form10q-91451_ubnk.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
ý
|
Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
|
For
the quarterly period ended March 31, 2008
OR
o
|
Transition
report pursuant to section 13 or 15(d) of the Securities Exchange Act of
1934
|
|
For
the transition period from ______________ to _____________
Commission
File Number 000-1405049
United Financial Bancorp,
Inc.
(Exact
name of registrant as specified in its charter)
Federal
|
74-3242562
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
Number)
|
95 Elm Street, West
Springfield, Massachusetts 01089
(Address
of principal executive offices)
Registrant's
telephone number, including area code: (413)
787-1700
Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No
¨.
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 x
|
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
x.
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Common
stock, $0.01 par value
17,763,747
shares outstanding as of May 8, 2008
United
Financial Bancorp, Inc.
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28
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Exhibit
31.1
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Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
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29
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Exhibit
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
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30
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Exhibit
32.1
|
Statement
of Chief Executive Officer Furnished Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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31
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Exhibit
32.2
|
Statement
of Chief Financial Officer Furnished Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
32
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|
FINANCIAL
INFORMATION
|
|
Consolidated
Financial Statements
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CONDITION
(Dollars
in thousands, except per share amounts)
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$ |
12,698 |
|
|
$ |
14,219 |
|
Interest-bearing
deposits
|
|
|
3,086 |
|
|
|
35 |
|
Total
cash and cash equivalents
|
|
|
15,784 |
|
|
|
14,254 |
|
|
|
|
|
|
|
|
|
|
Short-term
investments
|
|
|
1,043 |
|
|
|
1,030 |
|
Securities
available for sale, at fair value
|
|
|
271,377 |
|
|
|
201,257 |
|
Securities
to be held to maturity, at amortized cost (fair value $3,658
at
|
|
|
|
|
|
|
|
|
March
31, 2008 and $3,631 at December 31, 2007)
|
|
|
3,630 |
|
|
|
3,632 |
|
Loans,
net of allowance for loan losses of $7,646 at March 31, 2008
and
|
|
|
|
|
|
|
|
|
$7,714
at December 31, 2007
|
|
|
819,512 |
|
|
|
819,117 |
|
Other
real estate owned
|
|
|
1,030 |
|
|
|
880 |
|
Accrued
interest receivable
|
|
|
4,580 |
|
|
|
4,477 |
|
Stock
in the Federal Home Loan Bank of Boston
|
|
|
10,257 |
|
|
|
10,257 |
|
Banking
premises and equipment, net
|
|
|
10,579 |
|
|
|
10,600 |
|
Bank-owned
life insurance
|
|
|
6,733 |
|
|
|
6,652 |
|
Other
assets
|
|
|
8,772 |
|
|
|
7,125 |
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
1,153,297 |
|
|
$ |
1,079,281 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Interest-bearing
|
|
$ |
646,705 |
|
|
$ |
616,672 |
|
Non-interest-bearing
|
|
|
108,819 |
|
|
|
102,010 |
|
Total
deposits
|
|
|
755,524 |
|
|
|
718,682 |
|
Federal
Home Loan Bank of Boston advances
|
|
|
141,409 |
|
|
|
107,997 |
|
Repurchase
agreements
|
|
|
9,686 |
|
|
|
13,864 |
|
Escrow
funds held for borrowers
|
|
|
1,514 |
|
|
|
1,356 |
|
Capitalized
lease obligation
|
|
|
1,880 |
|
|
|
1,890 |
|
Due
to broker
|
|
|
8,410 |
|
|
|
- |
|
Accrued
expenses and other liabilities
|
|
|
6,462 |
|
|
|
9,372 |
|
Total
liabilities
|
|
|
924,885 |
|
|
|
853,161 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, par value $0.01 per share, authorized 50,000,000
shares;
|
|
|
|
|
|
|
|
|
none
issued
|
|
|
- |
|
|
|
- |
|
Common
stock, par value $0.01 per share, authorized 100,000,000
shares;
|
|
|
|
|
|
|
|
|
17,763,747
shares issued at March 31, 2008 and at December 31, 2007
|
|
|
178 |
|
|
|
178 |
|
Paid-in
capital
|
|
|
166,289 |
|
|
|
165,920 |
|
Retained
earnings
|
|
|
74,005 |
|
|
|
73,026 |
|
Unearned
compensation
|
|
|
(12,659 |
) |
|
|
(12,835 |
) |
Accumulated
other comprehensive income (loss), net of taxes
|
|
|
599 |
|
|
|
(169 |
) |
Total
stockholders’ equity
|
|
|
228,412 |
|
|
|
226,120 |
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$ |
1,153,297 |
|
|
$ |
1,079,281 |
|
|
|
|
|
|
|
|
|
|
See notes
to unaudited consolidated financial statements
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS (unaudited)
(Dollars
in thousands, except per share amounts)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
Interest
and dividend income:
|
|
|
|
|
|
|
Loans
|
|
$ |
12,547 |
|
|
$ |
11,955 |
|
Investments
|
|
|
2,618 |
|
|
|
1,982 |
|
Other
interest-earning assets
|
|
|
241 |
|
|
|
375 |
|
Total
interest and dividend income
|
|
|
15,406 |
|
|
|
14,312 |
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
4,973 |
|
|
|
5,181 |
|
Borrowings
|
|
|
1,402 |
|
|
|
2,175 |
|
Total
interest expense
|
|
|
6,375 |
|
|
|
7,356 |
|
|
|
|
|
|
|
|
|
|
Net
interest income before provision for loan losses
|
|
|
9,031 |
|
|
|
6,956 |
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
184 |
|
|
|
284 |
|
|
|
|
|
|
|
|
|
|
Net
interest income after provision for loan losses
|
|
|
8,847 |
|
|
|
6,672 |
|
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
Fee
income on depositors’ accounts
|
|
|
1,077 |
|
|
|
1,038 |
|
Net
gain on sale of securities
|
|
|
8 |
|
|
|
14 |
|
Wealth
management income
|
|
|
150 |
|
|
|
121 |
|
Other
income
|
|
|
284 |
|
|
|
225 |
|
Total
non-interest income
|
|
|
1,519 |
|
|
|
1,398 |
|
|
|
|
|
|
|
|
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
|
4,041 |
|
|
|
3,838 |
|
Occupancy
expenses
|
|
|
509 |
|
|
|
491 |
|
Marketing
expenses
|
|
|
358 |
|
|
|
322 |
|
Data
processing expenses
|
|
|
719 |
|
|
|
642 |
|
Professional
fees
|
|
|
443 |
|
|
|
389 |
|
Other
expenses
|
|
|
1,106 |
|
|
|
965 |
|
Total
non-interest expense
|
|
|
7,176 |
|
|
|
6,647 |
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
3,190 |
|
|
|
1,423 |
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
1,224 |
|
|
|
589 |
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
1,966 |
|
|
$ |
834 |
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.12 |
|
|
$ |
0.05 |
|
Diluted
|
|
$ |
0.12 |
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,230,847 |
|
|
|
16,937,538 |
|
Diluted
|
|
|
16,271,404 |
|
|
|
16,999,468 |
|
See notes to unaudited consolidated
financial statements.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 and
2007
|
(Dollars
in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Shares
|
|
|
Common
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Unearned
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
|
|
|
|
Outstanding
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Stock
|
|
|
Income
(Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2006
|
|
|
17,154,550 |
|
|
$ |
172 |
|
|
$ |
75,520 |
|
|
$ |
70,406 |
|
|
$ |
(5,772 |
) |
|
$ |
(664 |
) |
|
$ |
(1,951 |
) |
|
$ |
137,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
834 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
834 |
|
Other
comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
443 |
|
|
|
443 |
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared ($0.06 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(442 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(442 |
) |
Treasury
stock purchases
|
|
|
(58,416 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(849 |
) |
|
|
- |
|
|
|
(849 |
) |
Stock-based
compensation
|
|
|
- |
|
|
|
- |
|
|
|
628 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
628 |
|
ESOP
shares committed to be released
|
|
|
- |
|
|
|
- |
|
|
|
49 |
|
|
|
- |
|
|
|
111 |
|
|
|
- |
|
|
|
- |
|
|
|
160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at March 31, 2007
|
|
|
17,096,134 |
|
|
$ |
172 |
|
|
$ |
76,197 |
|
|
$ |
70,798 |
|
|
$ |
(5,661 |
) |
|
$ |
(1,513 |
) |
|
$ |
(1,508 |
) |
|
$ |
138,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2007
|
|
|
17,763,747 |
|
|
$ |
178 |
|
|
$ |
165,920 |
|
|
$ |
73,026 |
|
|
$ |
(12,835 |
) |
|
$ |
- |
|
|
$ |
(169 |
) |
|
$ |
226,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,966 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,966 |
|
Other
comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
768 |
|
|
|
768 |
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
costs from issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pursuant
to second-step conversion
|
|
|
- |
|
|
|
- |
|
|
|
(26 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(26 |
) |
Cash
dividends declared ($0.06 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(987 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(987 |
) |
Stock-based
compensation
|
|
|
- |
|
|
|
- |
|
|
|
375 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
375 |
|
ESOP
shares committed to be released
|
|
|
- |
|
|
|
- |
|
|
|
20 |
|
|
|
- |
|
|
|
176 |
|
|
|
- |
|
|
|
- |
|
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at March 31, 2008
|
|
|
17,763,747 |
|
|
$ |
178 |
|
|
$ |
166,289 |
|
|
$ |
74,005 |
|
|
$ |
(12,659 |
) |
|
$ |
- |
|
|
$ |
599 |
|
|
$ |
228,412 |
|
The
components of comprehensive income and related tax effects are as
follows:
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Change
in unrealized holding gains on available-for-sale
securities
|
|
$ |
1,225 |
|
|
$ |
749 |
|
Reclassification
adjustment for gains realized in income
|
|
|
(8 |
) |
|
|
(14 |
) |
Net
change in unrealized gains
|
|
|
1,217 |
|
|
|
735 |
|
|
|
|
|
|
|
|
|
|
Tax
effect
|
|
|
449 |
|
|
|
292 |
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
$ |
768 |
|
|
$ |
443 |
|
At March
31, 2008, the components of accumulated other comprehensive income, net of tax,
was comprised of an unrealized gain on securities available for sale
of approximately $1.3 million and a loss of $681,000 related to a
pension liability adjustment.
