form10k-98024_ubnk.htm
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x
|
Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
For the Fiscal Year Ended December 31,
2008
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 if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. YES ¨ NO
x
Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. YES ¨ NO
x
Indicate by check mark whether the
Registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding twelve months (or
for such shorter period that the Registrant was required to file such reports)
and (2) has been subject to such requirements for the past 90
days. YES x NO
¨.
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 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
As of March 6, 2009, 16,720,470 shares
of the Registrant’s Common Stock were outstanding.
The aggregate market value of the
voting and non-voting common equity held by non-affiliates of the Registrant,
computed by reference to the last sale price on June 30, 2008, as reported by
the NASDAQ Global Select Market, was approximately $175.9 million.
DOCUMENTS
INCORPORATED BY REFERENCE
1. Proxy
Statement for the Annual Meeting of Stockholders dated March 13, 2009 (Part
III).
ITEM
|
|
PAGE
|
|
|
|
|
|
3
|
|
|
37
|
|
|
42
|
|
|
43
|
|
|
44
|
|
|
44
|
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 from mutual to stock form
of United Financial Bancorp, MHC, a Federal mutual corporation. The shares were
sold for $10.00 per share. In connection with the offering, each public
stockholder of United Financial Bancorp, Inc., a Federal corporation, (“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 million 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 also may 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 the second-step conversion offering 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.
United
Bank
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 fourteen branch offices located in Agawam, East
Longmeadow, Feeding Hills, Holyoke, Huntington, Indian Orchard, Longmeadow,
Ludlow, Northampton, Springfield and Westfield, Massachusetts as well as our
Express Drive-Up branch in Northampton, 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 with other financial institutions. 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 market
area for generating deposits 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 market area and includes all of
Hampden and Hampshire Counties in Western Massachusetts and Northern
Connecticut. At December 31, 2008, 93.1% 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 2007 population was approximately 28,151 and the estimated 2007 population for Hampden
and Hampshire Counties was 457,908 and 153,147, respectively. During the past
seven years, the populations of Hampden and Hampshire Counties increased by 1.2%
and 0.9%, respectively, while the population of the Commonwealth of
Massachusetts increased by 1.1%. During the same period, the number of
households in Hampden and Hampshire Counties changed by -0.1% and 1.7%,
respectively.
Local
Economy
The
economy of our primary market area has benefited from the presence of large
employers such as the University of Massachusetts, Baystate Health System, Mass
Mutual Financial Group, Big Y Supermarkets, Hasbro Games, Peter Pan Bus Lines,
Friendly Ice Cream Corporation, Westover Air Force Base, Smith & Wesson,
Yankee Candle, 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. Our market area also enjoys a strong tourism business
with attractions such as Six Flags amusement park, the Eastern States
Exposition, called “New England’s Great State Fair,” the Basketball Hall of Fame
and several other notable cultural and recreational areas. According to recent
census data, per capita and median household income for Hampden County was
$23,762 and $45,834, respectively, in 2007, lower than the state of
Massachusetts ($32,822 and $62,365) and the United States ($26,688 and
$50,740).
Our local
economy has been experiencing a slowdown during the past two
years. The unemployment rate in Hampden County increased from 6.0% in
December 2006 to 7.8% in December 2008, which is higher than the unemployment
rates for Massachusetts as a whole (6.9%) and the United States
(7.2%) Median home prices declined approximately 9% in Hampden County
during 2008, less than the national average of almost 12%. Since
2006, real estate values have fallen approximately 15%, less than the 26%
reported for the United States. Real estate transaction activity has
also been negatively impacted, with the volume of total sales decreasing
approximately 17% during 2008. Foreclosures rose in Hampden County
during the period, from 0.7% of total homes in 2007 to 1.75% in
2008.
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, 2008, 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 home equity, commercial real estate and commercial
and industrial loans. We generally originate loans for investment purposes. No
loans were held for sale at December 31, 2008 or 2007. One- to four-family
residential real estate mortgage loans totaled $356.4 million, or 41.0% of our
total loan portfolio at December 31, 2008, and home equity loans and lines of
credit totaled $120.7 million, or 13.9% 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, 2008, commercial real estate
loans totaled $248.5 million, or 28.6% of our loan portfolio, construction
mortgage loans totaled $32.1 million, or 3.7% of our loan portfolio, commercial
and industrial loans totaled $84.9 million, or 9.8% of our loan portfolio, and
automobile loans totaled $17.3 million, or 2.0% 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, 2008, such loans
totaled $10.3 million, or 1.1% of our loan portfolio, of which $8.6 million were
manufactured home loans.
