|
|
|
|
|
|
|
|
$ |
956,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
accounts
|
|
$ |
64,029 |
|
|
|
593 |
|
|
|
0.93 |
% |
|
$ |
76,688 |
|
|
|
638 |
|
|
|
0.83 |
% |
Money
market accounts
|
|
|
178,005 |
|
|
|
5,631 |
|
|
|
3.16 |
% |
|
|
165,101 |
|
|
|
5,125 |
|
|
|
3.10 |
% |
NOW
accounts
|
|
|
33,890 |
|
|
|
178 |
|
|
|
0.53 |
% |
|
|
36,050 |
|
|
|
103 |
|
|
|
0.29 |
% |
Certificates
of deposit
|
|
|
337,193 |
|
|
|
15,540 |
|
|
|
4.61 |
% |
|
|
309,784 |
|
|
|
12,829 |
|
|
|
4.14 |
% |
Total
interest-bearing deposits
|
|
|
613,117 |
|
|
|
21,942 |
|
|
|
3.58 |
% |
|
|
587,623 |
|
|
|
18,695 |
|
|
|
3.18 |
% |
FHLB
advances
|
|
|
158,595 |
|
|
|
7,617 |
|
|
|
4.80 |
% |
|
|
127,397 |
|
|
|
5,621 |
|
|
|
4.41 |
% |
Other
interest-bearing liabilities
|
|
|
12,042 |
|
|
|
524 |
|
|
|
4.35 |
% |
|
|
8,049 |
|
|
|
331 |
|
|
|
4.11 |
% |
Total
interest-bearing liabilities
|
|
|
783,754 |
|
|
|
30,083 |
|
|
|
3.84 |
% |
|
|
723,069 |
|
|
|
24,647 |
|
|
|
3.41 |
% |
Demand
deposits
|
|
|
99,155 |
|
|
|
|
|
|
|
|
|
|
|
92,644 |
|
|
|
|
|
|
|
|
|
Other
noninterest-bearing liabilities
|
|
|
4,725 |
|
|
|
|
|
|
|
|
|
|
|
3,618 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
887,634 |
|
|
|
|
|
|
|
|
|
|
|
819,331 |
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
146,546 |
|
|
|
|
|
|
|
|
|
|
|
137,223 |
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$ |
1,034,180 |
|
|
|
|
|
|
|
|
|
|
$ |
956,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$ |
29,167 |
|
|
|
|
|
|
|
|
|
|
$ |
27,555 |
|
|
|
|
|
Interest
rate spread(1)
|
|
|
|
|
|
|
|
|
|
|
2.08 |
% |
|
|
|
|
|
|
|
|
|
|
2.23 |
% |
Net
interest-earning assets(2)
|
|
$ |
217,682 |
|
|
|
|
|
|
|
|
|
|
$ |
203,205 |
|
|
|
|
|
|
|
|
|
Net
interest margin(3)
|
|
|
|
|
|
|
|
|
|
|
2.91 |
% |
|
|
|
|
|
|
|
|
|
|
2.97 |
% |
Average
interest-earning assets to average interest-bearing
liabilities
|
|
|
|
|
|
|
|
|
|
|
127.77 |
% |
|
|
|
|
|
|
|
|
|
|
128.10 |
% |
|
(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,
|
|
|
|
2007
vs. 2006
|
|
|
|
Increase
(Decrease) Due to
|
|
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$ |
1,876 |
|
|
$ |
212 |
|
|
$ |
2,088 |
|
Commercial
real estate
|
|
|
3,037 |
|
|
|
68 |
|
|
|
3,105 |
|
Home
equity loans
|
|
|
1,100 |
|
|
|
79 |
|
|
|
1,179 |
|
Commercial
and industrial
|
|
|
816 |
|
|
|
102 |
|
|
|
918 |
|
Consumer
and other
|
|
|
81 |
|
|
|
103 |
|
|
|
184 |
|
Total
loans
|
|
|
6,910 |
|
|
|
564 |
|
|
|
7,474 |
|
Investment
securities
|
|
|
(1,614 |
) |
|
|
971 |
|
|
|
(643 |
) |
Other
interest-earning assets
|
|
|
158 |
|
|
|
59 |
|
|
|
217 |
|
Total
interest-earning assets
|
|
|
5,454 |
|
|
|
1,594 |
|
|
|
7,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
accounts
|
|
|
(112 |
) |
|
|
67 |
|
|
|
(45 |
) |
Money
market accounts
|
|
|
407 |
|
|
|
99 |
|
|
|
506 |
|
NOW
accounts
|
|
|
(6 |
) |
|
|
81 |
|
|
|
75 |
|
Certificates
of deposit
|
|
|
1,191 |
|
|
|
1,520 |
|
|
|
2,711 |
|
Total
interest-bearing deposits
|
|
|
1,480 |
|
|
|
1,767 |
|
|
|
3,247 |
|
FHLB
advances
|
|
|
1,467 |
|
|
|
529 |
|
|
|
1,996 |
|
Other
interest-bearing liabilities
|
|
|
173 |
|
|
|
20 |
|
|
|
193 |
|
Total
interest-bearing liabilities
|
|
|
3,120 |
|
|
|
2,316 |
|
|
|
5,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in net interest income
|
|
$ |
2,334 |
|
|
$ |
(722 |
) |
|
$ |
1,612 |
|
Net
Interest
Income Before Provision for Loan Losses. Net interest income
before provision for loan losses increased $1.6 million, or 5.9%, to
$29.2 million for the year ended December 31, 2007 from $27.6 million for
the comparable 2006 period reflecting growth in average earning assets,
partially offset by net interest margin compression. Net interest margin
contracted 6 basis points to 2.91% for the year ended December 31, 2007 compared
to 2.97% for the same period in 2006. Net interest margin was affected by the
flat yield curve, competitive pricing conditions for loans and deposits and
a
shift in deposit demand towards higher-yielding money market and time deposit
accounts.
Interest
Income. Interest income increased $7.1 million, or 13.5%, to
$59.3 million for the year ended December 31, 2007 from $52.2 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 $75.2 million, or 8.1%, to
$1.0 billion for the year ended December 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 $108.7 million, or 15.7%,
to
$801.9 million for the year ended December 31, 2007 as a result of origination
activity, partially offset by prepayments and normal amortization. Total average
investment securities decreased by $36.4 million, or 17.1%, to $177.0 million
primarily due to maturities, calls, sales and amortization of existing
securities, partially offset by purchases of bonds. The yield on average
interest-earning assets increased 28 basis points to 5.92% for the year ended
December 31, 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 increase in market rates contributed to the repricing of a portion
of
our existing assets and to increased rates for new assets. Since a significant
amount of our 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 $5.4 million, or 22.1%, to
$30.1 million for the year ended December 31, 2007 from $24.6 million for
the prior year period due to an expansion in average interest-bearing
liabilities and an increase in the rate paid for such liabilities. Average
interest-bearing liabilities increased $60.7 million, or 8.4%, to $783.8 million
for the year ended December 31, 2007 reflecting growth in interest-bearing
deposits and FHLB advances. Total average interest-bearing deposits increased
$25.5 million, or 4.3%, to $613.1 million for the year ended December 31, 2007
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 certificate of deposit products to take advantage of more attractive
rates. Total average FHLB advances increased $31.2 million, or 24.5%, to $158.6
million to support loan growth. The average rate paid on interest-bearing
liabilities rose 43 basis points to 3.84% for the year ended December 31, 2007
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 expansion 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, trends in nonperforming loans and
delinquency rates, 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 $1.4 million for the year ended December 31, 2007 as compared to
$969,000 for the same period in 2006 reflecting an increase in reserves for
non-performing and classified loans as well as higher net charge-offs. The
allowance for loan losses was $7.7 million, or 0.94%, of loans outstanding
at December 31, 2007.
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 these factors.
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. The Office of Thrift Supervision 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 $343,000, or 6.4%, to
$5.7 million for the year ended December 31, 2007 from $5.4 million for the
2006 period reflecting growth in fee income on depositors’ accounts and wealth
management accounts. Fee income on depositors’ accounts rose $242,000, or 5.8%,
as a result of growth in transaction account balances and activity. Wealth
management income increased $266,000, or 62.4%, as a result of new accounts
opened due to successful business development efforts and the acquisition of
the
Levine Financial Group in March 2006. Total non-interest income was also
affected by losses on sales and writedowns of securities totaling $275,000
for
the year ended December 31, 2007 compared to $222,000 for the 2006 period.
The
losses in 2007 are attributable to the recognition of other-than-temporary
impairment losses of $127,000 for a Sallie Mae bond and $53,000 for Freddie
Mac
preferred stock, as well as losses from sales of certain corporate debt
securities. These impairment losses were recognized as a result of significant
deterioration in their market value, credit quality and financial results.
Both
of these securities were sold recently with minimal financial impact. In 2006
we
realized losses from sales of securities in connection with a strategy to
improve the yield on the portfolio and provide additional
liquidity.
Non-interest
Expense. Non-interest expense increased $2.0 million, or 8.3%,
to $26.0 million for the year ended December 31, 2007 from $24.0 million
for the prior year period. Total salaries and benefits increased $1.9 million,
or 15.1%, 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 $133,000, or 7.4%, principally
attributable to the two new branches opened in 2006. Data processing costs
expanded $261,000, or 10.6%, reflecting a larger loan and deposit base and
new
branches opened in 2006.
Income
Tax
Expense. Income tax expense increased $43,000, or 1.4%, to
$3.1 million for year ended December 31, 2007 from $3.0 million for the
comparable 2006 period mainly due to an increase in the effective tax rate
to
41.2% for the year ended December 31, 2007 compared to 38.5% 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. This increase was substantially offset by the impact of
lower income before income taxes.
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
|
|
$ |
309,517 |
|
|
$ |
17,292 |
|
|
|
5.59 |
% |
|
$ |
281,469 |
|
|
$ |
15,549 |
|
|
|
5.52 |
% |
Commercial
real estate
|
|
|
189,694 |
|
|
|
12,485 |
|
|
|
6.58 |
% |
|
|
158,820 |
|
|
|
9,781 |
|
|
|
6.16 |
% |
Home
equity loans
|
|
|
100,823 |
|
|
|
6,525 |
|
|
|
6.47 |
% |
|
|
80,739 |
|
|
|
4,619 |
|
|
|
5.72 |
% |
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 accounts
|
|
|
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-earning 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
|
|
$ |
1,565 |
|
|
$ |
178 |
|
|
$ |
1,743 |
|
Commercial
real estate
|
|
|
1,998 |
|
|
|
706 |
|
|
|
2,704 |
|
Home
equity loans
|
|
|
1,248 |
|
|
|
658 |
|
|
|
1,906 |
|
Commercial
and industrial
|
|
|
631 |
|
|
|
439 |
|
|
|
1,070 |
|
Consumer
and other
|
|
|
397 |
|
|
|
(22 |
) |
|
|
375 |
|
Total
loans
|
|
|
5,839 |
|
|
|
1,959 |
|
|
|
7,798 |
|
Investment
securities
|
|
|
241 |
|
|
|
632 |
|
|
|
873 |
|
Other
interest-earning assets
|
|
|
(87 |
) |
|
|
385 |
|
|
|
298 |
|
Total
interest-earning assets
|
|
|
5,993 |
|
|
|
2,976 |
|
|
|
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
|
|
$ |
3,674 |
|
|
$ |
(3,146 |
) |
|
$ |
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 limited.
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. 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.
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 for the year ended December 31,
2006 was $24.0 million compared to $24.1 million for the same period in
2005. Excluding the $3.6 million contribution to fund the United Charitable
Foundation in 2005, non-interest expense would have increased $3.5 million,
or
17.1%. 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.
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.
Net
Interest
Simulation Analysis. 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) continued emphasis on increasing
core deposits; (iii) offering adjustable-rate and shorter-term commercial real
estate loans and commercial and industrial loans; (iv) offering a variety of
consumer loans, which typically have shorter-terms; and (v) investing in
mortgage-backed securities with variable rates or fixed rates with shorter
durations. Reducing 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, 2007 and 2006.
Net
Interest Income
At-Risk
|
|
|
|
|
|
|
|
Estimated
Increase (Decrease)
|
|
Estimated
Increase (Decrease)
|
Change
in Interest Rates
|
|
in
NII
|
|
in
NII
|
(basis
points)
|
|
(December
31, 2007)
|
|
(December
31, 2006)
|
|
|
|
|
|
-200
|
|
2.1%
|
|
12.1%
|
Stable
|
|
0.0%
|
|
0.0%
|
+200
|
|
(4.2)%
|
|
(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.
Net
Portfolio
Value Simulation Analysis. The
Office of Thrift Supervision requires the computation of amounts by which the
net present value of an institution’s cash flow from assets, liabilities and off
balance sheet items (the institution’s net portfolio value or “NPV”) would
change in the event of a range of assumed changes in market interest
rates. The Office of Thrift Supervision provides all institutions
that file a Consolidated Maturity/Rate Schedule as a part of their quarterly
Thrift Financial Report an interest rate sensitivity report of net portfolio
value. The Office of Thrift Supervision simulation model uses a
discounted cash flow analysis and an option-based pricing approach to measuring
the interest rate sensitivity of net portfolio value. Historically,
the Office of Thrift Supervision model estimated the economic value of each
type
of asset, liability and off-balance sheet contract under the assumption that
the
United States Treasury yield curve increases or decreases instantaneously by
100
to 300 basis points in 100 basis point increments. However, given the
current low level of market interest rates, we did not prepare a net portfolio
value calculation for an interest rate decrease of greater than 200 basis
points. A basis point equals one-hundredth of one percent, and 200
basis points equals two percent. An increase in interest rates from
3% to 5% would mean, for example, a 200 basis point increase in the “Change in
Interest Rates” column below. The Office of Thrift Supervision
provides us the results of the interest rate sensitivity model, which is based
on information we provide to the Office of Thrift Supervision to estimate the
sensitivity of our net portfolio value.