See notes to unaudited consolidated
financial statements.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS (unaudited)
FOR THE
THREE MONTHS ENDED MARCH 31, 2008 and 2007
(Dollars
in thousands)
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
1,966 |
|
|
$ |
834 |
|
Adjustments
to reconcile net income to net cash provided by (used in)
operating
|
|
|
|
|
|
|
|
|
activities:
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
184 |
|
|
|
284 |
|
ESOP
expense
|
|
|
196 |
|
|
|
160 |
|
Stock-based
compensation
|
|
|
375 |
|
|
|
628 |
|
Amortization
of premiums and discounts
|
|
|
32 |
|
|
|
(9 |
) |
Depreciation
and amortization
|
|
|
194 |
|
|
|
230 |
|
Amortization
of intangible assets
|
|
|
8 |
|
|
|
8 |
|
Net
gain on sale of other real estate owned
|
|
|
- |
|
|
|
(14 |
) |
Net
gain on sale of securities
|
|
|
(8 |
) |
|
|
(14 |
) |
Increase
in cash surrender value of bank-owned life insurance
|
|
|
(81 |
) |
|
|
(169 |
) |
Increase
in accrued interest receivable
|
|
|
(103 |
) |
|
|
(110 |
) |
Increase
in other assets
|
|
|
(2,104 |
) |
|
|
(124 |
) |
Decrease
in accrued expenses and other liabilities
|
|
|
(2,887 |
) |
|
|
(878 |
) |
Net
cash (used in) provided by operating activities
|
|
|
(2,228 |
) |
|
|
826 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of securities available for sale
|
|
|
(116,039 |
) |
|
|
(5,129 |
) |
Proceeds
from sales of securities available for sale
|
|
|
26,434 |
|
|
|
2,684 |
|
Proceeds
from maturities, calls and principal repayments of securities available
for sale
|
|
|
29,090 |
|
|
|
21,967 |
|
Purchases
of securities held to maturity
|
|
|
- |
|
|
|
(675 |
) |
Investment
in short term time deposits
|
|
|
(13 |
) |
|
|
- |
|
Purchases
of Federal Home Loan Bank of Boston stock
|
|
|
- |
|
|
|
(611 |
) |
Proceeds
from sales of other real estate owned
|
|
|
- |
|
|
|
576 |
|
Net
loan originations and principal repayments
|
|
|
(729 |
) |
|
|
(24,009 |
) |
Purchases
of property and equipment
|
|
|
(170 |
) |
|
|
(147 |
) |
Net
cash used in investing activities
|
|
|
(61,427 |
) |
|
|
(5,344 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Net
increase in deposits
|
|
|
36,842 |
|
|
|
31,253 |
|
Increase
(decrease) in short term borrowings
|
|
|
11,145 |
|
|
|
(20,000 |
) |
Proceeds
of Federal Home Loan Bank of Boston long term advances
|
|
|
25,000 |
|
|
|
15,000 |
|
Repayments
of Federal Home Loan Bank of Boston long term advances
|
|
|
(2,733 |
) |
|
|
(2,635 |
) |
Net
decrease in repurchase agreements
|
|
|
(4,178 |
) |
|
|
(1,600 |
) |
Net
increase in escrow funds held for borrowers
|
|
|
158 |
|
|
|
416 |
|
Treasury
stock purchases
|
|
|
- |
|
|
|
(849 |
) |
Cash
dividends paid
|
|
|
(987 |
) |
|
|
(442 |
) |
Costs
from issuance of common stock pursuant to second-step
conversion
|
|
|
(26 |
) |
|
|
- |
|
Payments
on capitalized lease obligation
|
|
|
(36 |
) |
|
|
- |
|
Net
cash provided by financing activities
|
|
|
65,185 |
|
|
|
21,143 |
|
Increase
in cash and cash equivalents
|
|
|
1,530 |
|
|
|
16,625 |
|
Cash
and cash equivalents at beginning of period
|
|
|
14,254 |
|
|
|
25,419 |
|
Cash
and cash equivalents at end of period
|
|
$ |
15,784 |
|
|
$ |
42,044 |
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period:
|
|
|
|
|
|
|
|
|
Interest
on deposits, borrowings and other interest bearing
liabilities
|
|
$ |
6,349 |
|
|
$ |
7,351 |
|
Income
taxes – net
|
|
|
5,801 |
|
|
|
877 |
|
Non-cash
item:
|
|
|
|
|
|
|
|
|
Capitalized
lease asset and obligation
|
|
$ |
- |
|
|
$ |
1,932 |
|
Transfer
of loans to other real estate owned
|
|
|
150 |
|
|
|
- |
|
Trade
date accounting for securities purchased
|
|
|
8,410 |
|
|
|
- |
|
See notes to unaudited consolidated
financial statements.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
Dollars
in Thousands (except per share amounts)
NOTE
A – BASIS OF PRESENTATION
The
consolidated financial statements include the accounts of United Financial
Bancorp, Inc. and its wholly owned subsidiary, United Bank. The consolidated
financial statements also include the accounts of United Bank’s wholly owned
subsidiary, UCB Securities, Inc., which is engaged in buying, selling and
holding investment securities. These entities are collectively referred to
herein as “the Company.” All significant intercompany accounts and transactions
have been eliminated in consolidation.
The
accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
(“GAAP”) and with general practices within the banking industry. In the opinion
of management, the accompanying unaudited interim consolidated financial
statements reflect all adjustments, consisting of normal recurring adjustments,
which are necessary for the fair presentation of the Company’s financial
condition as of March 31, 2008 and the results of operations for the three
months ended March 31, 2008 and 2007. The interim results of
operations presented herein are not necessarily indicative of the results to be
expected for the entire year. These financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto for
the year ended December 31, 2007 included in the Company’s Annual Report on Form
10-K, which was filed by the Company with the Securities and Exchange
Commission.