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Dollars
in thousands)
|
|
Types
of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family
|
|
$ |
356,428 |
|
|
|
40.95 |
% |
|
$ |
339,470 |
|
|
|
41.16 |
% |
|
$ |
319,108 |
|
|
|
41.87 |
% |
|
$ |
285,236 |
|
|
|
44.86 |
% |
|
$ |
256,134 |
|
|
|
44.62 |
% |
Commercial
|
|
|
248,457 |
|
|
|
28.55 |
% |
|
|
214,776 |
|
|
|
26.04 |
% |
|
|
175,564 |
|
|
|
23.04 |
% |
|
|
150,099 |
|
|
|
23.61 |
% |
|
|
137,787 |
|
|
|
24.00 |
% |
Construction
(1)
|
|
|
32,082 |
|
|
|
3.69 |
% |
|
|
42,059 |
|
|
|
5.10 |
% |
|
|
54,759 |
|
|
|
7.19 |
% |
|
|
28,872 |
|
|
|
4.54 |
% |
|
|
29,836 |
|
|
|
5.20 |
% |
Home
equity
|
|
|
120,724 |
|
|
|
13.87 |
% |
|
|
116,241 |
|
|
|
14.10 |
% |
|
|
112,739 |
|
|
|
14.79 |
% |
|
|
86,045 |
|
|
|
13.53 |
% |
|
|
74,700 |
|
|
|
13.01 |
% |
Commercial
and industrial
|
|
|
84,919 |
|
|
|
9.76 |
% |
|
|
81,562 |
|
|
|
9.89 |
% |
|
|
69,762 |
|
|
|
9.15 |
% |
|
|
59,591 |
|
|
|
9.37 |
% |
|
|
56,291 |
|
|
|
9.81 |
% |
Automobile
|
|
|
17,332 |
|
|
|
1.99 |
% |
|
|
22,461 |
|
|
|
2.72 |
% |
|
|
24,456 |
|
|
|
3.21 |
% |
|
|
22,054 |
|
|
|
3.47 |
% |
|
|
17,460 |
|
|
|
3.04 |
% |
Consumer
|
|
|
10,334 |
|
|
|
1.19 |
% |
|
|
8,126 |
|
|
|
0.99 |
% |
|
|
5,725 |
|
|
|
0.75 |
% |
|
|
3,895 |
|
|
|
0.61 |
% |
|
|
1,862 |
|
|
|
0.32 |
% |
Total
loans
|
|
$ |
870,276 |
|
|
|
100.00 |
% |
|
$ |
824,695 |
|
|
|
100.00 |
% |
|
$ |
762,113 |
|
|
|
100.00 |
% |
|
$ |
635,792 |
|
|
|
100.00 |
% |
|
$ |
574,070 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred loan costs and fees
|
|
|
2,395 |
|
|
|
|
|
|
|
2,136 |
|
|
|
|
|
|
|
1,285 |
|
|
|
|
|
|
|
1,148 |
|
|
|
|
|
|
|
923 |
|
|
|
|
|
Allowance
for loan losses
|
|
|
(8,250 |
) |
|
|
|
|
|
|
(7,714 |
) |
|
|
|
|
|
|
(7,218 |
) |
|
|
|
|
|
|
(6,382 |
) |
|
|
|
|
|
|
(5,750 |
) |
|
|
|
|
Total
loans, net
|
|
$ |
864,421 |
|
|
|
|
|
|
$ |
819,117 |
|
|
|
|
|
|
$ |
756,180 |
|
|
|
|
|
|
$ |
630,558 |
|
|
|
|
|
|
$ |
569,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes $30,161,
$33,603, $41,256, $17,506 and $17,029 of commercial construction loans at
December 31, 2008, 2007, 2006, 2005 and 2004,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Portfolio
Maturities and Yields. The following table summarizes the
scheduled repayments of our loan portfolio at December 31,
2008. 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, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
year or less
|
$ |
11,948 |
|
5.49%
|
|
$ |
10,380 |
|
5.99%
|
|
$ |
26,940 |
|
4.46%
|
|
$ |
10,468 |
|
5.77%
|
|
$ |
41,477 |
|
4.46%
|
|
$ |
6,623 |
|
5.19%
|
|
$ |
1,158 |
|
8.82%
|
|
$ |
108,994 |
|
4.94%
|
|
More
than one to three years
|
|
26,198 |
|
5.49%
|
|
|
21,840 |
|
6.03%
|
|
|
1,200 |
|
3.33%
|
|
|
17,334 |
|
5.91%
|
|
|
18,830 |
|
6.35%
|
|
|
8,747 |
|
5.40%
|
|
|
1,263 |
|
6.48%
|
|
|
95,412 |
|
5.84%
|
|
More
than three to five years
|
|
27,921 |
|
5.48%
|
|
|
23,148 |
|
6.06%
|
|
|
1,814 |
|
7.00%
|
|
|
13,301 |
|
6.10%
|
|
|
9,947 |
|
6.47%
|
|
|
1,962 |
|
5.53%
|
|
|
894 |
|
7.38%
|
|
|
78,987 |
|
5.94%
|
|
More
than five to ten years
|
|
69,493 |
|
5.49%
|
|
|
59,605 |
|
6.14%
|
|
|
- |
|
0.00%
|
|
|
21,758 |
|
6.47%
|
|
|
5,742 |
|
6.80%
|
|
|
- |
|
0.00%
|
|
|
2,292 |
|
8.05%
|
|
|
158,890 |
|
5.95%
|
|
More
than ten to fifteen years
|
|
55,676 |
|
5.65%
|
|
|
60,831 |
|
6.24%
|
|
|
- |
|
0.00%
|
|
|
16,616 |
|
5.75%
|
|
|
681 |
|
7.27%
|
|
|
- |
|
0.00%
|
|
|
2,863 |
|
8.00%
|
|
|
136,667 |
|
5.98%
|
|
More
than fifteen years
|
|
165,192 |
|
5.73%
|
|
|
72,653 |
|
6.27%
|
|
|
2,128 |
|
5.94%
|
|
|
41,247 |
|
4.29%
|
|
|
8,242 |
|
5.97%
|
|
|
- |
|
0.00%
|
|
|
1,864 |
|
7.86%
|
|
|
291,326 |
|
5.68%
|
|
Total
|
$ |
356,428 |
|
5.63%
|
|
$ |
248,457 |
|
6.18%
|
|
$ |
32,082 |
|
4.66%
|
|
$ |
120,724 |
|
5.44%
|
|
$ |
84,919 |
|
5.44%
|
|
$ |
17,332 |
|
5.33%
|
|
$ |
10,334 |
|
7.84%
|
|
$ |
870,276 |
|
5.73%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table sets forth the scheduled repayments of fixed- and
adjustable-rate loans at December 31, 2008 that are contractually due after
December 31, 2009.