The
tables below set forth, at the dates indicated, the estimated changes in our
net
portfolio value that would result from the designated instantaneous changes
in
the United States Treasury yield curve. Computations of prospective
effects of hypothetical interest rate changes are based on numerous assumptions,
including relative levels of market interest rates, loan prepayments and deposit
decay, and should not be relied upon as indicative of actual
results. This data is for United Bank and its subsidiary only and
does not include any yield curve changes in the assets of United Financial
Bancorp, Inc.
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NPV
as a Percentage of Present
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
of Assets (3)
|
|
|
|
|
|
|
|
Estimated
Increase (Decrease) in
|
|
|
|
|
|
|
|
Change
in
|
|
|
|
|
|
NPV
|
|
|
|
|
|
Increase
|
|
Interest
Rates
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)
|
|
(basis
points) (1)
|
|
|
NPV (2)
|
|
|
Amount
|
|
|
Percent
|
|
|
NPV
Ratio (4)
|
|
|
(basis
points)
|
|
|
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+300 |
|
|
$ |
108,167 |
|
|
$ |
(64,752 |
) |
|
|
(37 |
)% |
|
|
11.24 |
% |
|
|
(504 |
) |
|
+200 |
|
|
|
130,569 |
|
|
|
(42,351 |
) |
|
|
(24 |
) |
|
|
13.13 |
|
|
|
(316 |
) |
|
+100 |
|
|
|
153,090 |
|
|
|
(19,829 |
) |
|
|
(11 |
) |
|
|
14.88 |
|
|
|
(140 |
) |
|
0 |
|
|
|
172,919 |
|
|
|
|
|
|
|
|
|
|
|
16.29 |
|
|
|
|
|
|
-100 |
|
|
|
186,881 |
|
|
|
13,962 |
|
|
|
8 |
|
|
|
17.14 |
|
|
|
86 |
|
|
-200 |
|
|
|
193,894 |
|
|
|
20,975 |
|
|
|
12 |
|
|
|
17.44 |
|
|
|
115 |
|
___________________________________
(1)
|
Assumes
an instantaneous uniform change in interest rates at all
maturities.
|
(2)
|
NPV
is the discounted present value of expected cash flows from assets,
liabilities and off-balance sheet
contracts.
|
(3)
|
Present
value of assets represents the discounted present value of incoming
cash
flows on interest-earning assets.
|
(4)
|
NPV
ratio represents NPV divided by the present value of
assets.
|
|
|
|
December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NPV
as a Percentage of Present
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
of Assets (3)
|
|
|
|
|
|
|
|
Estimated
Increase (Decrease) in
|
|
|
|
|
|
|
|
Change
in
|
|
|
|
|
|
NPV
|
|
|
|
|
|
Increase
|
|
Interest
Rates
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)
|
|
(basis
points) (1)
|
|
|
NPV (2)
|
|
|
Amount
|
|
|
Percent
|
|
|
NPV
Ratio (4)
|
|
|
(basis
points)
|
|
|
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+300 |
|
|
$ |
71,274 |
|
|
$ |
(48,844 |
) |
|
|
(41 |
)% |
|
|
7.61 |
% |
|
|
(444 |
) |
|
+200 |
|
|
|
88,681 |
|
|
|
(31,438 |
) |
|
|
(26 |
) |
|
|
9.26 |
|
|
|
(279 |
) |
|
+100 |
|
|
|
104,940 |
|
|
|
(15,178 |
) |
|
|
(13 |
) |
|
|
10.74 |
|
|
|
(132 |
) |
|
0 |
|
|
|
120,118 |
|
|
|
|
|
|
|
|
|
|
|
12.05 |
|
|
|
|
|
|
-100 |
|
|
|
131,068 |
|
|
|
10,950 |
|
|
|
9 |
|
|
|
12.95 |
|
|
|
89 |
|
|
-200 |
|
|
|
135,979 |
|
|
|
15,861 |
|
|
|
13 |
|
|
|
13.29 |
|
|
|
124 |
|
___________________________________
(1)
|
Assumes
an instantaneous uniform change in interest rates at all
maturities.
|
(2)
|
NPV
is the discounted present value of expected cash flows from assets,
liabilities and off-balance sheet
contracts.
|
(3)
|
Present
value of assets represents the discounted present value of incoming
cash
flows on interest-earning assets.
|
(4)
|
NPV
ratio represents NPV divided by the present value of
assets.
|
The
tables above indicate that at December 31, 2007 and December 31, 2006, in the
event of a 100 basis point decrease in interest rates, we would experience
an 8%
and 9%, respectively, increase in net portfolio value. In the event
of a 300 basis point increase in interest rates, we would experience a 37%
and
41%, respectively, decrease in net portfolio value.
Certain
shortcomings are inherent in the methodology used in the above interest rate
risk measurement. Modeling changes in net portfolio value require
making certain assumptions that may or may not reflect the manner in which
actual yields and costs respond to changes in market interest
rates. In this regard, the net portfolio value table presented
assumes that the composition of our interest-sensitive assets and liabilities
existing at the beginning of a period remains constant over the period being
measured and assumes that a particular change in interest rates is reflected
uniformly across the yield curve regardless of the duration or repricing of
specific assets and liabilities. Accordingly, although the net
portfolio value table provides an indication of our interest rate risk exposure
at a particular point in time, such measurements are not intended to and do
not
provide a precise forecast of the effect of changes in market interest rates
on
our net interest income and will differ from actual results.
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, 2007, our liquidity ratio
was 26.13%.
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, 2007, cash and cash equivalents totaled $14.3
million. Securities classified as available-for-sale, which provide
additional sources of liquidity, totaled $201.3 million at December 31, 2007.
In
addition, at December 31, 2007, we had the ability to borrow a total of
approximately $408.3 million from the Federal Home Loan Bank of
Boston. On that date, we had $108.0 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, 2007, we had $15.9 million in loan commitments outstanding. In
addition to commitments to originate loans, we had $146.6 million in unused
lines of credit to borrowers. Certificates of deposit due within one year of
December 31, 2007 totaled $312.3 million, or 43.5% 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, 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.
Our
primary investing activities are the origination of loans and the purchase
of
securities. In 2007, we originated $303.7 million of loans and purchased $90.5
million of securities. In 2006, we originated $357.0 million of loans and
purchased $47.8 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 $33.0
million and $32.1 million for the years ended December 31, 2007 and 2006,
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 decreased $61.8
million for the year ended December 31, 2007 reflecting the use of a portion
of
the net proceeds raised from the Company’s second step offering to pay down
short term borrowings. For the year ended December 31, 2006 Federal Home Loan
Bank advances increased $67.9 million to fund loan growth. 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” certain longer-term one- to four-family residential mortgage loans
with Federal Home Loan Bank advances. The Bank’s unused borrowing capacity with
the FHLBB, excluding its $12.4 million line of credit, was approximately
$293,179 at December 31, 2007 and $142,518 at December 31, 2006. At December
31,
2007 and 2006, the Bank had no borrowing against the line of
credit.
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, 2007, 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 N 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 L, “Commitments and Contingencies,” to our Consolidated
Financial Statements.
Contractual
Obligations. In the ordinary course of our operations, we
enter into certain contractual obligations. Such obligations include
operating and capitalized 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,
2007. 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
|
|
|
|
(In
thousands)
|
|
Contractual
Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit
|
|
$ |
312,292 |
|
|
$ |
30,703 |
|
|
$ |
4,652 |
|
|
$ |
- |
|
|
$ |
347,647 |
|
Federal
Home Loan Bank advances
|
|
|
17,152 |
|
|
|
39,767 |
|
|
|
33,235 |
|
|
|
17,843 |
|
|
|
107,997 |
|
Repurchase
agreements
|
|
|
13,864 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13,864 |
|
Standby
letters of credit
|
|
|
1,627 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,627 |
|
Operating
leases
|
|
|
588 |
|
|
|
1,241 |
|
|
|
973 |
|
|
|
4,484 |
|
|
|
7,286 |
|
Capitalized
lease
|
|
|
146 |
|
|
|
292 |
|
|
|
292 |
|
|
|
2,651 |
|
|
|
3,381 |
|
Future
benefits to be paid under retirement plans
|
|
|
196 |
|
|
|
- |
|
|
|
3,257 |
|
|
|
610 |
|
|
|
4,063 |
|
Total
|
|
$ |
345,865 |
|
|
$ |
72,003 |
|
|
$ |
42,409 |
|
|
$ |
25,588 |
|
|
$ |
485,865 |
|
Commitments
to extend credit
|
|
$ |
195,263 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
195,263 |
|
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. 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 material effect on the Company’s results of operations or financial
condition. The Company has no unrecognized tax benefits as of December 31,
2007. The Company’s policy is to report interest and penalties (none
in 2007) as part of other non-interest expenses in the Consolidated Statements
of Operations.
In
May
2007, the FASB issued FIN 48-1, “Definition of Settlement in FIN 48” to provide
guidance on how an enterprise should determine whether a tax position is
effectively settled for the purpose of recognizing previously unrecognized
tax
benefits. FSP FIN 48-1 is effective retroactively to January 1,
2007. The implementation of this standard had no impact on the
Company’s results of operations or financial condition.
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 material effect on its results
of
operations or financial condition.
In
June 2006, the
EITF released Issue 06-4, “Accounting for
Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements”. EITF 06-4 addresses accounting for
split-dollar life insurance arrangements whereby the employer purchases a policy
to insure the life of an employee, and separately enters into an agreement
to
split the policy benefits between the employer and the employee. This EITF
states that an obligation arises as a result of a substantive agreement with
an
employee to provide future postretirement benefits. Under EITF 06-4, the
obligation is not settled upon entering into an insurance arrangement. Since
the
obligation is not settled, a liability should be recognized in accordance with
applicable authoritative guidance. EITF 06-4 is effective for fiscal years
beginning after December 15, 2007. The Company is in the process of evaluating
the potential impact of adopting EITF 06-4 on its financial position and results
of operations.
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 results of operations or
financial condition.
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. SFAS 159 is
effective for the Company on January 1, 2008 and is not expected to have a
material impact on its results of operations or financial position.
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 on Financial
Statements
|
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 on Financial Statements
To
the
Board of Directors of
United
Financial Bancorp, Inc.
We
have
audited the accompanying consolidated balance sheets of United Financial
Bancorp, Inc. and subsidiary as of December 31, 2007 and 2006, and the related
consolidated statements of earnings, stockholders’ equity and comprehensive
income, and cash flows for the each of the three years in the period
ended December 31, 2007. 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, 2007 and 2006, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2007 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), United Financial Bancorp, Inc’s internal
control over financial reporting as of December 31, 2007, 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
12, 2008 expressed an unqualified opinion thereon.