Amounts
reported for prior periods are reclassified as necessary to conform to the
current period presentation.
NOTE
B – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
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 adoption of this Interpretation as of
January 1, 2008, had no material impact on the Company’s financial condition or
results of operations.
In March
2007, the FASB ratified EITF Issue No. 06-10, “Accounting for Collateral
Assignment Split-Dollar Life Insurance Agreements,” which provides guidance for
determining a liability for the postretirement benefit obligation as well as
recognition and measurement of the associated asset on the basis of the terms of
the collateral assignment agreement. EITF 06-10 is effective for fiscal years
beginning after December 15, 2007. The adoption of this Interpretation as of
January 1, 2008, had no material effect on the Company’s results of operations
or financial condition.
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. The Company adopted SFAS No.157 on January 1, 2008. The adoption
of this Standard had no material effect on the Company’s results of operations
or financial condition.
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. The Company did not elect fair value
treatment for any financial assets or liabilities upon the adoption of this
Standard at January 1, 2008.
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.
NOTE
C – CRITICAL ACCOUNTING POLICIES
In
preparing the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the balance
sheet as well as revenues and expenses for the reporting period. Actual results
could differ from these estimates.
The
allowance for loan losses is a critical accounting estimate because it is highly
susceptible to change from period to period. Arriving at an appropriate level
for the allowance for loan losses necessarily involves a high degree of
judgment. While management uses available information to recognize losses on
loans, future additions to the allowance for loans may be necessary based on
changes in the factors considered in evaluating the adequacy of the allowance,
including prior loss experience, current economic conditions and their effect on
borrowers, the character and size of the portfolio, trends in nonperforming
loans and delinquency rates and the performance of individual loans in relation
to contractual terms.
The
assessment of whether a valuation allowance for the Company’s deferred tax
assets is required is also a critical accounting estimate. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of such assets will not be
realized. This assessment is made each reporting period based upon an
estimate of future taxable income during the periods in which existing temporary
differences become deductible.
NOTE
D – EARNINGS PER SHARE
Earnings
per share have been computed in accordance with SFAS No. 128,
“Earnings Per Share.” Basic earnings per share have been calculated by dividing
net income by weighted average shares outstanding before any dilution and are
adjusted to exclude the weighted average number of unallocated shares held by
the ESOP and unvested restricted stock awards. Diluted earnings per share have
been calculated by dividing net income by weighted average shares outstanding
after giving effect to the potential dilution that could occur if potential
common shares were converted into common stock using the treasury stock
method.
The
calculation of basic and diluted earnings per common share for the periods
indicated is presented below.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Net
income
|
|
$ |
1,966 |
|
|
$ |
834 |
|
Weighted
average common shares applicable to basic EPS (1)
|
|
|
16,230,847 |
|
|
|
16,937,538 |
|
Effect of dilutive potential
common shares (2, 3)
|
|
|
40,557 |
|
|
|
61,930 |
|
Weighted
average common shares applicable to diluted EPS
|
|
|
16,271,404 |
|
|
|
16,999,468 |
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.12 |
|
|
$ |
0.05 |
|
Diluted
|
|
$ |
0.12 |
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
(1) 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 three months ended March 31, 2008 and March 31, 2007, options to
purchase 785,275 and 778,510 shares,
|
respectively, were outstanding but not included in the computation of
earnings per share because they were antidilutive.
|
(3) Includes
incremental shares related to stock options and restricted
stock.
|
|
NOTE
E – LOANS
The
components of loans were as follows at March 31, 2008 and December 31,
2007:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
One-to-four
family residential real estate
|
|
$ |
343,480 |
|
|
$ |
339,470 |
|
Commercial
real estate
|
|
|
213,322 |
|
|
|
214,776 |
|
Construction
|
|
|
41,002 |
|
|
|
42,059 |
|
Home
equity
|
|
|
115,931 |
|
|
|
116,241 |
|
Commercial
and industrial
|
|
|
81,385 |
|
|
|
81,562 |
|
Automobile
|
|
|
21,170 |
|
|
|
22,461 |
|
Consumer
|
|
|
8,697 |
|
|
|
8,126 |
|
Total
loans
|
|
|
824,987 |
|
|
|
824,695 |
|
|
|
|
|
|
|
|
|
|
Net
deferred loan costs and fees
|
|
|
2,171 |
|
|
|
2,136 |
|
Allowance
for loan losses
|
|
|
(7,646 |
) |
|
|
(7,714 |
) |
Loans,
net
|
|
$ |
819,512 |
|
|
$ |
819,117 |
|
NOTE
F – NON-PERFORMING ASSETS
The table
below sets forth the amounts and categories of non-performing assets at the
dates indicated.
|
|
At
March 31,
|
|
|
At
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Non-accrual
loans:
|
|
|
|
|
|
|
Residential
mortgages
|
|
$ |
1,348 |
|
|
$ |
328 |
|
Commercial
mortgages
|
|
|
526 |
|
|
|
553 |
|
Construction
|
|
|
485 |
|
|
|
577 |
|
Home
equity
|
|
|
- |
|
|
|
52 |
|
Commercial
and industrial
|
|
|
271 |
|
|
|
275 |
|
Automobile
|
|
|
- |
|
|
|
- |
|
Other
consumer
|
|
|
49 |
|
|
|
- |
|
Total
non-accrual loans
|
|
|
2,679 |
|
|
|
1,785 |
|
|
|
|
|
|
|
|
|
|
Accruing
loans 90 days or more past due
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total
non-performing loans
|
|
|
2,679 |
|
|
|
1,785 |
|
|
|
|
|
|
|
|
|
|
Other
real estate owned
|
|
|
1,030 |
|
|
|
880 |
|
Total
non-performing assets
|
|
$ |
3,709 |
|
|
$ |
2,665 |
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
Total
non-performing loans to total loans
|
|
|
0.32 |
% |
|
|
0.22 |
% |
Total
non-performing assets to total assets
|
|
|
0.32 |
% |
|
|
0.25 |
% |
NOTE
G – ALLOWANCE FOR LOAN LOSSES
A summary
of the activity in the allowance for loan losses is as follows:
|
|
For
the Three Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$ |
7,714 |
|
|
$ |
7,218 |
|
Provision
for loan losses
|
|
|
184 |
|
|
|
284 |
|
Charge-offs
|
|
|
(253 |
) |
|
|
(76 |
) |
Recoveries
|
|
|
1 |
|
|
|
- |
|
Balance
at end of period
|
|
$ |
7,646 |
|
|
$ |
7,426 |
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
Net
charge-offs to average loans
|
|
|
|
|
|
|
|
|
outstanding
(annualized)
|
|
|
0.12 |
% |
|
|
0.04 |
% |
Allowance
for loan losses to non-performing
|
|
|
|
|
|
|
|
|
loans
at end of period
|
|
|
285.41 |
% |
|
|
570.35 |
% |
Allowance
for loan losses to total
|
|
|
|
|
|
|
|
|
loans
at end of period
|
|
|
0.93 |
% |
|
|
0.94 |
% |
NOTE
H – COMMITMENTS
Financial
instruments with off-balance sheet risk at March 31, 2008 and December 31, 2007
were as follows:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Unused
lines of credit
|
|
$ |
146,948 |
|
|
$ |
146,579 |
|
Amounts
due mortgagors
|
|
|
25,791 |
|
|
|
31,168 |
|
Standby
letters of credit
|
|
|
1,314 |
|
|
|
1,627 |
|
Commitments
to originate loans
|
|
|
23,959 |
|
|
|
15,890 |
|
NOTE
I – DEPOSITS
Deposit accounts, by type, are
summarized as follows at March 31, 2008 and December 31,
2007:
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Demand
|
|
$ |
108,819 |
|
|
$ |
102,010 |
|
NOW
|
|
|
34,159 |
|
|
|
35,207 |
|
Regular
savings
|
|
|
75,469 |
|
|
|
65,711 |
|
Money
market
|
|
|
177,879 |
|
|
|
168,107 |
|
Certificates
of deposit
|
|
|
359,198 |
|
|
|
347,647 |
|
|
|
$ |
755,524 |
|
|
$ |
718,682 |
|
NOTE
J – CONTINGENCIES
The
Company is a defendant in certain claims and legal actions arising in the
ordinary course of business. In the opinion of management, after consultation
with legal counsel, the ultimate disposition of these matters is not expected to
have a material adverse effect on the Company’s financial condition, results of
operations or cash flows.