|
|
Due
After December 31, 2009
|
|
|
|
Fixed
|
|
|
Adjustable
|
|
|
Total
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$ |
307,455 |
|
|
$ |
37,025 |
|
|
$ |
344,480 |
|
Commercial
real estate
|
|
|
108,593 |
|
|
|
129,484 |
|
|
|
238,077 |
|
Construction
|
|
|
3,819 |
|
|
|
1,323 |
|
|
|
5,142 |
|
Home
equity
|
|
|
64,277 |
|
|
|
45,979 |
|
|
|
110,256 |
|
Commercial
and industrial
|
|
|
32,079 |
|
|
|
11,363 |
|
|
|
43,442 |
|
Automobile
|
|
|
10,709 |
|
|
|
- |
|
|
|
10,709 |
|
Consumer
|
|
|
9,176 |
|
|
|
- |
|
|
|
9,176 |
|
Total
loans
|
|
$ |
536,108 |
|
|
$ |
225,174 |
|
|
$ |
761,282 |
|
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, 2008, $356.4 million, or 41.0%
of our loan portfolio, consisted of one- to four-family residential mortgage
loans. We 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, 2008, we originated $36.8
million of fixed rate one- to four-family residential loans and $10.1 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, 2008, $37.8 million, or 10.6%, 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 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, 2008, commercial real
estate mortgage loans totaled $248.5 million, or 28.6% of our total loans. Our
real estate underwriting policies provide that such loans may be made in amounts
up to 85% of the appraised value of the property, though such loans are
generally limited to 80% of the 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, 2008, was $24.4
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 credit 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 us with 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, 2008 was a $6.7 million loan secured by property
located in Northern Connecticut. This loan is part of our largest commercial
relationship of which $15.5 million was outstanding as of December 31, 2008, and
comprised four loans to one real estate developer. All of the loans were
performing in accordance with their terms at December 31, 2008.
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 often depend on the 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, 2008, residential construction loans totaled $1.9 million, or 0.2%
of total loans, compared to $8.5 million, or 1.0% at December 31, 2007. At
December 31, 2008, the unadvanced portion of these construction loans totaled
$711,000.
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, and
condominium developments. 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%. 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. At December 31, 2008, commercial construction loans
totaled $30.2 million, or 3.5% of total loans, compared to $33.6 million, or
4.1% of total loans, at December 31, 2007. At December 31, 2008, the largest
outstanding commercial construction loan balance was for $4.9 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,
2008. At December 31, 2008, the unadvanced portion of all commercial
construction loans totaled $13.8 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. At December 31, 2008, land loans totaled $7.9 million,
or 1.4% of total 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 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, 2008, home equity loans and equity lines
of credit totaled $120.7 million, or 13.9% of total
loans. Additionally, at December 31, 2008, the unadvanced amounts of
home equity lines of credit totaled $102.5 million. The underwriting standards
utilized for home equity loans and equity lines of credit include a
determination of the applicant’s credit history, an assessment of the
applicant’s ability to meet existing obligations and payments on the proposed
loan and the value of the collateral securing the loan. The combined (first and
second mortgage liens) loan-to-value ratio for home equity loans and equity
lines of credit is generally limited to 80%. Home equity loans are offered with
fixed and adjustable rates of interest and with terms of up to 20 years. Our
home equity lines of credit have adjustable rates of interest, which are indexed
to the prime rate, as reported in The Wall Street
Journal. We originated $58.9 million under home equity lines
of credit and other home equity loans during the year ended December 31, 2008,
as compared to total originations of $58.6 million during the year ended
December 31, 2007.
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, 2008, we had $84.9 million of commercial and industrial loans,
which amounted to 9.8% 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, 2008, was $24.4 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 and
debt service capabilities of the borrower, our lending history with 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, 2008, our largest commercial and
industrial loan was a $1.6 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, 2008. Our largest
commercial and industrial relationship was $4.2 million to a site excavation
contractor located in our primary market area and a borrowing and deposit
customer of United Bank for the past six years. All loans to this customer were
performing in accordance with loan terms at December 31, 2008.