/s/
Grant
Thornton LLP
Boston,
Massachusetts
March
12,
2008
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Consolidated
Balance Sheets
December
31, 2007 and 2006
(Dollars
in thousands, except per share amounts)
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$ |
14,219 |
|
|
$ |
15,459 |
|
Interest-bearing
deposits
|
|
|
35 |
|
|
|
9,960 |
|
Total
cash and cash equivalents
|
|
|
14,254 |
|
|
|
25,419 |
|
|
|
|
|
|
|
|
|
|
Short-term
investments
|
|
|
1,030 |
|
|
|
- |
|
Securities
available for sale, at fair value
|
|
|
201,257 |
|
|
|
190,237 |
|
Securities
held to maturity, at amortized cost (fair value of $3,631 at
December 31, 2007 and $3,227 at December 31, 2006)
|
|
|
3,632 |
|
|
|
3,241 |
|
Loans,
net of allowance for loan losses of $7,714 at December 31, 2007and
$7,218
at December 31, 2006
|
|
|
819,117 |
|
|
|
756,180 |
|
Other
real estate owned
|
|
|
880 |
|
|
|
562 |
|
Accrued
interest receivable
|
|
|
4,477 |
|
|
|
4,320 |
|
Deferred
tax asset, net
|
|
|
4,953 |
|
|
|
2,851 |
|
Stock
in the Federal Home Loan Bank of Boston
|
|
|
10,257 |
|
|
|
9,274 |
|
Banking
premises and equipment, net
|
|
|
10,600 |
|
|
|
8,821 |
|
Bank-owned
life insurance
|
|
|
6,652 |
|
|
|
6,304 |
|
Other
assets
|
|
|
2,172 |
|
|
|
2,224 |
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
1,079,281 |
|
|
$ |
1,009,433 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Interest-bearing
|
|
$ |
616,672 |
|
|
$ |
588,496 |
|
Non-interest-bearing
|
|
|
102,010 |
|
|
|
97,190 |
|
Total
deposits
|
|
|
718,682 |
|
|
|
685,686 |
|
Federal
Home Loan Bank of Boston advances
|
|
|
107,997 |
|
|
|
169,806 |
|
Repurchase
agreements
|
|
|
13,864 |
|
|
|
10,425 |
|
Escrow
funds held for borrowers
|
|
|
1,356 |
|
|
|
1,121 |
|
Capitalized
lease obligation
|
|
|
1,890 |
|
|
|
- |
|
Accrued
expenses and other liabilities
|
|
|
9,372 |
|
|
|
4,684 |
|
Total
liabilities
|
|
|
853,161 |
|
|
|
871,722 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note L)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, par value $0.01 per share, authorized: 50,000,000 shares at
December 31, 2007 and 5,000,000 shares at December 31, 2006; none
issued
|
|
|
- |
|
|
|
- |
|
Common
stock, par value $0.01 per share; shares authorized: 100,000,000
at
December 31, 2007 and 60,000,000 at December 31, 2006; shares issued
and
outstanding: 17,763,747 at December 31, 2007; shares issued: 17,205,995
at
December 31, 2006
|
|
|
178 |
|
|
|
172 |
|
Paid-in
capital
|
|
|
165,920 |
|
|
|
75,520 |
|
Retained
earnings
|
|
|
73,026 |
|
|
|
70,406 |
|
Unearned
compensation
|
|
|
(12,835 |
) |
|
|
(5,772 |
) |
Treasury
stock, at cost (51,445 shares at December 31, 2006)
|
|
|
- |
|
|
|
(664 |
) |
Accumulated
other comprehensive loss, net of taxes
|
|
|
(169 |
) |
|
|
(1,951 |
) |
Total
stockholders’ equity
|
|
|
226,120 |
|
|
|
137,711 |
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$ |
1,079,281 |
|
|
$ |
1,009,433 |
|
The
accompanying notes are an integral part of the consolidated financial
statements.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Consolidated
Statements of Earnings
For
the
years ended December 31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Interest
and dividend income:
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
49,812 |
|
|
$ |
42,338 |
|
|
$ |
34,540 |
|
Investments
|
|
|
8,200 |
|
|
|
8,843 |
|
|
|
7,970 |
|
Other
interest-earning assets
|
|
|
1,238 |
|
|
|
1,021 |
|
|
|
723 |
|
Total
interest and dividend income
|
|
|
59,250 |
|
|
|
52,202 |
|
|
|
43,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
21,942 |
|
|
|
18,695 |
|
|
|
12,300 |
|
Short-term
borrowings
|
|
|
4,135 |
|
|
|
3,198 |
|
|
|
1,675 |
|
Long-term
debt
|
|
|
4,006 |
|
|
|
2,754 |
|
|
|
2,231 |
|
Total
interest expense
|
|
|
30,083 |
|
|
|
24,647 |
|
|
|
16,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income before provision for loan losses
|
|
|
29,167 |
|
|
|
27,555 |
|
|
|
27,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
1,425 |
|
|
|
969 |
|
|
|
917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income after provision for loan losses
|
|
|
27,742 |
|
|
|
26,586 |
|
|
|
26,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee
income on depositors’ accounts
|
|
|
4,432 |
|
|
|
4,190 |
|
|
|
3,744 |
|
(Loss)
gain on sale and writedowns of securities
|
|
|
(275 |
) |
|
|
(222 |
) |
|
|
3 |
|
Wealth
management income
|
|
|
692 |
|
|
|
426 |
|
|
|
281 |
|
Other
income
|
|
|
886 |
|
|
|
998 |
|
|
|
992 |
|
Total
non-interest income
|
|
|
5,735 |
|
|
|
5,392 |
|
|
|
5,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
|
14,835 |
|
|
|
12,888 |
|
|
|
11,167 |
|
Occupancy
expenses
|
|
|
1,925 |
|
|
|
1,792 |
|
|
|
1,494 |
|
Marketing
expenses
|
|
|
1,374 |
|
|
|
1,436 |
|
|
|
1,386 |
|
Data
processing expenses
|
|
|
2,735 |
|
|
|
2,474 |
|
|
|
2,371 |
|
Contributions
and sponsorships
|
|
|
163 |
|
|
|
174 |
|
|
|
3,792 |
|
Professional
fees
|
|
|
1,276 |
|
|
|
1,148 |
|
|
|
732 |
|
Other
expenses
|
|
|
3,731 |
|
|
|
4,124 |
|
|
|
3,170 |
|
Total
non-interest expense
|
|
|
26,039 |
|
|
|
24,036 |
|
|
|
24,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
7,438 |
|
|
|
7,942 |
|
|
|
7,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
3,061 |
|
|
|
3,018 |
|
|
|
2,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$ |
4,377 |
|
|
$ |
4,924 |
|
|
$ |
4,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.26 |
|
|
$ |
0.29 |
|
|
$ |
0.33 |
|
Diluted
|
|
$ |
0.26 |
|
|
$ |
0.29 |
|
|
$ |
0.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,852,566 |
|
|
|
17,139,599 |
|
|
|
13,193,088 |
|
Diluted
|
|
|
16,905,713 |
|
|
|
17,149,027 |
|
|
|
13,193,088 |
|
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
For
the
years ended December 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Shares
|
|
|
Common
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Unearned
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
|
|
|
|
Outstanding
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Stock
|
|
|
Income
(Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Proceeds
from 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 paid ($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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,377 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,377 |
|
Net
unrealized gain on securities available for sale, net of reclassification
adjustments and taxes
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,463 |
|
|
|
2,463 |
|
Prior
service costs on pension and other post retirement benefit plans,
net of
tax
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(681 |
) |
|
|
(681 |
) |
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
shares issued pursuant to second step conversion and
offering
|
|
|
320,739 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cancelation
of common stock owned by United Mutual Holding Company
|
|
|
(9,189,722 |
) |
|
|
(92 |
) |
|
|
92 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Proceeds
from issuance of common stock pursuant to second-step conversion,
net of
offering costs of $5,438
|
|
|
9,564,570 |
|
|
|
96 |
|
|
|
90,112 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
90,208 |
|
Cancelation
of treasury shares
|
|
|
- |
|
|
|
- |
|
|
|
(1,914 |
) |
|
|
- |
|
|
|
- |
|
|
|
1,914 |
|
|
|
- |
|
|
|
- |
|
Capital
contribution pursuant to dissolution of United Mutual Holding
Company
|
|
|
- |
|
|
|
- |
|
|
|
82 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
82 |
|
Shares
purchased for ESOP
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,538 |
) |
|
|
- |
|
|
|
- |
|
|
|
(7,538 |
) |
Cash
dividends paid ($0.24 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,757 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,757 |
) |
Treasury
stock purchases
|
|
|
(86,390 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,250 |
) |
|
|
- |
|
|
|
(1,250 |
) |
Stock-based
compensation
|
|
|
- |
|
|
|
- |
|
|
|
1,880 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,880 |
|
ESOP
shares committed to be released
|
|
|
- |
|
|
|
- |
|
|
|
150 |
|
|
|
- |
|
|
|
475 |
|
|
|
- |
|
|
|
- |
|
|
|
625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2007
|
|
|
17,763,747 |
|
|
$ |
178 |
|
|
$ |
165,920 |
|
|
$ |
73,026 |
|
|
$ |
(12,835 |
) |
|
$ |
- |
|
|
$ |
(169 |
) |
|
$ |
226,120 |
|
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, 2007, 2006 and 2005
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
4,377 |
|
|
$ |
4,924 |
|
|
$ |
4,369 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
1,425 |
|
|
|
969 |
|
|
|
917 |
|
ESOP
expense
|
|
|
625 |
|
|
|
407 |
|
|
|
376 |
|
Stock-based
compensation
|
|
|
1,880 |
|
|
|
728 |
|
|
|
- |
|
Contribution
to United Charitable Foundation
|
|
|
- |
|
|
|
- |
|
|
|
3,649 |
|
Amortization
of premiums and discounts
|
|
|
103 |
|
|
|
308 |
|
|
|
670 |
|
Depreciation
and amortization
|
|
|
831 |
|
|
|
838 |
|
|
|
667 |
|
Amortization
of intangible assets
|
|
|
30 |
|
|
|
25 |
|
|
|
- |
|
Net
loss (gain) on sales of loans
|
|
|
5 |
|
|
|
(3 |
) |
|
|
(2 |
) |
Net
(gain) loss on sale of other real estate owned
|
|
|
(14 |
) |
|
|
- |
|
|
|
- |
|
Net
(gain) loss on sale of property and equipment
|
|
|
(4 |
) |
|
|
21 |
|
|
|
(4 |
) |
Net
loss (gain) on sale of available for sale securities
|
|
|
275 |
|
|
|
222 |
|
|
|
(3 |
) |
Deferred
income tax (benefit) provision
|
|
|
(2,348 |
) |
|
|
(1,679 |
) |
|
|
978 |
|
Increase
in cash surrender value of bank-owned life insurance
|
|
|
(348 |
) |
|
|
(273 |
) |
|
|
(326 |
) |
Increase
in accrued interest receivable
|
|
|
(157 |
) |
|
|
(392 |
) |
|
|
(1,065 |
) |
(Increase)
decrease in other assets
|
|
|
(789 |
) |
|
|
475 |
|
|
|
(2,005 |
) |
Increase
(decrease) in accrued expenses and other liabilities
|
|
|
3,697 |
|
|
|
(42 |
) |
|
|
337 |
|
Net
cash provided by operating activities
|
|
|
9,588 |
|
|
|
6,528 |
|
|
|
8,558 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of securities available for sale
|
|
|
(90,513 |
) |
|
|
(47,764 |
) |
|
|
(124,036 |
) |
Proceeds
from sales of securities available for sale
|
|
|
16,537 |
|
|
|
28,896 |
|
|
|
2,597 |
|
Proceeds
from calls, maturities and principal repayments of securities available
for sale
|
|
|
66,579 |
|
|
|
55,430 |
|
|
|
44,127 |
|
Purchases
of securities held to maturity
|
|
|
(675 |
) |
|
|
- |
|
|
|
(909 |
) |
Proceeds
from maturities, calls and principal repayments of securities
held to maturity
|
|
|
274 |
|
|
|
75 |
|
|
|
75 |
|
Investment
in short term time deposits
|
|
|
(1,030 |
) |
|
|
- |
|
|
|
- |
|
Purchases
of Federal Home Loan Bank of Boston stock
|
|
|
(983 |
) |
|
|
(2,686 |
) |
|
|
(567 |
) |
Proceeds
from sales of other real estate owned
|
|
|
576 |
|
|
|
1,852 |
|
|
|
- |
|
Net
loan originations and principal repayments
|
|
|
(67,288 |
) |
|
|
(127,570 |
) |
|
|
(64,046 |
) |
Proceeds
from sales of loans
|
|
|
2,041 |
|
|
|
170 |
|
|
|
215 |
|
Purchases
of property and equipment
|
|
|
(685 |
) |
|
|
(1,372 |
) |
|
|
(1,245 |
) |
Cash
paid to acquire Levine Financial Group
|
|
|
(55 |
) |
|
|
(100 |
) |
|
|
- |
|
Proceeds
from sale of property and equipment
|
|
|
21 |
|
|
|
- |
|
|
|
16 |
|
Net
cash used in investing activities
|
|
|
(75,201 |
) |
|
|
(93,069 |
) |
|
|
(143,773 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in deposits
|
|
|
32,996 |
|
|
|
32,075 |
|
|
|
39,938 |
|
(Decrease)
increase in short term borrowings
|
|
|
(51,145 |
) |
|
|
53,201 |
|
|
|
1,799 |
|
Proceeds
from Federal Home Loan Bank of Boston long term advances
|
|
|
30,000 |
|
|
|
68,000 |
|
|
|
39,000 |
|
Repayments
of Federal Home Loan Bank of Boston long term advances
|
|
|
(40,664 |
) |
|
|
(53,275 |
) |
|
|
(25,613 |
) |
Net
increase in repurchase agreements
|
|
|
3,439 |
|
|
|
1,991 |
|
|
|
4,118 |
|
Net
increase (decrease) in escrow funds held for borrowers
|
|
|
235 |
|
|
|
(8 |
) |
|
|
174 |
|
Payments
on capitalized lease obligation
|
|
|
(158 |
) |
|
|
- |
|
|
|
- |
|
Treasury
stock purchases
|
|
|
(1,250 |
) |
|
|
(4,405 |
) |
|
|
- |
|
Cash
dividends paid
|
|
|
(1,757 |
) |
|
|
(1,462 |
) |
|
|
- |
|
Net
proceeds from stock offering subscriptions
|
|
|
90,290 |
|
|
|
- |
|
|
|
74,822 |
|
Acquisition
of common stock by ESOP
|
|
|
(7,538 |
) |
|
|
- |
|
|
|
(6,413 |
) |
Net
cash provided by financing activities
|
|
|
54,448 |
|
|
|
96,117 |
|
|
|
127,825 |
|
(Decrease)
increase in cash and cash equivalents
|
|
|
(11,165 |
) |
|
|
9,576 |
|
|
|
(7,390 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
25,419 |
|
|
|
15,843 |
|
|
|
23,233 |
|
Cash
and cash equivalents at end of period
|
|
$ |
14,254 |
|
|
$ |
25,419 |
|
|
$ |
15,843 |
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on deposits and other borrowings
|
|
$ |
30,361 |
|
|
$ |
24,353 |
|
|
$ |
16,080 |
|
Income
taxes – net
|
|
|
2,467 |
|
|
|
3,882 |
|
|
|
2,786 |
|
Non-cash
item:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized
lease asset and obligation
|
|
$ |
1,932 |
|
|
$ |
- |
|
|
$ |
- |
|
Transfer
of loans to other real estate owned
|
|
|
880 |
|
|
|
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, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
A – REORGANIZATION AND CHANGE IN CORPORATE FORM
On
July
12, 2005, United Financial Bancorp, Inc. (“United
Financial-Federal”) completed an initial public offering, accepting
orders for 7,672,153 shares of common stock at a purchase price of $10.00 per
share, representing 44.6% of its outstanding shares. Of this amount, 641,300
shares were purchased by the newly-formed ESOP which was financed by a loan
from
United Financial-Federal. The remaining 55.4% of United Financial-Federal shares
were held by United Mutual Holding Company (53.4%) and the United Charitable
Foundation (2.0%). The completion of the initial public offering resulted in
an
increase in stockholders' equity of $68,409.