NOTE K -
FAIR VALUES OF ASSETS AND LIABILITIES
Effective
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
No. 157 (“SFAS 157”), Fair Value Measurements, which provides a framework for
measuring fair value under generally accepted accounting
principles.
The
Company also adopted SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities, including an amendment of FASB Statement No. 115.
SFAS 159 allows an entity the irrevocable option to elect fair value for the
initial and subsequent measurement for certain financial assets and liabilities
on a contract-by-contract basis. The Company did not elect fair value treatment
for any financial assets or liabilities upon adoption.
In
accordance with SFAS 157, the Company groups its financial assets and financial
liabilities measured at fair value in three levels, based on the markets in
which the assets and liabilities are traded and the reliability of the
assumptions used to determine fair value.
Level 1 –
Valuations for assets and liabilities traded in active exchange markets, such as
the New York Stock Exchange. Level 1 also includes U.S. Treasury, other U.S.
government and agency mortgage-backed securities that are traded by dealers or
brokers in active markets. Valuations are obtained from readily
available pricing sources for market transactions involving identical assets or
liabilities.
Level 2 –
Valuations for assets and liabilities traded in less active dealer or broker
markets. Valuations are obtained from third party pricing services for identical
or comparable assets or liabilities.
Level 3 –
Valuations for assets and liabilities that are derived from other valuation
methodologies, including option pricing models, discounted cash flow models and
similar techniques, and not based on market exchange, dealer, or broker traded
transactions. Level 3 valuations incorporate certain assumptions and
projections in determining the fair value assigned to such assets and
liabilities.
Assets
and liabilities measured at fair value on a recurring basis, are summarized
below:
|
|
At
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets/Liabilities
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
at
Fair Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale
|
|
$ |
263,415 |
|
|
$ |
7,962 |
|
|
$ |
- |
|
|
$ |
271,377 |
|
Mortgage
servicing rights
|
|
|
- |
|
|
|
- |
|
|
|
135 |
|
|
|
135 |
|
Total
assets
|
|
$ |
263,415 |
|
|
$ |
7,962 |
|
|
$ |
135 |
|
|
$ |
271,512 |
|
The table
below presents the changes in Level 3 assets and liabilities measured at fair
value on a recurring basis.
|
|
|
|
Balance
as of January 1, 2008
|
|
$ |
136 |
|
Total
realized/unrealized gains (losses) included in net income
|
|
|
(1 |
) |
Purchases,
sales, issuances and settlements
|
|
|
- |
|
Transfers
in and out of Level 3
|
|
|
- |
|
Balance
as of March 31, 2008
|
|
$ |
135 |
|
The fair
value of a financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. If a quoted market price is available for an
instrument, the fair value to be disclosed for that instrument is the product of
the number of trading units of the instrument times that market
price.
Also, the
Company may be required, from time to time, to measure certain other financial
assets on a nonrecurring basis in accordance with GAAP. These adjustments to
fair value usually result from application of lower-of-cost-or-fair value
accounting or write-downs of individual assets. In the first quarter of 2008,
one loan was written down to fair value and transferred to OREO at
$150,000.
NOTE L -
INCOME TAXES
The
Company’s federal income tax returns for 2005 and 2006 are currently
under examination by the Internal Revenue Service (“IRS”). During the
quarter ended March 31, 2008, the IRS proposed certain adjustments challenging
the methodology used by the Company to estimate the fair market value of its
residential mortgage portfolio under Internal Revenue Code (IRC) Sec.
475. The Company intends to defend its method for estimating fair
value.
The
change in fair value calculated under IRC Sec. 475 is considered a temporary
difference in the Company’s FAS109 deferred income tax calculations. In
accordance with FASB Interpretation (FIN) No. 48 “Accounting for Uncertainty in
Income Taxes” the Company determined in the first quarter of 2008 that a portion
of the deferred tax liability related to the mark-to-market temporary difference
for residential mortgage loans should be reclassified as an uncertain tax
position. This reclassification from the Company’s previously recorded deferred
tax liability account amounted to $2.2 million and was required as, in
management’s judgment, it is no longer more likely than not that the related tax
deduction would be treated as currently deductible by the IRS upon resolution of
the pending examination. This reclassification has no impact on the
reported results of operations for the quarter ended March 31, 2008. In
addition, the Company recorded an interest accrual of $168,000 associated with
the proposed adjustment. At December 31, 2007 the Company determined that it had
no uncertain tax positions.
The
Company reports interest and penalties associated with tax
obligations in other non-interest expense.
In
connection with the IRS examination, the Company remitted a $1.6
million tax payment in the first quarter of 2008 to suspend the
potential accrual of additional interest that may result upon
ultimate resolution of the fair market value measurement issue under
examination. As the examination process and subsequent appeal
alternatives are not yet complete, the timing of the resolution of
the examination cannot be determined at this
time.
ITEM
2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
From time to time, the Company may
publish forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments, new
products, and similar matters. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for forward-looking statements
provided that the Company notes that a variety of factors could cause the
Company’s actual results to differ materially from the anticipated results
expressed in the Company’s forward-looking statements. Factors that may cause
actual results to differ materially from those projected in the forward-looking
statements include, but are not limited to, general economic conditions that are
less favorable than expected, changes in market interest rates that result in
reduced interest margins, risks in the loan portfolio, including prepayments
that are greater than expected, the enactment of legislation or regulatory
changes that have a less than favorable impact on the business of the Company,
and significant increases in competitive pressures. Forward-looking statements
speak only as of the date they are made and the Company does not undertake to
update forward-looking statements to reflect circumstances or events that occur
after the date of the forward-looking statements or to reflect the occurrence of
unanticipated events. Accordingly, past results and trends should not be used by
investors to anticipate future results or trends.
Comparison
of Financial Condition at March 31, 2008 and December 31, 2007
Total
assets increased $74.0 million, or 6.9%, to $1.2 billion at March 31, 2008 from
$1.1 billion at December 31, 2007 reflecting growth in securities available
for sale, funded by increases in both deposits ($36.8 million) and Federal Home
Loan Bank advances ($33.4 million). Securities available for sale increased
$70.1 million, or 34.8%, to $271.4 million at March 31, 2008 from $201.3 million
at December 31, 2007, due to purchases of debt securities available for
sale totaling $124.4 million, partially offset by sales, calls and maturities of
certain debt securities and repayments of mortgage-backed securities. The
significant increase in securities available for sale was due to the
implementation of a strategy to deploy excess capital. During the quarter,
management purchased agency mortgage-backed securities with predictable cash
flows and an average spread to treasury securities in excess of 200 basis
points. At March 31, 2008, outstanding loan balances totaled $825.0 million,
essentially flat in comparison to the prior year end as a result of payoffs of
several large credits and sluggish loan activity. Origination volume moderated
in the first quarter of 2008, reflecting a slowdown in the real estate market,
weaker demand for all loan types and a very competitive lending
environment.
Total
deposits increased $36.8 million, or 5.1%, to $755.5 million at March 31, 2008
compared to $718.7 million at December 31, 2007 mainly due to competitive
products and pricing, superior customer service, targeted promotional activities
and our new East Longmeadow branch, which opened in January 2008. Core deposit
balances grew $25.3 million, or 6.8%, to $396.3 million at March 31, 2008 from
$371.0 million at December 31, 2007.
Total
stockholders’ equity increased $2.3 million, or 1.0%, to $228.4 million at March
31, 2008 from $226.1 million at December 31, 2007 as a result of net
income of $2.0 million for the three months ended March 31, 2008, an increase of
$768,000 in net unrealized income on securities available for sale, stock-based
compensation totaling $375,000 and ESOP compensation expense of $196,000. These
increases were partially offset by payments of cash dividends amounting to
$987,000.