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, 2008, we had $17.3 million in automobile loans, which amounted to
2.0% of 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 $10.3 million, or 1.2% of our
total loan portfolio at December 31, 2008. At December 31, 2008, $328,000 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, Purchases, 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 that we originate 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 though not in recent years. No loans were held for sale
at December 31, 2008 or 2007. 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 purchase loans. During the fourth quarter of 2008, we
purchased $15.3 million in commercial real estate loans from a major financial
organization. These loans consisted of five loans secured by real estate located
within 50 miles of our main office. Each of the loans was underwritten to our
criteria and procedures and have maturities ranging from four years to 23
years.
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 loans according to our own underwriting
criteria
and
procedures. At December 31, 2008, we had $14.6 million in loan participation
interests in which we were the lead bank and $17.8 million in loan
participations in which we were not the lead bank.
At
December 31, 2008, we were servicing loans sold in the amount of $30.2
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, purchases, sales and repayment
activities for the years indicated.
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
thousands)
|
|
Total
loans at beginning of period
|
|
$ |
824,695 |
|
|
$ |
762,113 |
|
|
$ |
635,792 |
|
Loan
originations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
|
46,946 |
|
|
|
46,191 |
|
|
|
59,576 |
|
Commercial
mortgages
|
|
|
57,095 |
|
|
|
45,449 |
|
|
|
51,141 |
|
Construction
(1)
|
|
|
28,798 |
|
|
|
50,089 |
|
|
|
59,719 |
|
Home
equity
|
|
|
58,928 |
|
|
|
58,634 |
|
|
|
83,041 |
|
Commercial
and industrial
|
|
|
97,274 |
|
|
|
87,869 |
|
|
|
85,105 |
|
Automobile
|
|
|
5,367 |
|
|
|
9,364 |
|
|
|
13,702 |
|
Other
consumer
|
|
|
5,368 |
|
|
|
6,106 |
|
|
|
4,712 |
|
Total
loans originated
|
|
|
299,778 |
|
|
|
303,702 |
|
|
|
356,996 |
|
Loans
purchased
|
|
|
15,024 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and loan principal repayment
|
|
|
|
|
|
|
|
|
|
|
|
|
deductions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
repayments
|
|
|
264,610 |
|
|
|
239,063 |
|
|
|
232,266 |
|
Loan
sales
|
|
|
- |
|
|
|
2,046 |
|
|
|
190 |
|
Decrease
(increase) due to other items
|
|
|
4,399 |
|
|
|
11 |
|
|
|
(1,781 |
) |
Total
deductions
|
|
|
269,009 |
|
|
|
241,120 |
|
|
|
230,675 |
|
Net
loan activity
|
|
|
45,793 |
|
|
|
62,582 |
|
|
|
126,321 |
|
Total
loans at end of period
|
|
$ |
870,488 |
|
|
$ |
824,695 |
|
|
$ |
762,113 |
|
__________________________________
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes
$25,799, $41,708 and $46,904 of commercial construction loans for the
years ended December 31, 2008,
|
|
2007
and 2006, 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
assessed tax 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
less than current market rates).
|
|
At
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars
in thousands)
|
|
Non-accrual
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
$ |
1,244 |
|
|
$ |
328 |
|
|
$ |
- |
|
|
$ |
1,016 |
|
|
$ |
1,383 |
|
Commercial
mortgages
|
|
|
2,544 |
|
|
|
553 |
|
|
|
1,144 |
|
|
|
141 |
|
|
|
1,376 |
|
Construction
|
|
|
444 |
|
|
|
577 |
|
|
|
- |
|
|
|
113 |
|
|
|
- |
|
Home
equity
|
|
|
- |
|
|
|
52 |
|
|
|
20 |
|
|
|
- |
|
|
|
- |
|
Commercial
and industrial
|
|
|
425 |
|
|
|
275 |
|
|
|
123 |
|
|
|
447 |
|
|
|
1,025 |
|
Automobile
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
consumer
|
|
|
140 |
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
Total
non-accrual loans
|
|
|
4,797 |
|
|
|
1,785 |
|
|
|
1,288 |
|
|
|
1,717 |
|
|
|
3,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing
loans 90 days or more past due
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing loans
|
|
|
4,797 |
|
|
|
1,785 |
|
|
|
1,288 |
|
|
|
1,717 |
|
|
|
3,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
real estate owned
|
|
|
998 |
|
|
|
880 |
|
|
|
562 |
|
|
|
1,602 |
|
|
|
- |
|
Total
non-performing assets
|
|
$ |
5,795 |
|
|
$ |
2,665 |
|
|
$ |
1,850 |
|
|
$ |
3,319 |
|
|
$ |
3,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-performing loans to total loans
|
|
|
0.55 |
% |
|
|
0.22 |
% |
|
|
0.17 |
% |
|
|
0.27 |
% |
|
|
0.66 |
% |
Total
non-performing assets to total assets
|
|
|
0.46 |
% |
|
|
0.25 |
% |
|
|
0.18 |
% |
|
|
0.37 |
% |
|
|
0.49 |
% |
Allowance
for loan losses to non-performing loans
|
|
|
171.98 |
% |
|
|
432.16 |
% |
|
|
560.40 |
% |
|
|
371.69 |
% |
|
|
151.96 |
% |
As noted
in the above table, non-accrual loans amounted to approximately $4.8 million and
$1.8 million at December 31, 2008 and 2007, respectively. Additional interest
income of approximately $132,000, $69,000, $71,000, $158,000 and $110,000,
respectively, would have been recorded during the years ended December 31, 2008,
2007, 2006, 2005 and 2004, 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, 2008 and 2007, the recorded investment in impaired loans was $4.8
million and $1.8 million, respectively. An allowance for loan losses was
established on $4.8 million and $1.8 million of the impaired loans at December
31, 2008 and 2007, respectively, which allowances totaled $343,000 and $223,000
at the respective year-ends. The average balance of impaired loans was $4.0
million, $2.2 million and $2.1 million for the years ended December 31, 2008,
2007 and 2006, respectively. Interest income recognized on impaired
loans during 2008, 2007 and 2006 was not significant.