On
December 3, 2007, United Financial Bancorp, Inc., a Maryland corporation
("United Financial-Maryland" or the "Company") as successor to United
Financial-Federal, completed the "second-step" conversion of United Bank (the
"Bank") from the mutual holding company structure to the stock holding company
structure (the "Conversion") pursuant to a Plan of Conversion and
Reorganization, as amended (the "Plan"). Upon completion of the Conversion,
United Financial-Maryland became the holding company for the Bank and owns
all
of the issued and outstanding shares of the Bank's common stock. In
connection with the Conversion, 9,564,570 shares of common
stock, par value $0.01 per share, of United
Financial-Maryland ("Common Stock") were sold in subscription, community and
syndicated community offerings to certain depositors of the Bank and other
investors for $10.00 per share, or $95.6 million in the aggregate (the
"Offerings"), and 8,199,797 shares of United Financial-Maryland Common Stock
were issued in exchange for the outstanding shares of common stock of United
Financial-Federal, Inc., the former mid-tier holding company for the Bank,
held
by the "public" shareholders of United Financial-Federal (all shareholders
except United Mutual Holding Company). Each share of common stock of United
Financial-Federal was converted into the right to receive 1.04079 shares of
United Financial-Maryland Common Stock in the Conversion.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiary, United 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, 2007, 2006 and 2005
(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, 2007 and 2006.
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, 2007, 2006 and 2005
(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, 2007, 2006 and 2005
(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.
In
2006,
the Company acquired Levine Financial Group, a financial management company
with
$88 million in assets under management. The purchase price was $300 with $100
paid in cash and $200 was contingent upon customer retention. The Company
recorded approximately $300 as a customer relationship intangible asset which
is
being amortized over a ten year period. The Company recognized amortization
totaling $30 and $25, respectively, for the years ended December 31, 2007 and
2006.
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, 2007, 2006 and 2005
(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 through the use of 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 the 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.
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 its 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, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
Retirement
Benefits
The
Company maintained a defined benefit retirement plan for its employees through
a
multi-employer defined benefit plan sponsored by the Co-operative Banks
Employees’ Retirement Association (CBERA). In the fourth quarter of 2006,
following a comprehensive review of the Company’s employee benefit plans, the
Board of Directors voted to freeze the defined benefit pension plan effective
April 30, 2007. All benefits earned by eligible plan participants were frozen
at
that date and, accordingly, no additional expense related to the plan will
be
recognized in future periods. The Company recognized pension expense
based upon assessments by CBERA. The Company has also established a defined
contribution plan for eligible employees. The Company matches employee
contributions up to 5% of an employee’s qualified compensation.
The
Company established in 2007 an unfunded supplemental executive retirement plan
(SERP) for certain employees that provides benefits that cannot be paid from
a
qualified retirement plan due to Internal Revenue Code restrictions. This plan
is nonqualified under the Internal Revenue Code and assets used to fund benefit
payments are not segregated from other assets of the Company; therefore, in
general, a participant’s or beneficiary’s claim to benefits under these plans is
as a general creditor.
On
September 29, 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106, and 132(R)” (SFAS 158), which requires the
recognition of a plan’s over-funded or under-funded status as an asset or
liability with an offsetting adjustment to Accumulated Other Comprehensive
Income (OCI). SFAS 158 further requires the determination of the fair values
of
a plan’s assets at a company’s year-end and recognition of actuarial gains and
losses, prior service costs or credits, and transition assets or obligations
as
a component of Accumulated OCI. This Statement was effective as of December
31,
2006 and was not applicable to the Company until the Senior Executive Retirement
Plan and Director Retirement Plan were adopted in 2007 as discussed in Note
K.
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.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
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 Company’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. Therefore, no valuation allowance was necessary at December
31, 2007 or 2006 for deferred tax assets.
The
Company adopted FIN 48 “Accounting for Uncertainty in Income Taxes”, on January
1, 2007. FIN 48 clarifies the accounting and reporting for income taxes where
interpretation of the tax law may be uncertain. Under FIN 48, the Company may
recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position are
measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate resolution. The result of the
Company’s assessment of its tax positions in accordance with FIN 48 had no
effect on the Company’s financial condition as of January 1, 2007. It is the
Company’s policy to record estimated interest and penalties as part of income
tax expense. During the year ended December 31, 2007, there was no interest
or
penalties.
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.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
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
components of other comprehensive income and related tax effects are as follows
for the years ended December 31:
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized holding gains (losses) on available for sale
securities
|
|
$ |
4,562 |
|
|
$ |
633 |
|
|
$ |
(3,371 |
) |
Reclassification
adjustment for losses (gains) realized in income
|
|
|
275 |
|
|
|
222 |
|
|
|
(3 |
) |
Net
change in unrealized gains (losses)
|
|
|
4,837 |
|
|
|
855 |
|
|
|
(3,374 |
) |
Tax
effect
|
|
|
(2,374 |
) |
|
|
(341 |
) |
|
|
1,321 |
|
|
|
|
2,463 |
|
|
|
514 |
|
|
|
(2,053 |
) |
Adjustment
to liability for retirement plans
|
|
|
(1,152 |
) |
|
|
|
|
|
|
|
|
Tax
effect
|
|
|
471 |
|
|
|
- |
|
|
|
- |
|
|
|
|
(681 |
) |
|
|
- |
|
|
|
- |
|
Other
comprehensive income (loss)
|
|
$ |
1,782 |
|
|
$ |
514 |
|
|
$ |
(2,053 |
) |
At
December 31, 2007, the components of accumulated other comprehensive income,
net
of tax, included an unrealized gain on securities available for sale of
$512 and a ($681) pension liability adjustment.
Reclassifications
Amounts
reported for prior periods are reclassified as necessary to be consistent with
the current-period presentation.
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.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
Recent
Accounting
Developments
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 material effect on its results
of
operations or financial condition.
In
June
2006, the EITF released
Issue 06-4, “Accounting for
Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements”. EITF 06-4 addresses accounting for
split-dollar life insurance arrangements whereby the employer purchases a policy
to insure the life of an employee, and separately enters into an agreement
to
split the policy benefits between the employer and the employee. This EITF
states that an obligation arises as a result of a substantive agreement with
an
employee to provide future postretirement benefits. Under EITF 06-4, the
obligation is not settled upon entering into an insurance arrangement. Since
the
obligation is not settled, a liability should be recognized in accordance with
applicable authoritative guidance. EITF 06-4 is effective for fiscal years
beginning after December 15, 2007. The Company is in the process of evaluating
the potential impact of adopting EITF 06-4 on its financial position and results
of operations.
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 results of operations or
financial condition.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Concluded
In
February 2007, the FASB issued SFAS 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. SFAS 159 is effective for the Company on January
1,
2008 and is not expected to have a material impact on its results of operations
or financial position.
In
December
2007, the FASB issued proposed FASB Staff Position (“FSP”)
157-b, “Effective
Date of FASB Statement No. 157,”
which would permit a one-year deferral in applying the measurement provisions
of
SFAS No. 157 to non-financial assets and non-financial liabilities
(non-financial items) that are not recognized or disclosed at fair value in
an
entity’s
financial statements on a recurring basis (at least annually). Therefore, if
the
change in fair value of a non-financial item is not required to be recognized
or
disclosed in the financial statements on an annual basis or more frequently,
the
effective date of application of SFAS No. 157 to that item is deferred until
fiscal years beginning after November 15, 2008. This deferral would not apply,
however, to an entity that applies SFAS No. 157 in interim or annual financial
statements before proposed FSP 157-b is finalized. In February 2008, the FASB
finalized the provisions of proposed FSP 157-b, issuing FSP 157-2 as
authoritative guidance. The Company is currently evaluating the impact, if
any,
that the adoption of FSP 157-2 will have on its Consolidated Financial
Statements.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(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
|
|
|
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Losses
|
|
|
Fair
Value
|
|
Securities
Available
for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored
enterprises
|
|
$ |
45,447 |
|
|
$ |
51 |
|
|
$ |
(24 |
) |
|
$ |
45,474 |
|
Mortgage-backed
securities
|
|
|
146,764 |
|
|
|
1,270 |
|
|
|
(453 |
) |
|
|
147,581 |
|
Municipal
bonds
|
|
|
5,295 |
|
|
|
8 |
|
|
|
(19 |
) |
|
|
5,284 |
|
Corporate
bonds
|
|
|
2,820 |
|
|
|
5 |
|
|
|
(47 |
) |
|
|
2,778 |
|
Subtotal
|
|
|
200,326 |
|
|
|
1,334 |
|
|
|
(543 |
) |
|
|
201,117 |
|
Marketable
equity securities
|
|
|
140 |
|
|
|
- |
|
|
|
- |
|
|
|
140 |
|
Total
|
|
$ |
200,466 |
|
|
$ |
1,334 |
|
|
$ |
(543 |
) |
|
$ |
201,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored
enterprises
|
|
$ |
78,248 |
|
|
$ |
4 |
|
|
$ |
(883 |
) |
|
$ |
77,369 |
|
Mortgage-backed
securities
|
|
|
111,481 |
|
|
|
107 |
|
|
|
(2,314 |
) |
|
|
109,274 |
|
Municipal
bonds
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
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 |
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Losses
|
|
|
Fair
Value
|
|
Securities
Held to
Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
IRB
|
|
$ |
1,197 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,197 |
|
Municipal
bonds
|
|
|
2,435 |
|
|
|
11 |
|
|
|
(12 |
) |
|
|
2,434 |
|
Total
|
|
$ |
3,632 |
|
|
$ |
11 |
|
|
$ |
(12 |
) |
|
$ |
3,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRB
|
|
$ |
1,271 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,271 |
|
Municipal
bonds
|
|
|
1,970 |
|
|
|
4 |
|
|
|
(18 |
) |
|
|
1,956 |
|
Total
|
|
$ |
3,241 |
|
|
$ |
4 |
|
|
$ |
(18 |
) |
|
$ |
3,227 |
|
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.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
C – INVESTMENT SECURITIES -Continued
As
of
December 31, 2007, the Bank has pledged securities with an amortized cost of
$18,000 and a fair value of $17,994 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.
Gross
unrealized losses and fair values at December 31, 2007 and 2006 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
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
Number
of
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair
Value
|
|
|
Losses
|
|
|
Fair
Value
|
|
|
Losses
|
|
|
Securities
|
|
|
Fair
Value
|
|
|
Losses
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
Available
for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored
enterprises
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
8,600 |
|
|
$ |
(24 |
) |
|
|
6 |
|
|
$ |
8,600 |
|
|
$ |
(24 |
) |
Mortgage-backed
securities
|
|
|
23,159 |
|
|
|
(190 |
) |
|
|
29,410 |
|
|
|
(263 |
) |
|
|
53 |
|
|
|
52,569 |
|
|
|
(453 |
) |
Municipal
bonds
|
|
|
2,277 |
|
|
|
(19 |
) |
|
|
- |
|
|
|
- |
|
|
|
6 |
|
|
|
2,277 |
|
|
|
(19 |
) |
Corporate
bonds
|
|
|
1,857 |
|
|
|
(47 |
) |
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
1,857 |
|
|
|
(47 |
) |
Marketable
equity securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
27,293 |
|
|
$ |
(256 |
) |
|
$ |
38,010 |
|
|
$ |
(287 |
) |
|
|
67 |
|
|
$ |
65,303 |
|
|
$ |
(543 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
Held to
Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
bonds
|
|
$ |
666 |
|
|
$ |
(9 |
) |
|
$ |
757 |
|
|
$ |
(3 |
) |
|
|
6 |
|
|
$ |
1,423 |
|
|
$ |
(12 |
) |
Total
|
|
$ |
666 |
|
|
$ |
(9 |
) |
|
$ |
757 |
|
|
$ |
(3 |
) |
|
|
6 |
|
|
$ |
1,423 |
|
|
$ |
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
Municipal
bonds
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
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 |
) |
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, 2007, 2006 and 2005
(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:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales
|
|
$ |
16,537 |
|
|
$ |
28,896 |
|
|
$ |
2,597 |
|
Gross
gains
|
|
|
40 |
|
|
|
56 |
|
|
|
16 |
|
Gross
losses
|
|
|
(315 |
) |
|
|
(278 |
) |
|
|
(13 |
) |
The
scheduled maturities of debt securities held to maturity and available for
sale
at December 31, 2007, 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, 2007
|
|
|
|
Securities
Available for
Sale
|
|
|
Securities
Held to Maturity
|
|
|
|
Amortized
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
in one year or less
|
|
$ |
18,543 |
|
|
$ |
18,505 |
|
|
$ |
363 |
|
|
$ |
363 |
|
Due
from one year to five years
|
|
|
49,777 |
|
|
|
49,577 |
|
|
|
1,318 |
|
|
|
1,320 |
|
Due
from five years to ten years
|
|
|
9,947 |
|
|
|
9,931 |
|
|
|
476 |
|
|
|
483 |
|
Due
after ten years
|
|
|
122,059 |
|
|
|
123,104 |
|
|
|
1,475 |
|
|
|
1,465 |
|
|
|
$ |
200,326 |
|
|
$ |
201,117 |
|
|
$ |
3,632 |
|
|
$ |
3,631 |
|
Maturities
are based on the final contractual payment dates, and do not reflect the impact
of potential prepayments or early redemptions. 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, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
D – LOANS, NET
The
components of loans are as follows at December 31:
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
One-to
four-family residential real estate
|
|
$ |
339,470 |
|
|
$ |
319,108 |
|
Commercial
real estate
|
|
|
214,776 |
|
|
|
175,564 |
|
Construction
|
|
|
42,059 |
|
|
|
54,759 |
|
Home
equity loans
|
|
|
116,241 |
|
|
|
112,739 |
|
Commercial
and industrial
|
|
|
81,562 |
|
|
|
69,762 |
|
Automobile
|
|
|
22,461 |
|
|
|
24,456 |
|
Consumer
|
|
|
8,126 |
|
|
|
5,725 |
|
Total
loans
|
|
|
824,695 |
|
|
|
762,113 |
|
|
|
|
|
|
|
|
|
|
Net
deferred loan costs and fees
|
|
|
2,136 |
|
|
|
1,285 |
|
Allowance
for loan losses
|
|
|
(7,714 |
) |
|
|
(7,218 |
) |
Loans,
net
|
|
$ |
819,117 |
|
|
$ |
756,180 |
|
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, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
D – LOANS, NET - Continued
Nonaccrual
loans amounted to approximately $1,785 and $1,288 at December 31, 2007 and
2006,
respectively. Additional interest income of approximately $69, $71
and $158 would have been recorded during the years ended December 31, 2007,
2006
and 2005, respectively, if the loans had performed in accordance with their
original terms.