Credit
Quality
The
Company actively manages asset quality through its underwriting practices and
collection operations and it does not offer residential mortgage loans to
subprime or Alt-A borrowers. Non-performing assets totaled $3.7 million, or
0.32% of total assets, at March 31, 2008 compared to $2.7 million, or 0.25% of
total assets, at December 31, 2007. Net loan charge-offs for the three months
ended March 31, 2008 totaled $252,000 compared to $76,000 in the same period of
2007. Commercial and industrial loan charge-offs represented $114,000, or 45%,
of the total charge-offs, and the majority of such charge-offs related to one
commercial relationship.
Delinquent Loans.
The following table sets forth our loan delinquencies by type, by amount
and by percentage of total loans outstanding at the date indicated.
|
|
Loans
Delinquent For
|
|
|
|
|
|
|
|
|
|
60
- 89 Days
|
|
|
90
Days and Over
|
|
|
Total
|
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
|
(Dollars
in thousands)
|
|
At March 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
|
3 |
|
|
$ |
353 |
|
|
|
7 |
|
|
$ |
1,348 |
|
|
|
10 |
|
|
$ |
1,701 |
|
Commercial
mortgage
|
|
|
11 |
|
|
|
1,775 |
|
|
|
4 |
|
|
|
526 |
|
|
|
15 |
|
|
|
2,301 |
|
Construction
|
|
|
2 |
|
|
|
376 |
|
|
|
3 |
|
|
|
485 |
|
|
|
5 |
|
|
|
861 |
|
Home
equity
|
|
|
9 |
|
|
|
402 |
|
|
|
- |
|
|
|
- |
|
|
|
9 |
|
|
|
402 |
|
Commercial
and industrial
|
|
|
18 |
|
|
|
1,111 |
|
|
|
8 |
|
|
|
271 |
|
|
|
26 |
|
|
|
1,382 |
|
Automobile
|
|
|
3 |
|
|
|
18 |
|
|
|
- |
|
|
|
- |
|
|
|
3 |
|
|
|
18 |
|
Other
consumer
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
49 |
|
|
|
1 |
|
|
|
49 |
|
Total
|
|
|
46 |
|
|
$ |
4,035 |
|
|
|
23 |
|
|
$ |
2,679 |
|
|
|
69 |
|
|
$ |
6,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
|
2 |
|
|
$ |
595 |
|
|
|
4 |
|
|
$ |
328 |
|
|
|
6 |
|
|
$ |
923 |
|
Commercial
mortgage
|
|
|
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 |
|
Classified
Assets. The following table shows the aggregate amount of our
classified assets at the date indicated for both loans and foreclosed assets.
The amount of assets classified as “substandard” in the table includes three
commercial lending relationships, one of which is not making payments in
accordance with contractual loan terms.
|
|
At
March 31,
|
|
|
At
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Residential Real Estate
(1):
|
|
|
|
|
|
|
Substandard
assets
|
|
$ |
1,753 |
(2) |
|
$ |
1,278 |
|
|
|
|
|
|
|
|
|
|
All
Other Loans:
|
|
|
|
|
|
|
|
|
Special
mention assets
|
|
|
13,339 |
|
|
|
13,800 |
|
Substandard
assets
|
|
|
16,468 |
|
|
|
19,377 |
|
Doubtful
assets
|
|
|
265 |
|
|
|
244 |
|
Loss
assets
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Foreclosed
Assets:
|
|
|
|
|
|
|
|
|
Other
real estate owned
|
|
|
1,030 |
|
|
|
880 |
|
|
|
|
|
|
|
|
|
|
Total
classified assets
|
|
$ |
32,855 |
|
|
$ |
35,579 |
|
|
|
|
|
|
|
|
|
|
(1) Includes
one-to-four family loans and home equity loans and lines of
credit.
|
|
|
|
|
(2) Includes
eight residential loans, four of which are in foreclosure or
liquidation proceedings.
|
|
Comparison
of Operating Results for the Three Months Ended March 31, 2008 and
2007
Overview
Our
results of operations depend primarily on our net interest income. Net interest
income is the difference between the interest income earned on interest-earning
assets, consisting primarily of loans, investment securities and other
interest-earning assets, and the interest paid on interest-bearing liabilities,
consisting primarily of deposits and Federal Home Loan Bank
advances.
Our
results of operations also are affected by provisions for loan losses,
non-interest income and non-interest expense. Non-interest income consists
primarily of deposit account fees, wealth management fees, increases in the cash
surrender value of bank-owned life insurance and miscellaneous other income.
Non-interest expense consists primarily of compensation and employee benefits,
data processing, occupancy, marketing and public relations, professional
services, postage, printing, office supplies, and other operating expenses. Our
results of operations also may be affected significantly by general and local
economic and competitive conditions, changes in market interest rates,
governmental policies and actions of regulatory authorities.
Net
Income. The Company’s net income was $2.0 million, or $0.12
per diluted share, for the first quarter of 2008 compared to net income of
$834,000, or $0.05 per diluted share, for the same period in 2007. The Company’s
improved results were largely due to a significant increase in net interest
income, driven by net interest margin expansion and growth in average earning
assets largely funded by net cash proceeds of $82.7 million from the Company’s
December 2007 second-step stock offering. The quarterly operating performance
was also favorably impacted by an increase in fee income from deposit and wealth
management accounts and a lower provision for loan losses, partially offset by
expansion in non-interest expenses.
Average balances
and yields. The following table sets forth average balance
sheets, average yields and costs, and certain other information for the periods
indicated. No tax-equivalent yield adjustments were made, as the effect thereof
was not material. All average balances are daily average balances. Non-accrual
loans were included in the computation of average balances, but have been
reflected in the table as loans carrying a zero yield.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
Average
|
|
|
and
|
|
|
Yield/
|
|
|
Average
|
|
|
and
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Dividends
|
|
|
Cost
|
|
|
Balance
|
|
|
Dividends
|
|
|
Cost
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$ |
348,753 |
|
|
$ |
4,921 |
|
|
|
5.64 |
% |
|
$ |
336,891 |
|
|
$ |
4,744 |
|
|
|
5.63 |
% |
Commercial
real estate
|
|
|
248,963 |
|
|
|
4,021 |
|
|
|
6.46 |
% |
|
|
225,188 |
|
|
|
3,704 |
|
|
|
6.58 |
% |
Home
equity
|
|
|
117,254 |
|
|
|
1,794 |
|
|
|
6.12 |
% |
|
|
115,715 |
|
|
|
1,873 |
|
|
|
6.47 |
% |
Commercial
and industrial
|
|
|
82,382 |
|
|
|
1,389 |
|
|
|
6.74 |
% |
|
|
68,716 |
|
|
|
1,257 |
|
|
|
7.32 |
% |
Consumer
and other
|
|
|
30,950 |
|
|
|
422 |
|
|
|
5.45 |
% |
|
|
29,791 |
|
|
|
377 |
|
|
|
5.06 |
% |
Total
loans
|
|
|
828,302 |
|
|
|
12,547 |
|
|
|
6.06 |
% |
|
|
776,301 |
|
|
|
11,955 |
|
|
|
6.16 |
% |
Investment
securities
|
|
|
211,880 |
|
|
|
2,618 |
|
|
|
4.94 |
% |
|
|
180,491 |
|
|
|
1,982 |
|
|
|
4.39 |
% |
Other
interest-earning assets
|
|
|
21,796 |
|
|
|
241 |
|
|
|
4.42 |
% |
|
|
28,320 |
|
|
|
375 |
|
|
|
5.30 |
% |
Total
interest-earning assets
|
|
|
1,061,978 |
|
|
|
15,406 |
|
|
|
5.80 |
% |
|
|
985,112 |
|
|
|
14,312 |
|
|
|
5.81 |
% |
Noninterest-earning
assets
|
|
|
33,888 |
|
|
|
|
|
|
|
|
|
|
|
31,257 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
1,095,866 |
|
|
|
|
|
|
|
|
|
|
$ |
1,016,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
accounts
|
|
$ |
67,550 |
|
|
|
166 |
|
|
|
0.98 |
% |
|
$ |
64,922 |
|
|
|
139 |
|
|
|
0.86 |
% |
Money
market accounts
|
|
|
174,802 |
|
|
|
1,009 |
|
|
|
2.31 |
% |
|
|
174,194 |
|
|
|
1,356 |
|
|
|
3.11 |
% |
NOW
accounts
|
|
|
31,926 |
|
|
|
41 |
|
|
|
0.51 |