Delinquent
Loans. The following table sets forth our loan delinquencies
greater than 60 days by type and amount 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,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
|
7 |
|
|
$ |
939 |
|
|
|
7 |
|
|
$ |
1,244 |
|
|
|
14 |
|
|
$ |
2,183 |
|
Commercial
mortgage
|
|
|
3 |
|
|
|
772 |
|
|
|
8 |
|
|
|
2,544 |
|
|
|
11 |
|
|
|
3,316 |
|
Construction
|
|
|
1 |
|
|
|
140 |
|
|
|
3 |
|
|
|
444 |
|
|
|
4 |
|
|
|
584 |
|
Home
equity
|
|
|
2 |
|
|
|
126 |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
126 |
|
Commercial
and industrial
|
|
|
5 |
|
|
|
242 |
|
|
|
15 |
|
|
|
425 |
|
|
|
20 |
|
|
|
667 |
|
Automobile
|
|
|
1 |
|
|
|
8 |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
8 |
|
Other
consumer
|
|
|
1 |
|
|
|
2 |
|
|
|
2 |
|
|
|
140 |
|
|
|
3 |
|
|
|
142 |
|
Total
|
|
|
20 |
|
|
$ |
2,229 |
|
|
|
35 |
|
|
$ |
4,797 |
|
|
|
55 |
|
|
$ |
7,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
|
1 |
|
|
$ |
558 |
|
|
|
4 |
|
|
$ |
328 |
|
|
|
5 |
|
|
$ |
886 |
|
Commercial
mortgages
|
|
|
3 |
|
|
|
671 |
|
|
|
5 |
|
|
|
553 |
|
|
|
8 |
|
|
|
1,224 |
|
Construction
|
|
|
- |
|
|
|
- |
|
|
|
5 |
|
|
|
577 |
|
|
|
5 |
|
|
|
577 |
|
Home
equity
|
|
|
2 |
|
|
|
200 |
|
|
|
2 |
|
|
|
52 |
|
|
|
4 |
|
|
|
252 |
|
Commercial
and industrial
|
|
|
7 |
|
|
|
454 |
|
|
|
8 |
|
|
|
275 |
|
|
|
15 |
|
|
|
729 |
|
Automobile
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
consumer
|
|
|
2 |
|
|
|
50 |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
50 |
|
Total
|
|
|
15 |
|
|
$ |
1,933 |
|
|
|
24 |
|
|
$ |
1,785 |
|
|
|
39 |
|
|
$ |
3,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
|
3 |
|
|
$ |
203 |
|
|
|
- |
|
|
$ |
- |
|
|
|
3 |
|
|
$ |
203 |
|
Commercial
mortgages
|
|
|
1 |
|
|
|
149 |
|
|
|
7 |
|
|
|
1,144 |
|
|
|
8 |
|
|
|
1,293 |
|
Construction
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Home
equity
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
20 |
|
|
|
1 |
|
|
|
20 |
|
Commercial
and industrial
|
|
|
2 |
|
|
|
47 |
|
|
|
4 |
|
|
|
123 |
|
|
|
6 |
|
|
|
170 |
|
Automobile
|
|
|
2 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
1 |
|
Other
consumer
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
Total
|
|
|
8 |
|
|
$ |
400 |
|
|
|
13 |
|
|
$ |
1,288 |
|
|
|
21 |
|
|
$ |
1,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 after acquisition are expensed. At
December 31, 2008, we had $998,000 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. The amount of residential
real estate loans classified as “substandard” in the table at December 31, 2008
includes two owner-occupied mortgage loans classified due to the commercial
lending relationships. These loans are current in their payments. All other
loans include $8.4 million in condominium construction loans, all of which are
current in payments.
|
|
At
December 31,
|
|
|
At
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In
thousands)
|
|
Residential Real Estate
(1):
|
|
|
|
|
|
|
Special
mention
|
|
$ |
379 |
|
|
$ |
- |
|
Substandard
|
|
|
1,552
|
(2) |
|
|
1,278 |
|
|
|
|
|
|
|
|
|
|
All Other Loans (3):
|
|
|
|
|
|
|
|
|
Special
mention
|
|
|
17,984 |
|
|
|
13,800 |
|
Substandard
|
|
|
22,975 |
|
|
|
19,377 |
|
Doubtful
|
|
|
894 |
|
|
|
244 |
|
Loss
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Foreclosed
Assets:
|
|
|
|
|
|
|
|
|
Other
real estate owned
|
|
|
998 |
|
|
|
880 |
|
|
|
|
|
|
|
|
|
|
Total
classified assets
|
|
$ |
44,782 |
|
|
$ |
35,579 |
|
_________________________________________
|
|
|
|
|
|
|
|
|
(1) Includes
one- to-four family loans and home equity loans and lines of
credit.
|
|
(2) Includes
eight residential relationships, four of which are in foreclosure or
liquidation proceedings.
|
|
(3) Includes
$10.3 million of construction loans for one- to-four family or condominium
contruction.
|
|
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.