At
December 31, 2007 and 2006, the recorded investment in impaired loans was $1,785
and $1,288, respectively, all of which were accounted for on a non-accrual
basis. An allowance for loan losses was established on $1,785 and $1,288 of
the
impaired loans at December 31, 2007 and 2006, respectively, which allowances
amounted to $223 and $295 at the respective year-ends. The average balance
of
impaired loans was $2,154, $2,076 and $2,145 for the years ended December 31,
2007, 2006 and 2005, respectively. Interest income recognized on impaired loans
during 2007, 2006 and 2005 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:
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
1,150 |
|
|
$ |
1,414 |
|
New
loans
|
|
|
460 |
|
|
|
35 |
|
Repayments
|
|
|
(483 |
) |
|
|
(299 |
) |
Ending
balance
|
|
$ |
1,127 |
|
|
$ |
1,150 |
|
The
Company does not presently originate loans for the purpose of reselling them
in
the secondary market but has occasionally sold residential mortgage loans from
its portfolio ($2,046 in 2007 and $167 in 2006). Loans serviced by the Company
for others totaled $33,758 and $36,900 at December 31, 2007 and 2006,
respectively. The balances of mortgage servicing rights related to such loans
were insignificant at December 31, 2007 and 2006.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(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:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$ |
7,218 |
|
|
$ |
6,382 |
|
|
$ |
5,750 |
|
Provision
for loan losses
|
|
|
1,425 |
|
|
|
969 |
|
|
|
917 |
|
Charge-offs
|
|
|
(983 |
) |
|
|
(186 |
) |
|
|
(455 |
) |
Recoveries
|
|
|
54 |
|
|
|
53 |
|
|
|
170 |
|
Balance
at end of year
|
|
$ |
7,714 |
|
|
$ |
7,218 |
|
|
$ |
6,382 |
|
NOTE
E – BANKING PREMISES AND EQUIPMENT
The
composition of banking premises and equipment is as follows at December
31:
|
|
|
|
|
|
|
Estimated
|
|
|
2007
|
|
|
2006
|
|
Useful
Lives
|
|
|
|
|
|
|
|
|
Land
and improvements
|
|
$ |
2,387 |
|
|
$ |
2,146 |
|
|
Buildings
and improvements
|
|
|
7,625 |
|
|
|
7,475 |
|
25
- 40 Years
|
Leasehold
improvements
|
|
|
471 |
|
|
|
1,976 |
|
Lesser
of useful life or term of lease
|
|
|
|
|
|
|
|
|
|
|
Furniture
and equipment
|
|
|
1,802 |
|
|
|
2,271 |
|
5 Years
|
Assets
under capitalized lease
|
|
|
1,932 |
|
|
|
- |
|
Lesser
of lease term or useful life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,217 |
|
|
|
13,868 |
|
|
Less
accumulated depreciation and amortization
|
|
|
(3,617 |
) |
|
|
(5,047 |
) |
|
|
|
$ |
10,600 |
|
|
$ |
8,821 |
|
|
Depreciation
and amortization expense totaled $831, $838 and $667 for the years ended
December 31, 2007, 2006 and 2005, respectively.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(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 two financial
services offices. Rent expense for the years ended December 31, 2007, 2006
and
2005 amounted to approximately $408, $363 and $259, respectively. The leases,
which are noncancelable, expire at various dates through 2031. The Company
also
entered into a capital lease obligation for one of its branches. Future minimum
rental commitments under the terms of these leases are as follows:
|
|
Operating
|
|
|
Capital
|
|
|
|
|
|
|
Leases
|
|
|
Lease
|
|
|
Total
|
|
Years
ending December
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$ |
588 |
|
|
$ |
146 |
|
|
$ |
734 |
|
2009
|
|
|
640 |
|
|
|
146 |
|
|
|
786 |
|
2010
|
|
|
601 |
|
|
|
146 |
|
|
|
747 |
|
2011
|
|
|
515 |
|
|
|
146 |
|
|
|
661 |
|
2012
|
|
|
458 |
|
|
|
146 |
|
|
|
604 |
|
Thereafter
|
|
|
4,484 |
|
|
|
2,651 |
|
|
|
7,135 |
|
Total
minimum lease payments
|
|
$ |
7,286 |
|
|
$ |
3,381 |
|
|
$ |
10,667 |
|
At
December 31, 2007 the Company had a $1.9 million capital lease obligation
consisting of the $3.4 million commitment for future payments reduced by
capitalized interest totaling $1.5 million. The Company had no outstanding
obligations at December 31, 2006. For the year ended December 31, 2007, the
Company recognized $116 of interest expense on the capital lease
obligations.
NOTE
F – DEPOSITS
Deposit
accounts by type are summarized as follows at December 31:
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Demand
|
|
$ |
102,010 |
|
|
$ |
97,190 |
|
NOW
|
|
|
35,207 |
|
|
|
37,523 |
|
Regular
savings
|
|
|
65,711 |
|
|
|
65,475 |
|
Money
market
|
|
|
168,107 |
|
|
|
165,984 |
|
Certificates
of deposit
|
|
|
347,647 |
|
|
|
319,514 |
|
|
|
$ |
718,682 |
|
|
$ |
685,686 |
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
F – DEPOSITS- Concluded
Certificates
of deposit with balances greater than or equal to $100 totaled $126,880 and
$103,321 at December 31, 2007 and 2006, 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, 2007 is
as
follows:
Three
months or less
|
|
$ |
74,055 |
|
Over
three months through six months
|
|
|
28,034 |
|
Over
six months through one year
|
|
|
16,142 |
|
Over
one year to three years
|
|
|
7,278 |
|
Over
three years
|
|
|
1,371 |
|
Total
|
|
$ |
126,880 |
|
The
scheduled maturities of time deposits at December 31, 2007, are as
follows:
Less
than one year
|
|
$ |
312,292 |
|
Over
one year to two years
|
|
|
21,888 |
|
Over
two years to three years
|
|
|
8,815 |
|
Over
three years to four years
|
|
|
602 |
|
Over
four years to five years
|
|
|
4,050 |
|
Total
time deposits
|
|
$ |
347,647 |
|
Interest
expense on deposits, classified by type, is as follows:
|
|
Years
Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
NOW
|
|
$ |
178 |
|
|
$ |
103 |
|
|
$ |
148 |
|
Regular
savings
|
|
|
593 |
|
|
|
638 |
|
|
|
647 |
|
Money
market
|
|
|
5,631 |
|
|
|
5,125 |
|
|
|
3,098 |
|
Certificates
of deposit
|
|
|
15,540 |
|
|
|
12,829 |
|
|
|
8,407 |
|
Total
|
|
$ |
21,942 |
|
|
$ |
18,695 |
|
|
$ |
12,300 |
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(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, is
required to invest in stock of the FHLBB. 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 its stock prior to expiration
of
the five year redemption notice. 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 $293,179 at December 31, 2007 and $142,518
at
December 31, 2006. At December 31, 2007 and 2006, the Bank had no borrowing
against the line of credit.
Advances
outstanding at December 31, 2007, 2006 and 2005 consisted of the
following:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Amount
|
|
|
Average
Rate
|
|
|
Amount
|
|
|
Average
Rate
|
|
|
Amount
|
|
|
Average
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
1 year
|
|
$ |
17,152 |
|
|
|
5.00 |
% |
|
$ |
65,000 |
|
|
|
5.16 |
% |
|
$ |
13,799 |
|
|
|
3.40 |
% |
Over
1 year to 2 years
|
|
|
13,000 |
|
|
|
5.13 |
% |
|
|
16,411 |
|
|
|
5.06 |
% |
|
|
10,000 |
|
|
|
4.37 |
% |
Over
2 years to 3 years
|
|
|
26,767 |
|
|
|
4.15 |
% |
|
|
13,000 |
|
|
|
5.13 |
% |
|
|
19,393 |
|
|
|
4.95 |
% |
Over
3 years to 4 years
|
|
|
23,267 |
|
|
|
4.60 |
% |
|
|
16,111 |
|
|
|
3.20 |
% |
|
|
- |
|
|
|
|
|
Over
4 years to 5 years
|
|
|
9,968 |
|
|
|
4.34 |
% |
|
|
39,184 |
|
|
|
4.60 |
% |
|
|
20,318 |
|
|
|
3.19 |
% |
Over
5 years
|
|
|
17,843 |
|
|
|
4.36 |
% |
|
|
20,100 |
|
|
|
4.32 |
% |
|
|
38,370 |
|
|
|
4.02 |
% |
|
|
$ |
107,997 |
|
|
|
4.55 |
% |
|
$ |
169,806 |
|
|
|
4.73 |
% |
|
$ |
101,880 |
|
|
|
3.98 |
% |
At
December 31, 2007, advances in the amount of $20,000 are callable at the option
of the FHLBB during 2008 and 2009.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(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:
|
|
At
or For the Years Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at year-end
|
|
$ |
13,864 |
|
|
$ |
10,425 |
|
|
$ |
8,434 |
|
Average
amount outstanding during the year
|
|
|
7,788 |
|
|
|
5,546 |
|
|
|
5,572 |
|
Interest
expense incurred during the year
|
|
|
259 |
|
|
|
167 |
|
|
|
90 |
|
Maximum
amount outstanding at any month-end
|
|
|
13,864 |
|
|
|
10,425 |
|
|
|
8,675 |
|
Average
interest rate during the year
|
|
|
3.33 |
% |
|
|
3.01 |
% |
|
|
1.62 |
% |
Weighted
average interest rate at year-end
|
|
|
3.12 |
% |
|
|
3.38 |
% |
|
|
2.12 |
% |
NOTE
H – INCOME TAXES
Allocation
of federal and state income taxes between current and deferred provisions is
as
follows:
|
|
Years
Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Current
tax provision:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
4,240 |
|
|
$ |
3,618 |
|
|
$ |
1,417 |
|
State
|
|
|
1,161 |
|
|
|
1,079 |
|
|
|
254 |
|
|
|
|
5,401 |
|
|
|
4,697 |
|
|
|
1,671 |
|
Deferred
tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,719 |
) |
|
|
(1,289 |
) |
|
|
704 |
|
State
|
|
|
(621 |
) |
|
|
(390 |
) |
|
|
274 |
|
|
|
|
(2,340 |
) |
|
|
(1,679 |
) |
|
|
978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
provision
|
|
$ |
3,061 |
|
|
$ |
3,018 |
|
|
$ |
2,649 |
|
The
reasons for the difference between the statutory federal income tax rate and
the
effective
rate
are
as follows:
|
|
Years
Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Statutory
federal income tax rate
|
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
Increase
(decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State
taxes, net of federal tax benefit
|
|
|
4.8 |
|
|
|
5.7 |
|
|
|
5.0 |
|
Stock-based
compensation
|
|
|
2.6 |
|
|
|
- |
|
|
|
- |
|
Tax-exempt
obligations
|
|
|
(0.9 |
) |
|
|
- |
|
|
|
- |
|
Officers'
life insurance
|
|
|
(0.7 |
) |
|
|
- |
|
|
|
- |
|
Other,
net
|
|
|
1.4 |
|
|
|
(1.7 |
) |
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
tax rate
|
|
|
41.2 |
% |
|
|
38.0 |
% |
|
|
37.8 |
% |
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(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,
|
|
|
|
2007
|
|
|
2006
|
|
Deferred
tax asset:
|
|
|
|
|
|
|
Federal
|
|
$ |
4,868 |
|
|
$ |
4,744 |
|
State
|
|
|
1,729 |
|
|
|
1,548 |
|
|
|
|
6,597 |
|
|
|
6,292 |
|
Deferred
tax liability:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,280 |
) |
|
|
(2,558 |
) |
State
|
|
|
(364 |
) |
|
|
(883 |
) |
|
|
|
(1,644 |
) |
|
|
(3,441 |
) |
|
|
|
|
|
|
|
|
|
Net
deferred tax asset:
|
|
$ |
4,953 |
|
|
$ |
2,851 |
|
The
tax
effects of each type of income and expense item that give rise to deferred
taxes
are as follows:
|
|
At
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Cash
basis of accounting
|
|
$ |
28 |
|
|
$ |
29 |
|
Investments:
|
|
|
|
|
|
|
|
|
Net
unrealized loss (gain) on securities available for sale - SFAS
115
|
|
|
(283 |
) |
|
|
426 |
|
Impairment
loss on preferred stock
|
|
|
22 |
|
|
|
- |
|
Retirement
benefits
|
|
|
471 |
|
|
|
- |
|
Depreciation
|
|
|
704 |
|
|
|
492 |
|
Deferred
expense
|
|
|
(1,077 |
) |
|
|
(1,044 |
) |
Allowance
for loan losses
|
|
|
3,158 |
|
|
|
2,955 |
|
Employee
benefit plans
|
|
|
1,739 |
|
|
|
1,337 |
|
Market
value adjustment on loans
|
|
|
(275 |
) |
|
|
(2,391 |
) |
Contribution
carryover
|
|
|
454 |
|
|
|
1,048 |
|
Other
|
|
|
12 |
|
|
|
(1 |
) |
Net
deferred tax asset
|
|
$ |
4,953 |
|
|
$ |
2,851 |
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
H – INCOME TAXES – Concluded
A
summary
of the change in the net deferred tax asset is as follows:
|
|
At
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$ |
2,851 |
|
|
$ |
1,245 |
|
Deferred
tax provision
|
|
|
2,340 |
|
|
|
1,679 |
|
Change
in unrealized loss on securities available for sale
|
|
|
(238 |
) |
|
|
(73 |
) |
Balance
at end of year
|
|
$ |
4,953 |
|
|
$ |
2,851 |
|
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
Since
the
Company’s initial public offering (IPO) in July 2005, the Company has presented
earnings per share data for quarterly and annual reporting periods during which
its shares were outstanding for the complete period. This presentation was
consistent with the method used in practice by banking entities which
reorganized using the mutual holding company structure. Pursuant to guidance
provided to the Company by the staff of the Securities and Exchange Commission,
the Company revised its presentation of earnings per share data for periods
prior to its IPO to reflect shares issued to United Mutual Holding Company
in
the IPO as outstanding for all periods presented. Shares issued to the public
in
the IPO, which was completed on July 12, 2005, are presented as outstanding
from
the time of issuance. In December 2007, the Company completed a second step
conversion and offering in which each outstanding minority share was exchanged
for 1.04079 shares and 9,564,570 shares were sold in a subscription and
syndicated offering.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
I – EARNINGS PER SHARE - Concluded
The
calculation of basic earnings per common share and diluted earnings per common
share for the years ended December 31, 2007, 2006 and 2005 is presented
below.