% |
|
|
34,130 |
|
|
|
44 |
|
|
|
0.52 |
% |
Certificates
of deposit
|
|
|
354,031 |
|
|
|
3,757 |
|
|
|
4.24 |
% |
|
|
323,984 |
|
|
|
3,642 |
|
|
|
4.50 |
% |
Total
interest-bearing deposits
|
|
|
628,309 |
|
|
|
4,973 |
|
|
|
3.17 |
% |
|
|
597,230 |
|
|
|
5,181 |
|
|
|
3.47 |
% |
FHLB
advances
|
|
|
116,519 |
|
|
|
1,301 |
|
|
|
4.47 |
% |
|
|
170,727 |
|
|
|
2,023 |
|
|
|
4.74 |
% |
Other
interest-bearing liabilities
|
|
|
11,592 |
|
|
|
101 |
|
|
|
3.49 |
% |
|
|
12,635 |
|
|
|
152 |
|
|
|
4.81 |
% |
Total
interest-bearing liabilities
|
|
|
756,420 |
|
|
|
6,375 |
|
|
|
3.37 |
% |
|
|
780,592 |
|
|
|
7,356 |
|
|
|
3.77 |
% |
Demand
deposits
|
|
|
101,785 |
|
|
|
|
|
|
|
|
|
|
|
94,302 |
|
|
|
|
|
|
|
|
|
Other
noninterest-bearing liabilities
|
|
|
10,248 |
|
|
|
|
|
|
|
|
|
|
|
3,179 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
868,453 |
|
|
|
|
|
|
|
|
|
|
|
878,073 |
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
227,413 |
|
|
|
|
|
|
|
|
|
|
|
138,296 |
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$ |
1,095,866 |
|
|
|
|
|
|
|
|
|
|
$ |
1,016,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$ |
9,031 |
|
|
|
|
|
|
|
|
|
|
$ |
6,956 |
|
|
|
|
|
Interest
rate spread(1)
|
|
|
|
|
|
|
|
|
|
|
2.43 |
% |
|
|
|
|
|
|
|
|
|
|
2.04 |
% |
Net
interest-earning assets(2)
|
|
$ |
305,558 |
|
|
|
|
|
|
|
|
|
|
$ |
204,520 |
|
|
|
|
|
|
|
|
|
Net
interest margin(3)
|
|
|
|
|
|
|
|
|
|
|
3.40 |
% |
|
|
|
|
|
|
|
|
|
|
2.82 |
% |
Average
interest-earning assets to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average
interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
140.40 |
% |
|
|
|
|
|
|
|
|
|
|
126.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 annualized net interest income divided by average
total interest-earning assets.
Rate/Volume
Analysis. The following table presents the effects of changing
rates and volumes on our net interest income for the periods indicated. The rate
column shows the effects attributable to changes in rate (changes in rate
multiplied by prior volume). The volume column shows the effects attributable to
changes in volume (changes in volume multiplied by prior rate). The net column
represents the sum of the prior columns. For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately, based on the changes due to rate and the changes due
to volume.
|
|
Three
Months Ended March 31
|
|
|
|
2008
vs. 2007
|
|
|
|
Increase
(Decrease) Due to
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$ |
167 |
|
|
$ |
10 |
|
|
$ |
177 |
|
Commercial
real estate
|
|
|
385 |
|
|
|
(68 |
) |
|
|
317 |
|
Home
equity
|
|
|
25 |
|
|
|
(104 |
) |
|
|
(79 |
) |
Commercial
and industrial
|
|
|
236 |
|
|
|
(104 |
) |
|
|
132 |
|
Consumer
and other
|
|
|
15 |
|
|
|
30 |
|
|
|
45 |
|
Total
loans
|
|
|
828 |
|
|
|
(236 |
) |
|
|
592 |
|
Investment
securities
|
|
|
370 |
|
|
|
266 |
|
|
|
636 |
|
Other
interest-earning assets
|
|
|
(78 |
) |
|
|
(56 |
) |
|
|
(134 |
) |
Total
interest-earning assets
|
|
|
1,120 |
|
|
|
(26 |
) |
|
|
1,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
accounts
|
|
|
6 |
|
|
|
21 |
|
|
|
27 |
|
Money
market accounts
|
|
|
5 |
|
|
|
(352 |
) |
|
|
(347 |
) |
NOW
accounts
|
|
|
(3 |
) |
|
|
- |
|
|
|
(3 |
) |
Certificates
of deposit
|
|
|
326 |
|
|
|
(211 |
) |
|
|
115 |
|
Total
interest-bearing deposits
|
|
|
334 |
|
|
|
(542 |
) |
|
|
(208 |
) |
FHLB
advances
|
|
|
(611 |
) |
|
|
(111 |
) |
|
|
(722 |
) |
Other
interest-bearing liabilities
|
|
|
(12 |
) |
|
|
(39 |
) |
|
|
(51 |
) |
Total
interest-bearing liabilities
|
|
|
(289 |
) |
|
|
(692 |
) |
|
|
(981 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in net interest income
|
|
$ |
1,409 |
|
|
$ |
666 |
|
|
$ |
2,075 |
|
Net Interest
Income Before Provision for Loan Losses. Net interest income
before provision for loan losses increased $2.1 million, or 29.8%, to
$9.0 million for the three months ended March 31, 2008 from the same period
in 2007 as a result of net interest margin expansion and reflecting growth in
average earning assets. Net interest margin increased 58 basis points to 3.40%
for the three-month period ended March 31, 2008 compared to 2.82% for the same
period in 2007 due to the use of net proceeds from the Company’s second-step
offering completed in December 2007 to fund asset growth as well as a
significant decrease in the cost of deposits as a result of the 300 basis points
reduction in the federal funds rate from 5.25% at September 1, 2007 to 2.25% at
March 31, 2008.
Interest
Income. Interest income increased $1.1 million, or 7.6%, to
$15.4 million for the three months ended March 31, 2008 from $14.3 million for
the prior year period reflecting expansion in total average interest-earning
asset balances. Total average interest-earning asset balances increased $76.9
million, or 7.8%, to $1.1 billion for the three months ended March 31, 2008
mainly due to loan growth and purchases of mortgage-backed securities. Total
average loans increased $52.0 million, or 6.7%, to $828.3 million for the first
quarter of 2008 as a result of strong origination activity in the residential
real estate, commercial real estate and commercial and industrial portfolios,
partially offset by scheduled amortization and prepayments of existing loans.
Total average investment securities increased by $31.4 million, or 17.4%, to
$211.9 million due to the purchases of bonds, partially offset by maturities,
calls, sales and principal repayments of existing securities. The yield on
average interest-earning assets decreased by one basis point to 5.80% for the
first quarter of 2008 in connection with the lower interest rate environment.
The decrease in market rates contributed to the downward repricing of a portion
of the Company’s existing assets and to lower 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 deflation in market rates was
limited. The impact of the decrease in market rates was offset by the purchases
of higher yielding mortgage backed securities.
Interest
Expense. Interest expense decreased $981,000, or 13.3%, to
$6.4 million for the three months ended March 31, 2008 from
$7.4 million for the prior year period due to decreases in average
interest-bearing liabilities and the average rate paid for such interest-bearing
liabilities. Average interest-bearing liabilities decreased $24.2 million,
or 3.1%, to $756.4 million for the three months ended March 31, 2008 from
$780.6 million for the prior year period reflecting a reduction in FHLB
advances partially offset by growth in interest-bearing deposits. Total average
FHLB advances decreased $54.2 million, or 31.8%, to $116.5 million reflecting
the use of proceeds from the second step offering to pay-down certain
outstanding borrowings. Total average interest-bearing deposits increased $31.2
million, or 5.2%, to $628.3 million for the first quarter of 2008 as compared to
$597.2 million for the three months ended March 31, 2007, mainly attributable to
an increase in certificate of deposit balances. The average rate paid on
interest-bearing liabilities declined 40 basis points to 3.37% for the three
months ended March 31, 2008 reflecting the impact of lower market rates related
to the recent interest rate decreases initiated by the Federal Reserve Board.