A loan is
classified as a troubled debt restructuring if the Company, for economic or
legal reasons related to the borrower’s financial difficulties, grants a
concession to the borrower that it would not otherwise consider. This
usually includes a modification of loan terms, such as a reduction of the
interest rate to below market terms, capitalizing past due interest or extending
the maturity date and possibly a partial forgiveness of
debt. Interest income on restructured loans is accrued after the
borrower demonstrates the ability to pay under the restructured terms through a
sustained period of repayment performance, which is generally six
months.
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, 2008 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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$ |
7,714 |
|
|
$ |
7,218 |
|
|
$ |
6,382 |
|
|
$ |
5,750 |
|
|
$ |
5,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial
mortgages
|
|
|
6 |
|
|
|
39 |
|
|
|
- |
|
|
|
60 |
|
|
|
- |
|
Construction
|
|
|
444 |
|
|
|
326 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Home
equity
|
|
|
42 |
|
|
|
- |
|
|
|
10 |
|
|
|
- |
|
|
|
- |
|
Commercial
and industrial
|
|
|
827 |
|
|
|
593 |
|
|
|
164 |
|
|
|
377 |
|
|
|
501 |
|
Automobile
|
|
|
8 |
|
|
|
21 |
|
|
|
1 |
|
|
|
15 |
|
|
|
46 |
|
Other
consumer
|
|
|
9 |
|
|
|
4 |
|
|
|
11 |
|
|
|
3 |
|
|
|
11 |
|
Total
charge-offs
|
|
|
1,336 |
|
|
|
983 |
|
|
|
186 |
|
|
|
455 |
|
|
|
558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgages
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial
mortgages
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
175 |
|
Construction
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Home
equity
|
|
|
5 |
|
|
|
4 |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
Commercial
and industrial
|
|
|
17 |
|
|
|
47 |
|
|
|
47 |
|
|
|
157 |
|
|
|
32 |
|
Automobile
|
|
|
3 |
|
|
|
1 |
|
|
|
2 |
|
|
|
6 |
|
|
|
21 |
|
Other
consumer
|
|
|
1 |
|
|
|
2 |
|
|
|
3 |
|
|
|
7 |
|
|
|
2 |
|
Total
recoveries
|
|
|
26 |
|
|
|
54 |
|
|
|
53 |
|
|
|
170 |
|
|
|
231 |
|
Net
charge-offs
|
|
|
(1,310 |
) |
|
|
(929 |
) |
|
|
(133 |
) |
|
|
(285 |
) |
|
|
(327 |
) |
Provision
for loan losses
|
|
|
1,846 |
|
|
|
1,425 |
|
|
|
969 |
|
|
|
917 |
|
|
|
983 |
|
Balance
at end of period
|
|
$ |
8,250 |
|
|
$ |
7,714 |
|
|
$ |
7,218 |
|
|
$ |
6,382 |
|
|
$ |
5,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs to average loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
0.15 |
% |
|
|
0.12 |
% |
|
|
0.02 |
% |
|
|
0.05 |
% |
|
|
0.06 |
% |
Allowance
for loan losses to non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
performing
loans at end of period
|
|
|
171.98 |
% |
|
|
432.16 |
% |
|
|
560.40 |
% |
|
|
371.69 |
% |
|
|
151.96 |
% |
Allowance
for loan losses to total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loans
at end of period
|
|
|
0.95 |
% |
|
|
0.94 |
% |
|
|
0.95 |
% |
|
|
1.00 |
% |
|
|
1.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
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
|
|
$ |
891 |
|
|
|
10.80 |
% |
|
|
40.95 |
% |
|
$ |
849 |
|
|
|
11.00 |
% |
|
|
41.16 |
% |
|
$ |
957 |
|
|
|
13.26 |
% |
|
|
41.87 |
% |
Commercial
mortgages
|
|
|
3,506 |
|
|
|
42.50 |
% |
|
|
28.55 |
% |
|
|
3,164 |
|
|
|
41.02 |
% |
|
|
26.04 |
% |
|
|
2,588 |
|
|
|
35.86 |
% |
|
|
23.04 |
% |
Construction
|
|
|
1,089 |
|
|