|
|
Years
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
4,377 |
|
|
$ |
4,924 |
|
|
$ |
4,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares applicable to basic EPS (1)
|
|
|
16,852,566 |
|
|
|
17,139,599 |
|
|
|
13,193,088 |
|
Effect
of dilutive potential common shares (2, 3)
|
|
|
53,147 |
|
|
|
9,428 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares applicable to diluted EPS
|
|
|
16,905,713 |
|
|
|
17,149,027 |
|
|
|
13,193,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.26 |
|
|
$ |
0.29 |
|
|
$ |
0.33 |
|
Diluted
|
|
$ |
0.26 |
|
|
$ |
0.29 |
|
|
$ |
0.33 |
|
___________________________
(1)
|
The
Company issued 17,205,995 shares of common stock in its July, 2005
initial
public offering, including 9,189,722 shares issued to United Mutual
Holding Company. In December 2007, the Company completed a second
step
conversion and offering in which each outstanding minority share
was
exchanged for 1.04079 shares and 9,564,570 shares were sold in a
subscription and syndicate offering. All share data in prior periods
have
been adjusted by the exhange ratio.
|
(2)
|
For
the years ended December 31, 2007 and 2006, options to purchase 785,275
and 778,510 shares, respectively, were not included in
the
computation of diluted earnings per share because they were
antidulutive.
|
(3)
|
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, 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. As of a result of the Company’s
second step conversion and offering and in accordance with provisions in the
Incentive Plan, the Board of Directors voted to adjust the total number of
shares authorized for grant, the number of stock options outstanding and the
exercise prices for outstanding options by the exchange ratio of 1.04079.
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 outstanding stock options will become fully vested, and all stock
awards then outstanding will vest free of restrictions.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
J – STOCK-BASED INCENTIVE PLAN - Continued
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 repurchase shares in the open market
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.
A
combined summary of activity in the Company’s Incentive Plan activity for the
years ended December 31, 2006 and 2007 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
|
|
|
Value
|
|
|
Shares
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
New
Incentive Plan
|
|
|
1,228,475 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Granted
|
|
|
(1,080,860 |
) |
|
|
302,349 |
|
|
|
12.35 |
|
|
|
778,510 |
|
|
|
12.37 |
|
Stock
options exercised
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Shares
vested
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Forfeited
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cancelled
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
147,615 |
|
|
|
302,349 |
|
|
$ |
12.35 |
|
|
|
778,510 |
|
|
$ |
12.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(6,765 |
) |
|
|
- |
|
|
|
- |
|
|
|
6,765 |
|
|
|
11.36 |
|
Stock
options exercised
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Shares
vested
|
|
|
- |
|
|
|
(68,379 |
) |
|
|
12.35 |
|
|
|
- |
|
|
|
- |
|
Forfeited
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cancelled
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
140,850 |
|
|
|
233,970 |
|
|
$ |
12.35 |
|
|
|
785,275 |
|
|
$ |
12.36 |
|
(1)
|
In
conjunction with the Company's second-step conversion, the numbers
of
shares and weighted average prices have been adjusted by the conversion
ratio of 1.04079.
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
J – STOCK-BASED INCENTIVE PLAN - Concluded
In
2006,
the Company granted 778,510 stock options and 302,349 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. In 2007, the
Company granted 6,765 stock options with a weighted average value of $3.21
and a
total grant date fair value of $21. No new restricted shares were
granted in 2007. At December 31, 2007, the Company has 48,644 restricted shares
and 92,208 stock options available for grant under the 2006 stock based
incentive plan.
The
Company’s total compensation cost for shared-based payment arrangements was
$1,880 in 2007 and $728 in 2006. The Company recorded tax benefits of
$191 in 2007 and $219 in 2006 related to the recognition of the shared-based
compensation expense. As of December 31, 2007, compensation costs
related to nonvested awards totaling $2,266 has not been
recognized. These costs will be recognized over an estimated weighted
average period of 2.2 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 2007 and 2006.
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Weighted
average fair value
|
|
$ |
3.21 |
|
|
$ |
3.63 |
|
Expected
term (short-cut method)
|
|
6.50
years
|
|
|
6.50
years
|
|
Volatility
|
|
|
25.00 |
% |
|
|
25.00 |
% |
Expected
dividend yield
|
|
|
2.00 |
% |
|
|
2.00 |
% |
Weighted
average risk-free interest rate
|
|
|
4.36 |
% |
|
|
4.81 |
% |
A
summary
of stock options outstanding and exercisable at December 31, 2007 is as
follows:
|
Stock
Options
|
|
|
Outstanding
|
|
Exercisable
|
|
|
|
|
|
|
Total
number of shares
|
|
|
785,275 |
|
|
|
172,771 |
|
Weighted
average exercise price
|
|
$ |
12.36 |
|
|
$ |
12.36 |
|
Aggregate
intrinsic value
|
|
$ |
- |
|
|
$ |
- |
|
Weighted
average remaining contractual term
|
|
8.1
years
|
|
|
8.1
years
|
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
K – EMPLOYEE BENEFIT PLANS
Retirement Plans
The
Company maintained a defined benefit retirement plan for its employees through
a
multi-employer defined benefit plan sponsored by the Co-operative Banks
Employees’ Retirement Association (CBERA). In the fourth quarter of 2006,
following a comprehensive review of the Company’s employee benefit plans, the
Board of Directors voted to freeze the defined benefit pension plan effective
April 30, 2007. All benefits earned by eligible plan participants were frozen
at
that date and, accordingly, no additional expense related to the plan will
be
recognized in future periods. The Company recognized pension expense based
upon
assessments by CBERA. The Company’s contribution to the plan was $227, $397 and
$394 for the years ended December 31, 2007, 2006 and 2005, respectively. Under
the plan, retirement benefits were 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 Company up
to
a maximum of 5% of the employee’s qualified salary. The contributions matched by
the Company were $367, $307 and $292 for the years ended December 31, 2007,
2006
and 2005, respectively.
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 $409,
$547 and $832 for the years ended December 31, 2007, 2006 and 2005,
respectively.
Executive
Supplemental Retirement Benefits
In
prior
years the Company entered into Executive Supplemental Compensation Agreements
(the “Agreements”) with certain of its current and former
officers. The estimated amount to be paid under the Agreements is
accrued over the executive’s active employment from the time the agreement is
signed to the date of full eligibility. Effective October 1, 2007, in
connection with its annual compensation review, the Company consolidated the
Agreements of current senior executives into a Senior Executive Retirement
Plan
(the “SERP”). The Company continues to maintain the Agreements for
certain former officers. The liability associated with the Agreements was $863
and $1,626 at December 31, 2007 and 2006, respectively, and is included in
accrued expenses and other liabilities in the consolidated balance
sheets. The expense for the Agreements, excluding interest, was $114,
$162 and $156 for the years ended December 31, 2007, 2006 and 2005,
respectively.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
K – EMPLOYEE BENEFIT PLANS- Continued
Effective
October 1, 2007, the Company adopted a SERP which replaced the individual
Agreements for current officers. The new SERP includes two additional
executives. The SERP provides that each executive will receive supplemental
benefits, to the extent vested, commencing 180 days following separation from
service. The supplemental benefit will be equal to the percentage of the
executive’s final average compensation set forth in each executive’s
participation agreement, multiplied by a fraction, the numerator of which is
the
executive’s years of employment with United Bank and the denominator of which is
set forth in the executive’s participation agreement. The supplemental benefit
will commence on the executive’s normal benefit date and will be payable in a
lump sum, unless the executive has elected, at the time of execution of the
participation agreement, to receive an annuity or other form of
benefit. The SERP is unfunded and is considered a nonqualified plan
under the Internal Revenue Code. The SERP is accounted for as a defined benefit
plan under the provisions of SFAS Nos. 87, 132(R) and 158. SFAS 158 requires
the
recognition of a plan’s over-funded or under-funded status as an asset or
liability with an offsetting adjustment to Other Comprehensive Income. SFAS
158
also requires the determination of the fair values of a plan’s assets at a
company’s year-end and the recognition of prior service costs or credits as a
component of Other Comprehensive Income.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
K – EMPLOYEE BENEFIT PLANS- Continued
Directors
Fee Continuation
Plan
In
prior
years the Company sponsored 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. Effective October 1, 2007, in connection
with its annual compensation review, the Board of Directors adopted a Director
Retirement Plan to replace the Directors Fee Continuation Plan. Current
directors who are participants in the Directors Fee Continuation Plan, the
predecessor plan, will participate in the plan from the effective date.
Additional directors will begin participation in the plan as of the first day
of
the plan year in which they become members of the board of
directors. Retired directors will continue to receive benefits under
the Directors Fee Continuation Plan. At December 31, 2007 and 2006,
the Company’s recorded liability for this plan amounted to $594 and $868,
respectively, and is included in accrued expenses and other liabilities in
the
consolidated balance sheets. The expense associated with this plan,
excluding interest, was $10, $59 and $207 for the years ended December 31,
2007,
2006 and 2005, respectively.
Director
Retirement Plan
The
Board
of Directors adopted a Director Retirement Plan effective October 1, 2007 to
replace the Directors Fee Continuation Plan adopted in May 1999. Current
directors who are participants in the Directors Fee Continuation Plan, the
predecessor plan, will participate in the plan from the effective date.
Additional directors will begin participation in the plan as of the first day
of
the plan year in which they become members of the board of
directors.