Since a large portion of the Company’s interest-bearing liabilities are
short-term, the impact of the decrease in market rates was
significant.
Provision for
Loan Losses. The provision for loan losses decreased $100,000 to $184,000
for the three months ended March 31, 2008 as compared to $284,000 for the three
months ended March 31, 2007 mainly as a result of a slowdown in loan growth and
a decline in classified and impaired loans. The allowance for loan losses is
based on management’s estimate of the probable losses inherent in the portfolio,
considering the impact of certain factors. Among the factors
management may consider are prior loss experience, current economic
conditions and their effect on borrowers, the character and size of the
portfolio, trends in nonperforming loans and delinquency rates and the
performance of individual loans in relation to contractual terms. The
provision for loan losses reflects adjustments to the allowance based on
management’s review of the loan portfolio in light of those conditions. The
allowance for loan losses was $7.6 million, or 0.93%, of loans outstanding
at March 31, 2008.
Non-interest
Income. Non-interest income increased $121,000, or 8.7%, to
$1.5 million for the three months ended March 31, 2008 from $1.4 million
for the comparable period in 2007 mainly due to increases of $39,000, or 3.8%,
in fee income from deposit accounts and growth in wealth management income of
$29,000, or 24.0%, as a result of new accounts opened due to successful business
development efforts. These results also include a $49,000 gain in the first
quarter of 2008 from VISA Inc.’s redemption of its Class B stock as part of its
initial public offering. Prior to its IPO, VISA Inc. issued these shares to its
members in a reorganization based upon transaction volume.
Non-interest
Expense. Non-interest expense increased $529,000, or 8.0%, to
$7.2 million for the three months ended March 31, 2008 from
$6.6 million for the prior year period primarily reflecting growth in
salaries and benefits and a $168,000 estimated interest accrual related to
proposed IRS adjustments in connection with the Company’s 2005 and 2006 tax
returns. Total salaries and benefits increased $203,000, or 5.3%, mainly due to
staffing costs for the new East Longmeadow branch opened in the first quarter of
2008, new employees hired to support and facilitate the growth of the Company, a
higher cash incentive accrual associated with improved financial performance and
annual wage increases. Other increases include $54,000, or 13.9%, in
professional services, $77,000, or 12.0%, in data processing expenses and
$36,000, or 11.2%, in marketing expenses.
Income Tax
Expense. Income tax expense
increased $635,000 to $1.2 million for three months ended March 31, 2008 from
$589,000 for the comparable 2007 period. This increase was mainly due to higher
income before income taxes, partially offset by a reduction in the effective tax
rate to 38.5% for the first quarter of 2008 compared to 39.3% for the same
period last year.
Market
Risk, Liquidity and Capital Resources
Market
Risk
The
majority of our assets and liabilities are monetary in nature. Consequently, our
most significant form of market risk is interest rate risk (“IRR”). Our assets,
consisting primarily of mortgage loans, have longer maturities than our
liabilities, consisting primarily of deposits. As a result, a principal part of
our business strategy is to manage IRR and reduce the exposure of our net
interest income (“NII”) to changes in market interest rates. Accordingly, our
Board of Directors has established an Asset/Liability Management Committee which
is responsible for evaluating the IRR inherent in our assets and liabilities,
for determining the level of risk that is appropriate given our business
strategy, operating environment, capital, liquidity and performance objectives,
and for managing this risk consistent with the guidelines approved by the Board
of Directors. With the assistance of an IRR management consultant,
the committee monitors the level of IRR on a regular basis and generally meets
at least on a quarterly basis to review our asset/liability policies and IRR
position.
We have
sought to manage our IRR in order to minimize the exposure of our earnings and
capital to changes in interest rates. As part of our ongoing asset-liability
management, we currently use the following strategies to manage our IRR:
(i) using alternative funding sources, such as advances from the Federal
Home Loan Bank of Boston, to “match fund” certain longer-term one- to
four-family residential mortgage loans; (ii) continued emphasis on
increasing core deposits; (iii) offering adjustable rate and shorter-term
home equity loans, commercial real estate loans, construction 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. Shortening
the average maturity of our interest-earning assets by increasing our
investments in shorter-term loans and securities, as well as loans and
securities with variable rates of interest, helps to better match the maturities
and interest rates of our assets and liabilities, thereby reducing the exposure
of our NII to changes in market interest rates.
Net
interest income at-risk measures the risk of a decline in earnings due to
potential short-term and long term changes in interest rates. The table below
represents an analysis of our IRR as measured by the estimated changes in NII,
resulting from an instantaneous and sustained parallel shift in the yield curve
(+200 and -200 basis points) at March 31, 2008 and December 31,
2007.
Net
Interest Income At-Risk
|
|
|
|
|
|
|
|
Estimated
Increase (Decrease)
|
|
Estimated
Increase (Decrease)
|
Change
in Interest Rates
|
|
in
NII
|
|
in
NII
|
(Basis
Points)
|
|
(March
31, 2008)
|
|
(December
31, 2007)
|
|
|
|
|
|
-100
|
|
0.5%
|
|
1.7%
|
Stable
|
|
0.0%
|
|
0.0%
|
+200
|
|
(1.2)%
|
|
(4.2)%
|
|
|
|
|
|
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 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 100 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.
|
|
|
March
31, 2008
|
|
|
|
|
|
|
|
|
|
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
|
|
$ 95,614
|
|
$ (71,965)
|
|
(43)%
|
|
9.21%
|
|
(526)
|
+200
|
|
121,249
|
|
(46,330)
|
|
(28)
|
|
11.28
|
|
(329)
|
+100
|
|
147,242
|
|
(20,337)
|
|
(12)
|
|
13.22
|
|
(135)
|
0
|
|
167,579
|
|
|
|
|
|
14.57
|
|
|
-100
|
|
181,892
|
|
14,313
|
|
9
|
|
15.41
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2007
|
|
|
|
|
|
|
|
|
|
NPV
as a Percentage of Present
|
|
|
|
|
|
|
|
|
|
Value
of Assets (3)
|
|
Change
in
|
|
|
|
Estimated
Increase (Decrease) 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 March 31, 2008 and December 31, 2007, in the event
of a 100 basis point decrease in interest rates, we would experience a 9% and
8%, respectively, increase in net portfolio value. In the event of a
300 basis point increase in interest rates, we would experience a 42% and 37%,
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
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, advances from the Federal Home Loan
Bank of Boston, loan and mortgage-backed securities repayments and maturities
and sales of loans and other investment securities. While maturities and
scheduled amortization of loans and securities are predictable sources of funds,
deposit flows and mortgage prepayments are greatly influenced by market 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 March 31, 2008 our
liquidity ratio was 33.47%, compared to 26.13% at December 31,
2007.
We regularly adjust our investments in
liquid assets based upon our assessment of (1) expected loan demand, (2)
expected deposit flows, (3) yields available on interest-earning deposits and
securities, and (4) the objectives of our asset/liability management program.
Excess liquid assets are generally invested in interest-earning deposits and
short- and intermediate-term securities.