|
13.20 |
% |
|
|
3.69 |
% |
|
|
1,229 |
|
|
|
15.93 |
% |
|
|
5.10 |
% |
|
|
1,255 |
|
|
|
17.39 |
% |
|
|
7.19 |
% |
Home
equity
|
|
|
604 |
|
|
|
7.32 |
% |
|
|
13.87 |
% |
|
|
523 |
|
|
|
6.78 |
% |
|
|
14.10 |
% |
|
|
512 |
|
|
|
7.09 |
% |
|
|
14.79 |
% |
Commercial
and industrial
|
|
|
1,911 |
|
|
|
23.16 |
% |
|
|
9.76 |
% |
|
|
1,667 |
|
|
|
21.61 |
% |
|
|
9.89 |
% |
|
|
1,633 |
|
|
|
22.62 |
% |
|
|
9.15 |
% |
Automobile
|
|
|
156 |
|
|
|
1.89 |
% |
|
|
1.99 |
% |
|
|
202 |
|
|
|
2.62 |
% |
|
|
2.72 |
% |
|
|
220 |
|
|
|
3.05 |
% |
|
|
3.21 |
% |
Other
consumer
|
|
|
93 |
|
|
|
1.13 |
% |
|
|
1.19 |
% |
|
|
80 |
|
|
|
1.04 |
% |
|
|
0.99 |
% |
|
|
53 |
|
|
|
0.73 |
% |
|
|
0.75 |
% |
Total
allowance
|
|
$ |
8,250 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
$ |
7,714 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
$ |
7,218 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
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
|
|
$ |
297 |
|
|
|
4.65 |
% |
|
|
44.86 |
% |
|
$ |
302 |
|
|
|
5.25 |
% |
|
|
44.62 |
% |
Commercial
mortgages
|
|
|
2,944 |
|
|
|
46.13 |
% |
|
|
23.61 |
% |
|
|
3,217 |
|
|
|
55.95 |
% |
|
|
24.00 |
% |
Construction
|
|
|
316 |
|
|
|
4.95 |
% |
|
|
4.54 |
% |
|
|
259 |
|
|
|
4.50 |
% |
|
|
5.20 |
% |
Home
equity
|
|
|
257 |
|
|
|
4.03 |
% |
|
|
13.53 |
% |
|
|
224 |
|
|
|
3.90 |
% |
|
|
13.01 |
% |
Commercial
and industrial
|
|
|
2,487 |
|
|
|
38.97 |
% |
|
|
9.37 |
% |
|
|
1,682 |
|
|
|
29.25 |
% |
|
|
9.81 |
% |
Automobile
|
|
|
78 |
|
|
|
1.22 |
% |
|
|
3.47 |
% |
|
|
60 |
|
|
|
1.04 |
% |
|
|
3.04 |
% |
Other
consumer
|
|
|
3 |
|
|
|
0.05 |
% |
|
|
0.61 |
% |
|
|
6 |
|
|
|
0.11 |
% |
|
|
0.32 |
% |
Total
allowance
|
|
$ |
6,382 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
$ |
5,750 |
|
|
|
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 $10 million per transaction 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, 2008, consisted of $465,000 in federal
agency obligations, $1.5 million of corporate debt instruments, $12.5 million of
municipal bonds and $1.1 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, 2008, our mortgage-backed securities portfolio totaled $301.1 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.
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, 2008, our mortgage-backed securities totaled $301.1 million, or
23.8% of total assets and 25.2% of interest earning assets. All of our
mortgage-backed securities at December 31, 2008 were classified as
available-for-sale. At December 31, 2008, 20.9% of the mortgage-backed
securities were backed by adjustable-rate mortgage loans and 79.1% were backed
by fixed-rate mortgage loans. The mortgage-backed securities portfolio had a
weighted average yield of 5.21% at December 31, 2008. The estimated
fair value of our mortgage-backed securities at December 31, 2008 was $301.1
million, which was $6.3 million more than the amortized cost of $294.8
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.
Government-Sponsored
Enterprises. At December 31, 2008, our U.S.
Government-Sponsored Enterprises securities portfolio totaled $465,000, 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.
Corporate
Bonds. At December 31, 2008, our corporate bond portfolio
totaled $1.5 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 at the time
of purchase 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.