The
Director Retirement Plan will provide for the payment of normal retirement
benefits upon the director’s separation from service on or after attainment of
his normal retirement age (age 72 or age 65 with 10 years of service). The
normal retirement benefit will generally be equal to 70% of the average annual
director’s fees over the highest three years during a Director’s final 10 years
of service, and will be payable in 10 annual installments commencing within
60
days after the director’s separation from service. In the event a participant
has a separation from service prior to his normal retirement date (other than
due to termination for cause, disability or death), the participant will be
entitled to a lesser benefit payable in ten annual installments commencing
at
age 65. The amount payable will be determined by multiplying the normal
retirement benefit by the director’s benefit percentage, which is 10% for each
year of service, up to 100%. A director’s benefit percentage will accelerate to
100% upon the director’s separation from service due to death, disability or a
change in control. The Director Retirement Plan is accounted for as a defined
benefit plan under the provisions of SFAS Nos. 87, 132(R) and 158.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
K – EMPLOYEE BENEFIT PLANS- Continued
The
following table summarizes the changes in the projected benefit obligation
(PBO), the funded status of the PBO and the weighted average assumptions used
to
determine the benefit obligation for the SERP and Director Retirement Plan
at
December 31, 2007. These plans have no assets at December 31,
2007. Amounts recognized at December 31, 2007 are reflected in net
deferred tax asset and accrued expenses and other liabilities on the
consolidated balance sheet.
|
|
|
|
|
Director
|
|
|
|
|
|
|
Retirement
|
|
|
|
SERP
|
|
|
Plan
|
|
|
|
|
|
|
|
|
Year
ended December
31, 2007:
|
|
|
|
|
|
|
Change
in projected benefit obligation:
|
|
|
|
|
|
|
Beginning
of period
|
|
$ |
1,707 |
|
|
$ |
567 |
|
Service
cost
|
|
|
63 |
|
|
|
13 |
|
Interest
cost
|
|
|
26 |
|
|
|
8 |
|
Actuarial
loss (gain)
|
|
|
- |
|
|
|
- |
|
Benefits
paid
|
|
|
- |
|
|
|
- |
|
End
of period
|
|
$ |
1,796 |
|
|
$ |
588 |
|
|
|
|
|
|
|
|
|
|
Funded
status at December 31, 2007:
|
|
|
|
|
|
|
|
|
Funded
status
|
|
$ |
1,796 |
|
|
$ |
588 |
|
Unrecognized
transition obligation
|
|
|
- |
|
|
|
- |
|
Unrecognized
prior service cost
|
|
|
(823 |
) |
|
|
(329 |
) |
Unrecognized
net actuarial (gain) loss
|
|
|
- |
|
|
|
- |
|
Accrued
post retirement benefit cost
|
|
$ |
973 |
|
|
$ |
259 |
|
|
|
|
|
|
|
|
|
|
Weighted-average
assumptions used to determine benefit obligations at December 31,
2007:
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
6.00 |
% |
|
|
5.00 |
% |
Rate
of compensation increase
|
|
|
5.00 |
% |
|
|
2.00 |
% |
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
K – EMPLOYEE BENEFIT PLANS- Continued
Components
of the net periodic benefit cost are as follows:
|
|
|
|
|
Director
|
|
|
|
|
|
|
Retirement
|
|
|
|
SERP
|
|
|
Plan
|
|
Year
ended December
31, 2007:
|
|
|
|
|
|
|
Service
cost
|
|
$ |
63 |
|
|
$ |
13 |
|
Interest
cost
|
|
|
26 |
|
|
|
8 |
|
Total
pension cost
|
|
|
89 |
|
|
|
21 |
|
Amortization
of prior service cost
|
|
|
19 |
|
|
|
9 |
|
Net
periodic benefit cost
|
|
$ |
108 |
|
|
$ |
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
assumptions used to determine net periodic pension
expense:
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
6.00 |
% |
|
|
6.00 |
% |
Rate
of compensation increase
|
|
|
5.00 |
% |
|
|
2.00 |
% |
The
unrecognized prior service cost is being amortized over a period of ten years.
In 2008, approximately $77 and $37 in prior service cost for SERP and the
Director Retirement Plan, respectively, is expected to be recognized as a
component of net periodic pension cost.
At
December 31, 2007, the benefit payments expected to be paid in each of the
next
five years and the aggregate for the five fiscal years thereafter are as
follows:
|
|
|
|
|
Director
|
|
|
|
|
|
|
Retirement
|
|
|
|
SERP
|
|
|
Plan
|
|
Years
ending December
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$ |
- |
|
|
$ |
196 |
|
2009
|
|
|
- |
|
|
|
- |
|
2010
|
|
|
- |
|
|
|
- |
|
2011
|
|
|
2,427 |
|
|
|
- |
|
2012
|
|
|
649 |
|
|
|
181 |
|
2013
through 2017, inclusive
|
|
|
- |
|
|
|
610 |
|
Total
expected benefit payments
|
|
$ |
3,076 |
|
|
$ |
987 |
|
The
Company does not expect to contribute assets to these plans for
2008.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
K – EMPLOYEE BENEFIT PLANS- Continued
Employee
Stock Ownership
Plan
In
connection with the Company’s 2005 initial public 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. In
connection with the Company’s second step conversion, the number of shares in
the plan has been adjusted by the exchange ratio of 1.04079 to total 667,458
shares. 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 allocation
period beginning in 2007.
As
part
of the Company’s 2007 second step conversion and offering, an additional 753,834
shares of common stock were contributed to the ESOP in exchange for a
twenty-year note. The loan amount was approximately $7,538 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. The
Board of Directors voted to use a twenty (20) year allocation period for the
ESOP benefit beginning in 2008.
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 the plan 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 $625, $406 and $376 for the years ended December 31, 2007,
2006
and 2005, respectively.
Shares
held by the ESOP, adjusted by the exchange ratio of 1.04079, include the
following:
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Allocated
|
|
|
64,738 |
|
|
|
33,372 |
|
|
|
- |
|
Committed
to be released
|
|
|
46,208 |
|
|
|
33,372 |
|
|
|
33,372 |
|
Unallocated
|
|
|
1,308,339 |
|
|
|
600,714 |
|
|
|
634,086 |
|
|
|
|
1,419,285 |
|
|
|
667,458 |
|
|
|
667,458 |
|
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, 2007, 2006 and 2005 was $14,281, $7,965 and $7,024,
respectively.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
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.
Financial
instruments with off-balance sheet risk at December 31, 2007 and 2006 are as
follows:
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Unused
lines of credit
|
|
$ |
146,579 |
|
|
$ |
135,374 |
|
Amounts
due mortgagors
|
|
|
31,168 |
|
|
|
34,742 |
|
Standby
letters of credit
|
|
|
1,627 |
|
|
|
879 |
|
Commitments
to originate loans
|
|
|
15,890 |
|
|
|
42,551 |
|
Included
in commitments to originate loans at December 31, 2007 and 2006 are fixed rate
commitments in the amount of $13,275 and $15,316, at interest ranges of 5.34%
to
8.25% and 5.25% to 9.00%, 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.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
L – COMMITMENTS
AND CONTINGENCIES – Concluded
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, 2007 and 2006 exceeds 100%.
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 Company 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 is subject to various legal actions arising in the normal course of
business. At December 31, 2007, the Company was not involved in any
material legal proceedings.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
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 include 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.
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
and Short-term Investments
For
cash
and short term investments having maturities of 90 days or less, the carrying
amounts reported in the balance sheets approximate fair values. The carrying
amount of short-term investments held at December 31, 2007 also approximates
fair value.
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.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
M – FAIR VALUE OF FINANCIAL INSTRUMENTS – Continued
Loans
For
valuation purposes, the loan portfolio was segregated into its significant
categories, which are residential mortgage, commercial real estate, commercial
and consumer loans. These categories were further segregated, where appropriate,
into components based on significant financial characteristics such as type
of
interest rate (fixed or adjustable). Fair values were estimated for each
component using a valuation method selected by management.
The
fair
values of residential mortgage, commercial real estate, commercial and consumer
loans were estimated by discounting the anticipated cash flows from the
respective portfolios. Estimates of the timing and amount of these cash flows
considered factors such as future loan prepayments. The discount rates reflected
current market rates for loans with similar terms to borrowers of similar credit
quality. The fair value of home equity lines of credit was based on the
outstanding loan balances, as required by SFAS No. 107.
Accrued
Interest Receivable
and Payable
The
carrying amount of accrued interest receivable on investments and loans and
accrued interest payable on deposits and borrowings, included in other
liabilities, approximates their fair values.
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.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
M – FAIR VALUE OF FINANCIAL INSTRUMENTS – Concluded
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 L, the
fair value equals the carrying amounts which are not significant.
The
fair
value of the Company’s financial instruments is as follows at December
31:
|
|
2007
|
|
|
2006
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Value
|
|
|
Fair
Value
|
|
|
Value
|
|
|
Fair
Value
|
|
Financial
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
14,254 |
|
|
$ |
14,254 |
|
|
$ |
25,419 |
|
|
$ |
25,419 |
|
Short-term
investments
|
|
|
1,030 |
|
|
|
1,030 |
|
|
|
- |
|
|
|
- |
|
Securities
available for sale
|
|
|
201,257 |
|
|
|
201,257 |
|
|
|
190,237 |
|
|
|
190,237 |
|
Securities
held to maturity
|
|
|
3,632 |
|
|
|
3,631 |
|
|
|
3,241 |
|
|
|
3,227 |
|
Stock
in Federal Home Loan Bank of Boston
|
|
|
10,257 |
|
|
|
10,257 |
|
|
|
9,274 |
|
|
|
9,274 |
|
Net
loans
|
|
|
819,117 |
|
|
|
822,309 |
|
|
|
756,180 |
|
|
|
733,196 |
|
Accrued
interest receivable
|
|
|
4,477 |
|
|
|
4,477 |
|
|
|
4,320 |
|
|
|
4,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
(with no stated maturity)
|
|
|
371,035 |
|
|
|
371,035 |
|
|
|
366,172 |
|
|
|
366,172 |
|
Time
deposits
|
|
|
347,647 |
|
|
|
347,828 |
|
|
|
319,514 |
|
|
|
318,916 |
|
Federal
Home Loan Bank of Boston advances
|
|
|
107,997 |
|
|
|
108,791 |
|
|
|
169,806 |
|
|
|
167,051 |
|
Accrued
interest payable
|
|
|
417 |
|
|
|
417 |
|
|
|
695 |
|
|
|
695 |
|
Repurchase
agreements
|
|
|
13,864 |
|
|
|
13,864 |
|
|
|
10,425 |
|
|
|
10,425 |
|
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.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
N – STOCKHOLDERS’ EQUITY – Concluded
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%.
The
OTS
capital rule requires savings associations to hold a ratio of 1.5% tangible
capital to tangible assets. Tangible equity is defined as core
capital less tangible assets. Tangible assets is defined as adjusted total
assets less intangible assets.
As
of
December 31, 2007, 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, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Risk-based Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
Risk Weighted Assets)
|
|
$ |
155,973 |
|
|
|
20.3% |
|
>
|
|
$ |
61,624 |
|
>
|
|
|
8.0% |
|
>
|
|
$ |
77,029 |
|
>
|
|
|
10.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I Risk-based Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
Risk Weighted Assets)
|
|
|
148,259 |
|
|
|
19.3% |
|
>
|
|
|
30,812 |
|
>
|
|
|
4.0% |
|
>
|
|
|
46,218 |
|
>
|
|
|
6.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I (Core) Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
Adjusted Total Assets)
|
|
|
148,259 |
|
|
|
14.0% |
|
>
|
|
|
42,347 |
|
>
|
|
|
4.0% |
|
>
|
|
|
52,934 |
|
>
|
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
Tangible Assets)
|
|
|
148,259 |
|
|
|
14.0% |
|
>
|
|
|
15,880 |
|
>
|
|
|
1.5% |
|
>
|
|
|
15,880 |
|
>
|
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Risk-based Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
Risk Weighted Assets)
|
|
$ |
111,045 |
|
|
|
15.9% |
|
>
|
|
$ |
56,000 |
|
>
|
|
|
8.0% |
|
>
|
|
$ |
70,000 |
|
>
|
|
|
10.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I Risk-based Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
Risk Weighted Assets)
|
|
|
103,827 |
|
|
|
14.8% |
|
>
|
|
|
28,000 |
|
>
|
|
|
4.0% |
|
>
|
|
|
42,000 |
|
>
|
|
|
6.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I (Core) Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
Adjusted Total Assets)
|
|
|
103,827 |
|
|
|
10.6% |
|
>
|
|
|
39,295 |
|
>
|
|
|
4.0% |
|
>
|
|
|
49,119 |
|
>
|
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
Tangible Assets)
|
|
|
103,827 |
|
|
|
10.6% |
|
>
|
|
|
14,736 |
|
>
|
|
|
1.5% |
|
>
|
|
|
14,736 |
|
>
|
|
|
1.5 |
% |
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
N – STOCKHOLDERS’ EQUITY – Concluded
The
following table provides a reconciliation of total consolidated equity per
the
consolidated financial statements to capital amounts for the Bank reflected
in
the above table:
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
Total
consolidated equity
|
|
$ |
226,120 |
|
|
$ |
137,711 |
|
Adjustments:
|
|
|
|
|
|
|
|
|
Additional
equity capital of United Financial Bancorp, Inc.