Our most liquid assets are cash and
cash equivalents. The levels of these assets are dependent on our operating,
financing, lending and investing activities during any given period. At March
31, 2008, cash and cash equivalents totaled $15.8 million. Securities classified
as available-for-sale, which provide additional sources of liquidity, totaled
$251.2 million, excluding those pledged as collateral for various purposes, at
March 31, 2008. In addition, at March 31, 2008, we had the ability to borrow a
total of approximately $465.0 million from the Federal Home Loan Bank of
Boston. On that date, we had $141.4 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 March
31, 2008, we had $24.0 million in loan commitments outstanding. In
addition to commitments to originate loans, we had $146.9 million in unused
lines of credit to borrowers and $25.8 million to be disbursed under existing
construction loan commitments. Certificates of deposit due within one year of
March 31, 2008 totaled $294.4 million, or 39.0% of total deposits. If these
deposits do not remain with us, we will be required to seek other sources of
funds, including other certificates of deposit and Federal Home Loan Bank
advances. Depending on market conditions, we may be required to pay higher rates
on such deposits or other borrowings than we currently pay on the certificates
of deposit due on or before March 31, 2009. 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. For the three months ended March 31, 2008, we originated
$59.9 million of loans and purchased $124.4 million of securities. In the
comparable 2007 period, we originated $77.9 million of loans and purchased $5.1
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 $36.8
million and $31.3 million for the three months ended March 31, 2008 and 2007,
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, which provides an additional
source of funds. Federal Home Loan Bank advances increased by $33.4 million
during the three months ended March 31, 2008 and decreased $7.6 million during
the comparable 2007 period. Federal Home Loan Bank advances have
primarily been used to fund loan demand and to purchase securities. We have also
used Federal Home Loan Bank advances to “match-fund” certain longer-term one- to
four-family residential mortgage loans and commercial real estate loans. The
Bank’s unused borrowing capacity with the FHLBB, excluding its $12.4 million
line of credit, was approximately $311.2 at March 31, 2008 and $273.4 at
December 31, 2007. At March 31, 2008 and December 31, 2007, the Bank had no
borrowing against the line of credit.
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.
Contractual
Obligations
In the
ordinary course of our operations, we enter into certain contractual
obligations. Such obligations include operating leases for premises and
equipment. The following table summarizes our significant fixed and determinable
contractual obligations and other funding needs by payment date at March 31,
2008. The payment amounts represent those amounts due to the recipient and do
not include any unamortized premiums or discounts or other similar carrying
amount adjustments.
|
|
Payments
Due by Period
|
|
|
|
Less
Than
|
|
|
One
to Three
|
|
|
Three
to Five
|
|
|
More
than
|
|
|
|
|
|
|
One
Year
|
|
|
Years
|
|
|
Years
|
|
|
Five
Years
|
|
|
Total
|
|
Contractual
Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit
|
|
$ |
294,413 |
|
|
$ |
59,630 |
|
|
$ |
5,155 |
|
|
$ |
- |
|
|
$ |
359,198 |
|
Federal
Home Loan Bank advances
|
|
|
27,496 |
|
|
|
48,658 |
|
|
|
39,990 |
|
|
|
25,265 |
|
|
|
141,409 |
|
Repurchase
agreements
|
|
|
9,686 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9,686 |
|
Standby
letters of credit
|
|
|
1,314 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,314 |
|
Operating
leases
|
|
|
625 |
|
|
|
1,214 |
|
|
|
947 |
|
|
|
4,377 |
|
|
|
7,163 |
|
Capitalized
lease
|
|
|
146 |
|
|
|
292 |
|
|
|
292 |
|
|
|
2,615 |
|
|
|
3,345 |
|
Future
benefits to be paid under retirement plans
|
|
|
196 |
|
|
|
- |
|
|
|
3,257 |
|
|
|
610 |
|
|
|
4,063 |
|
Total
|
|
$ |
333,876 |
|
|
$ |
109,794 |
|
|
$ |
49,641 |
|
|
$ |
32,867 |
|
|
$ |
526,178 |
|
Commitments
to extend credit
|
|
$ |
198,012 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
198,012 |
|
Capital
Resources
United
Bank is subject to various regulatory capital requirements, including a
risk-based capital measure. The risk-based capital guidelines include both a
definition of capital and a framework for calculating risk-weighted assets by
assigning balance sheet assets and off-balance sheet items to broad risk
categories. At March 31, 2008, the Bank exceeded all regulatory capital
requirements. United Bank is considered “well capitalized” under regulatory
requirements.
As
of March 31, 2008:
|
|
|
|
|
|
|
|
Total
risk-based capital
|
|
|
20.03 |
% |
|
|
|
|
|
Tier
1 risk-based capital
|
|
|
19.07 |
% |
|
|
|
|
|
Tier
1 (core) capital
|
|
|
13.19 |
% |
|
|
|
|
|
Tangible
equity
|
|
|
13.19 |
% |
|
|
|
|
|
As
of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
Total
risk-based capital
|
|
|
20.25 |
% |
|
|
|
|
|
Tier
1 risk-based capital
|
|
|
19.25 |
% |
|
|
|
|
|
Tier
1 (core) capital
|
|
|
14.00 |
% |
|
|
|
|
|
Tangible
equity
|
|
|
14.00 |
% |
|
|
|
|
|
ITEM
3. Quantitative and Qualitative Disclosures About Market
Risk
The information required by this item
is included above in Item 2, Management’s Discussion and Analysis of Financial
Condition and Results of Operations, under the caption “Market Risk, Liquidity
and Capital Resources.”
ITEM
4. Controls and Procedures
Under the
supervision and with the participation of the Company’s management, including
the Company’s Chief Executive Officer and Chief Financial Officer, the Company
has evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under
the Exchange Act) as of the end of the period covered by this report. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that, as of the end of the period covered by this report, the
Company’s disclosure controls and procedures were effective to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SEC’s rules and forms and in a timely
manner alerting them to material information relating to the Company (or its
consolidated subsidiary) required to be filed in its periodic SEC
filings.
No change in our internal controls over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934) occurred during the most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting. In the ordinary course of
business, we routinely enhance our internal controls and procedures for
financial reporting by either upgrading our current systems or implementing new
systems. Changes have been made and will be made to our internal controls and
procedures for financial reporting as a result of these efforts.
PART
II. OTHER INFORMATION
ITEM
1. Legal Proceedings
At March
31, 2008, the Company was not involved in any legal proceedings, the outcome of
which would be material to the Company’s financial condition or results of
operations.
As of
March 31, 2008, there have been no material changes to the risk factors set
forth in our Annual Report on Form 10-K for the year ended December 31,
2007.
ITEM
2. Unregistered Sales of Equity Securities and
Use of Proceeds
(a)
No unregistered securities were sold by the Company during the quarter ended
March 31, 2008.
(b)
On December 3, 2007, United Financial Bancorp, Inc. completed its stock offering
in connection with the second-step conversion of United Mutual Holding
Company. A total of 9,564,570 shares were sold in the subscription
offering, community offering and syndicated offering combined. Expenses related
to the offering were approximately $5.4 million. Net proceeds of the offering
were approximately $90.2 million. Fifty percent of the net proceeds of the stock
offering were contributed to United Bank, the Company’s wholly owned subsidiary.
Additionally, $7.4 million, an amount necessary to allow the ESOP to purchase up
to 754,000 shares of United Financial Bancorp, Inc. common stock in the open
market, was loaned to the ESOP. The remaining net proceeds were retained at the
holding company level. Initially, both United Financial Bancorp, Inc. and United
Bank have invested the net proceeds from the stock offering in short-term
investments and mortgage-backed and asset-backed securities until these proceeds
are deployed for other purposes.
(c)
Not applicable
ITEM
3. Defaults Upon Senior Securities
Not
applicable.
ITEM
4. Submission of Matters to a Vote of Security
Holders
Not
applicable.
ITEM
5. Other Information
Not
applicable.
ITEM
6.
|
|
|
|
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)
|
10.11
|
United
Bank 2007 Annual Incentive Plan (7)
|
10.12
|
United
Bank 2007 Director Retirement Plan (8)
|
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
|
32.2 |
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
|
(1)
|
Incorporated
by reference to the Registration Statement on Form S-1 of United Financial
Bancorp, Inc. (File No. 333-144245), 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 April 22,
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 10-K of United Financial Bancorp, Inc. filed with
the Securities and Exchange Commission on March 17,
2008.
|
(8)
|
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 the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed by the undersigned thereunto duly
authorized.
|
United Financial Bancorp, Inc. |
|
|
|
|
Date:
May
8, 2008
|
By: /s/ Richard B.
Collins
|
|
Richard B. Collins
|
|
Chairman,
President and Chief Executive Officer
|
|
|
|
|
Date:
May
8, 2008
|
By: /s/ Mark A.
Roberts
|
|
Mark A. Roberts
|
|
Executive
Vice President and Chief Financial
Officer
|
28