|
|
|
(77,802 |
) |
|
|
(35,433 |
) |
Accumulated
other comprehensive loss
|
|
|
169 |
|
|
|
1,951 |
|
Disallowed
goodwill and intangible assets
|
|
|
(258 |
) |
|
|
(289 |
) |
Other
|
|
|
30 |
|
|
|
(113 |
) |
Tangible,
Tier I and Core Capital
|
|
|
148,259 |
|
|
|
103,827 |
|
Allowance
for loan losses
|
|
|
7,714 |
|
|
|
7,218 |
|
Total
risk-based capital
|
|
$ |
155,973 |
|
|
$ |
111,045 |
|
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, 2007 and 2006, the Company
repurchased 82,697 and 1,945 shares at a cost of approximately $1,263 and $27,
respectively, under this plan. In connection with the Company’s second step
conversion and offering, which closed on December 3, 2007, all treasury shares
were cancelled and the repurchase plan approved in 2006 was
terminated.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(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,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$ |
- |
|
|
$ |
336 |
|
Interest-bearing
deposits
|
|
|
44,157 |
|
|
|
7,344 |
|
Total
cash and cash equivalents
|
|
|
44,157 |
|
|
|
7,680 |
|
|
|
|
|
|
|
|
|
|
Short-term
investments
|
|
|
1,030 |
|
|
|
- |
|
Investment
in Bank
|
|
|
148,318 |
|
|
|
102,278 |
|
Securities
available for sale, at fair value
|
|
|
18,606 |
|
|
|
21,441 |
|
ESOP
loan receivable
|
|
|
13,160 |
|
|
|
5,891 |
|
Other
assets
|
|
|
1,392 |
|
|
|
827 |
|
TOTAL
ASSETS
|
|
$ |
226,663 |
|
|
$ |
138,117 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
$ |
543 |
|
|
$ |
406 |
|
Stockholders’
equity
|
|
|
226,120 |
|
|
|
137,711 |
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$ |
226,663 |
|
|
$ |
138,117 |
|
STATEMENTS
OF
INCOME
|
|
Years
Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Income:
|
|
|
|
|
|
|
|
|
|
Investment
interest
|
|
$ |
1,252 |
|
|
$ |
1,258 |
|
|
$ |
617 |
|
ESOP
loan interest
|
|
|
536 |
|
|
|
439 |
|
|
|
189 |
|
Loss
on sale of securities
|
|
|
- |
|
|
|
(9 |
) |
|
|
- |
|
Total
income
|
|
|
1,788 |
|
|
|
1,688 |
|
|
|
806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Charitable
contribution to Foundation
|
|
|
- |
|
|
|
- |
|
|
|
3,591 |
|
Professional
services
|
|
|
1,105 |
|
|
|
958 |
|
|
|
266 |
|
Other
expenses
|
|
|
43 |
|
|
|
31 |
|
|
|
63 |
|
Total
expense
|
|
|
1,148 |
|
|
|
989 |
|
|
|
3,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes and equity in undistributed earnings in
the
Bank
|
|
|
640 |
|
|
|
699 |
|
|
|
(3,114 |
) |
Income
tax expense (benefit)
|
|
|
261 |
|
|
|
235 |
|
|
|
(894 |
) |
Income
(loss) before equity in undistributed earnings of the Bank
|
|
|
379 |
|
|
|
464 |
|
|
|
(2,220 |
) |
Equity
in undistributed earnings of the Bank
|
|
|
3,998 |
|
|
|
4,460 |
|
|
|
6,589 |
|
NET
INCOME
|
|
$ |
4,377 |
|
|
$ |
4,924 |
|
|
$ |
4,369 |
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
O –
|
CONDENSED
FINANCIAL STATEMENTS OF UNITED FINANCIAL BANCORP, INC. –
Concluded
|
STATEMENTS
OF CASH
FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
4,377 |
|
|
$ |
4,924 |
|
|
$ |
4,369 |
|
Adjustments
to reconcile net income to net cash (used in) provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in undistributed earnings of the bank
|
|
|
(3,998 |
) |
|
|
(4,460 |
) |
|
|
(6,589 |
) |
Net
amortization of discounts and premiums
|
|
|
(27 |
) |
|
|
(83 |
) |
|
|
(46 |
) |
Net
loss on sale of available for sale securities
|
|
|
- |
|
|
|
9 |
|
|
|
- |
|
(Decrease)
increase in deferred income taxes
|
|
|
(525 |
) |
|
|
3 |
|
|
|
255 |
|
Charitable
contribution to Foundation
|
|
|
- |
|
|
|
- |
|
|
|
3,649 |
|
Decrease
(increase) in accrued interest receivable
|
|
|
17 |
|
|
|
57 |
|
|
|
(322 |
) |
Decrease
(increase) in other assets
|
|
|
83 |
|
|
|
(717 |
) |
|
|
(182 |
) |
Intercompany
payables and other liabilities
|
|
|
136 |
|
|
|
233 |
|
|
|
107 |
|
Net
cash provided by (used in) operating activities
|
|
|
63 |
|
|
|
(34 |
) |
|
|
1,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of securities available for sale
|
|
|
(12,059 |
) |
|
|
(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
|
|
|
15,181 |
|
|
|
6,934 |
|
|
|
1,676 |
|
Investment
in short term time deposits
|
|
|
(1,030 |
) |
|
|
- |
|
|
|
- |
|
Loan
to fund ESOP
|
|
|
(7,538 |
) |
|
|
- |
|
|
|
(6,413 |
) |
Principal
payments on ESOP loan
|
|
|
(270 |
) |
|
|
158 |
|
|
|
364 |
|
Net
cash (used in) provided by investing activities
|
|
|
(5,716 |
) |
|
|
9,988 |
|
|
|
(37,336 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in United Bank
|
|
|
(45,152 |
) |
|
|
3,579 |
|
|
|
(38,818 |
) |
Treasury
stock purchases
|
|
|
(1,250 |
) |
|
|
(4,405 |
) |
|
|
- |
|
Cash
dividends paid
|
|
|
(1,757 |
) |
|
|
(1,462 |
) |
|
|
- |
|
Net
proceeds from stock issuance
|
|
|
90,289 |
|
|
|
- |
|
|
|
74,822 |
|
Net
cash provided by (used in) financing activities
|
|
|
42,130 |
|
|
|
(2,288 |
) |
|
|
36,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
36,477 |
|
|
|
7,666 |
|
|
|
(91 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
7,680 |
|
|
|
14 |
|
|
|
105 |
|
Cash
and cash equivalents at end of period
|
|
$ |
44,157 |
|
|
$ |
7,680 |
|
|
$ |
14 |
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes – net
|
|
|
1,097 |
|
|
|
229 |
|
|
|
175 |
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes
to
Consolidated Financial Statements – Continued
December
31, 2007, 2006 and 2005
(Dollars
in thousands, except per share amounts)
NOTE
P – QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The
following table summarizes the operating results on a quarterly basis for the
years ended December 31, 2007 and 2006.
|
|
Three
Months Ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
14,312 |
|
|
$ |
14,513 |
|
|
$ |
14,976 |
|
|
$ |
15,449 |
|
Interest
expense
|
|
|
7,356 |
|
|
|
7,378 |
|
|
|
7,723 |
|
|
|
7,626 |
|
Net
interest income
|
|
|
6,956 |
|
|
|
7,135 |
|
|
|
7,253 |
|
|
|
7,823 |
|
Provision
for loan losses
|
|
|
284 |
|
|
|
320 |
|
|
|
436 |
|
|
|
385 |
|
Non-interest
income
|
|
|
1,398 |
|
|
|
1,435 |
|
|
|
1,412 |
|
|
|
1,490 |
|
Non-interest
expense
|
|
|
6,647 |
|
|
|
6,575 |
|
|
|
6,131 |
|
|
|
6,686 |
|
Income
before income taxes
|
|
|
1,423 |
|
|
|
1,675 |
|
|
|
2,098 |
|
|
|
2,242 |
|
Income
tax expense
|
|
|
589 |
|
|
|
697 |
|
|
|
807 |
|
|
|
968 |
|
Net
income
|
|
$ |
834 |
|
|
$ |
978 |
|
|
$ |
1,291 |
|
|
$ |
1,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.05 |
|
|
$ |
0.06 |
|
|
$ |
0.08 |
|
|
$ |
0.08 |
|
Diluted
earnings per share
|
|
$ |
0.05 |
|
|
$ |
0.06 |
|
|
$ |
0.08 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
$ |
0.07 |
|
|
$ |
0.09 |
|
|
$ |
0.05 |
|
Diluted
earnings per share
|
|
$ |
0.08 |
|
|
$ |
0.07 |
|
|
$ |
0.09 |
|
|
$ |
0.05 |
|
Net
interest income increased $570, or 12.8% to $7.8 million for the fourth quarter
of 2007 from $7.3 million for the prior quarter in 2007 primarily as a
result of growth in earning assets funded by net proceeds from the second-step
conversion and stock offering completed on December 3, 2007.
ITEM
9.
|
CHANGES
IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
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
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, 2007, 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, 2007, the Company’s internal control over financial reporting
was effective based on the criteria established in Internal Control—Integrated
Framework.
Registered
Public Accounting
Firm’s Report on
Internal
Control Over
Financial Reporting
To
the Board of Directors
of
United
Financial Bancorp, Inc.:
We
have audited United Financial
Bancorp, Inc’s internal control over financial reporting as of December 31,
2007, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). United Financial Bancorp, Inc.’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, included in the accompanying Management’s Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion
on United Financial Bancorp, Inc’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, assessing
the
risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, 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, United Financial
Bancorp, Inc. maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2007, based on criteria established
in Internal Control-Integrated
Framework issued by COSO.
We
also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United
States), the 2007 consolidated financial statements of United Financial Bancorp,
Inc. and subsidiary and our report dated March 12, 2008 expressed an unqualified
opinion thereon.
/s/
Grant Thornton
LLP
Boston,
Massachusetts
March
12,
2008
|
(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 2008 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 2008
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
2008 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 2008 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 2008 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, 2007 and
2006
|
|
(C)
|
Consolidated
Statements of Earnings - Years Ended December 31, 2007, 2006 and
2005
|
|
(D)
|
Consolidated
Statements of Stockholders’ Equity and Comprehensive Income - Years Ended
December 31, 2007, 2006 and 2005
|
|
(E)
|
Consolidated
Statements of Cash Flows - Years ended December 31, 2007, 2006 and
2005
|
|
(F)
|
Notes
to Consolidated Financial
Statements.
|
|
(a)(2)
|
Financial
Statement
Schedules
|
None.
3.1
|
Articles
of Incorporation of United Financial Bancorp, Inc. (1)
|
3.2
|
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 (3)
|
10.2
|
Employment
Agreement by and between United Bank and Richard B. Collins
(4)
|
10.3
|
Change
in Control Agreement by and between United Bank and Keith E. Harvey
(4)
|
10.4
|
Change
in Control Agreement by and between United Bank and J. Jeffrey
Sullivan
(4)
|
10.5
|
Change
in Control Agreement by and between United Bank and Mark A. Roberts
(4)
|
10.6
|
United
Bank 2007 Supplemental Retirement Plan for Senior Executives
(4)
|
10.7
|
Split
Dollar Life Insurance Agreement by and between United Bank and
Richard B.
Collins (5)
|
10.8
|
Split
Dollar Life Insurance Agreement by and between United Bank and
Keith E.
Harvey (5)
|
10.9
|
Split
Dollar Life Insurance Agreement by and between United Bank and
John J.
Patterson (5)
|
10.10
|
United
Bank 2006 Stock-Based Incentive Plan (6)
|
|
United
Bank 2007 Annual Incentive Plan
|
10.12
|
United
Bank 2007 Director Retirement Plan (7)
|
10.13
|
Directors
Fee Continuation Plan (3)
|
10.14
|
Deferred
Income Agreement by and between United Bank and Donald G. Helliwell
(3)
|
10.15
|
Deferred
Income Agreement by and between United Bank and Robert W. Bozenhard,
Jr.
(3)
|
10.16
|
Deferred
Income Agreement by and between United Bank and George W. Jones
(3)
|
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)
|
|
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
|
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
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. 333-144245), originally filed with the
Securities
and Exchange Commission on June 29, 2007.
|
(2)
|
Incorporated
by reference to the Form 8-K of United Financial Bancorp, Inc.
filed with
the Securities and Exchange Commission on January 18,
2008.
|
(3)
|
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.
|
(4)
|
Incorporated
by reference to the Form 8-K of United Financial Bancorp, Inc.
filed with
the Securities and Exchange Commission on November 29,
2007.
|
(5)
|
Incorporated
by reference to the Form 8-K of United Financial Bancorp, Inc.
filed with
the Securities and Exchange Commission on January 2,
2008.
|
(6)
|
Incorporated
by reference to Appendix B to the proxy statement for the 2006
Annual
Meeting of Stockholders of United Financial Bancorp, Inc. (File
No.
000-51369), filed by United Financial Bancorp, Inc. under the Securities
Exchange Act of 1934, on June 12,
2006.
|
(7)
|
Incorporated
by reference to the Form 8-K of United Financial Bancorp, Inc.
filed with
the Securities and Exchange Commission on November 21,
2007.
|
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.
|
UNITED
FINANCIAL BANCORP, INC.
|
|
|
|
|
Date:
March
14,
2008
|
By:
|
/s/
Richard B.
Collins
|
|
|
Richard
B. Collins
|
|
|
Chairman,
President and Chief Executive Officer
|
|
|
(Duly
Authorized Representative)
|
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
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Richard B. Collins
|
|
Chief
Executive Officer,
|
|
March
14,
2008
|
Richard
B. Collins
|
|
President
and Chairman (Principal Executive Officer)
|
|
|
|
|
|
|
|
/s/
Mark A. Roberts
|
|
Executive
Vice President and
|
|
March
14,
2008
|
Mark
A. Roberts
|
|
Chief
Financial Officer (Principal Financial and Accounting
Officer)
|
|
|
|
|
|
|
|
/s/
Michael F. Crowley
|
|
Director
|
|
March
14,
2008
|
Michael
F. Crowley
|
|
|
|
|
|
|
|
|
|
/s/
Carol Moore Cutting
|
|
Director
|
|
March
14,
2008
|
Carol
Moore Cutting
|
|
|
|
|
|
|
|
|
|
/s/
Carol A. Leary
|
|
Director
|
|
March
14,
2008
|
Carol
A. Leary
|
|
|
|
|
|
|
|
|
|
/s/
G. Todd Marchant
|
|
Director
|
|
March
14,
2008
|
G.
Todd Marchant
|
|
|
|
|
|
|
|
|
|
/s/
Kevin E. Ross
|
|
Director
|
|
March
14,
2008
|
Kevin
E. Ross
|
|
|
|
|
|
|
|
|
|
/s/
Robert A. Stewart, Jr.
|
|
Director
|
|
March
14,
2008
|
Robert
A. Stewart, Jr.
|
|
|
|
|
|
|
|
|
|
/s/
Thomas H. Themistos
|
|
Director
|
|
March
14,
2008
|
Thomas
H. Themistos
|
|
|
|
|
|
|
|
|
|
/s/
Michael F. Werenski
|
|
Director
|
|
March
14,
2008
|
Michael
F. Werenski
|
|
|
|
|
67