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 at the time of purchase within the first four
rating categories by Standard & Poor’s or Moody’s. At December 31, 2008, our
municipal obligations portfolio consisted of both available-for-sale and
held-to-maturity securities. At December 31, 2008, our municipal obligations
that are classified as available-for-sale totaled $10.4 million and our
industrial revenue and municipal obligations that are classified as
held-to-maturity totaled $3.2 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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Amortized
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
|
(In
thousands)
|
|
Investment
securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored
enterprises
|
|
$ |
467 |
|
|
$ |
465 |
|
|
$ |
45,447 |
|
|
$ |
45,474 |
|
|
$ |
78,248 |
|
|
$ |
77,369 |
|
Mortgage-backed
securities
|
|
|
294,824 |
|
|
|
301,111 |
|
|
|
146,764 |
|
|
|
147,581 |
|
|
|
111,481 |
|
|
|
109,274 |
|
Corporate
debt obligations
|
|
|
1,538 |
|
|
|
1,538 |
|
|
|
2,820 |
|
|
|
2,778 |
|
|
|
3,415 |
|
|
|
3,309 |
|
Municipal
bonds
|
|
|
10,504 |
|
|
|
10,392 |
|
|
|
5,295 |
|
|
|
5,284 |
|
|
|
- |
|
|
|
- |
|
Equity
securities
|
|
|
- |
|
|
|
- |
|
|
|
140 |
|
|
|
140 |
|
|
|
293 |
|
|
|
285 |
|
Total
available-for-sale
|
|
$ |
307,333 |
|
|
$ |
313,506 |
|
|
$ |
200,466 |
|
|
$ |
201,257 |
|
|
$ |
193,437 |
|
|
$ |
190,237 |
|
Investment
securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRB
|
|
$ |
1,122 |
|
|
$ |
1,122 |
|
|
$ |
1,197 |
|
|
$ |
1,197 |
|
|
$ |
1,271 |
|
|
$ |
1,271 |
|
Municipal
bonds
|
|
|
2,069 |
|
|
|
2,116 |
|
|
|
2,435 |
|
|
|
2,434 |
|
|
|
1,970 |
|
|
|
1,956 |
|
Total
held-to-maturity
|
|
$ |
3,191 |
|
|
$ |
3,238 |
|
|
$ |
3,632 |
|
|
$ |
3,631 |
|
|
$ |
3,241 |
|
|
$ |
3,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio
Maturities and Yields. The composition and maturities of the
investment securities portfolio at December 31, 2008 are summarized in the
following table. Maturities are based on the final contractual
payment dates, and do not reflect the impact of prepayments or early redemptions
that may occur.
|
|
|
|
|
|
More
than One Year
|
|
More
than Five Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
Year or Less
|
|
through
Five Years
|
|
through
Ten Years
|
|
More
than Ten Years
|
|
Total
Securities
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
Amortized
|
|
Average
|
|
Amortized
|
|
Average
|
|
Amortized
|
|
Average
|
|
Amortized
|
|
Average
|
|
Amortized
|
|
Average
|
|
|
|
|
|
Cost
|
|
Yield
|
|
Cost
|
|
Yield
|
|
Cost
|
|
Yield
|
|
Cost
|
|
Yield
|
|
Cost
|
|
Yield
|
|
Fair
Value
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored
enterprises
|
|
$ |
- |
|
0.00%
|
|
$ |
467 |
|
4.64%
|
|
$ |
- |
|
0.00%
|
|
$ |
- |
|
0.00%
|
|
$ |
467 |
|
4.64%
|
|
$ |
465 |
|
Mortgage-backed
securities
|
|
|
- |
|
0.00%
|
|
|
12,190 |
|
3.55%
|
|
|
16,146 |
|
4.74%
|
|
|
266,488 |
|
5.31%
|
|
|
294,824 |
|
5.21%
|
|
|
301,111 |
|
Corporate
debt obligations
|
|
|
- |
|
0.00%
|
|
|
- |
|
0.00%
|
|
|
- |
|
0.00%
|
|
|
1,538 |
|
7.76%
|
|
|
1,538 |
|
7.76%
|
|
|
1,538 |
|
Municipal
bonds
|
|
|
- |
|
0.00%
|
|
|
- |
|
0.00%
|
|
|
1,327 |
|
3.72%
|
|
|
9,177 |
|
4.20%
|
|
|
10,504 |
|
4.14%
|
|
|
10,392 |
|
Total
available-for-sale
|
|
$ |
- |
|
0.00%
|
|
$ |
12,657 |
|
3.59%
|
|
$ |
17,473 |
|
4.66%
|
|
$ |
277,203 |
|
5.29%
|
|
$ |
307,333 |
|
5.18%
|
|
$ |
313,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRB
|
|
$ |
372 |
|
5.00%
|
|
$ |
- |
|
0.00%
|
|
$ |
- |
|
0.00%
|
|
$ |
750 |
|
4.00%
|
|
$ |
1,122 |
|
4.33%
|
|
$ |
1,122 |
|
Municipal
bonds
|
|
|
- |
|
0.00%
|
|
|
918 |
|
3.23%
|
|
|
764 |
|
3.81%
|
|
|
387 |
|
3.90%
|
|
|
2,069 |
|
3.57%
|
|
|
2,116 |
|
Total
held-to-maturity
|
|
$ |
372 |
|
5.00%
|
|
$ |
918 |
|
3.23%
|
|
$ |
764 |
|
3.81%
|
|
$ |
1,137 |
|
3.97%
|
|
$ |
3,191 |
|
3.84%
|
|
$ |
3,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources
of Funds
General. Deposits
have traditionally been our primary source of funds for 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. Other
sources of funds are 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, 2008, $375.9 million, or 48.0% of
our deposit accounts, were certificates of deposit, of which $281.1 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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Percent
|
|
|
Rate
|
|
|
Balance
|
|
|
Percent
|
|
|
Rate
|
|
|
Balance
|
|
|
Percent
|
|
|
Rate
|
|
|
|
(Dollars
in thousands)
|
|
Deposit
type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
|
|
$ |
114,178 |
|
|
|
14.59 |
% |
|
|
- |
% |
|
$ |
102,010 |
|
|
|
14.20 |
% |
|
|
- |
% |
|
$ |
97,190 |
|
|
|
14.17 |
% |
|
|
- |
% |
NOW
|
|
|
32,390 |
|
|
|
4.14 |
% |
|
|
0.50 |
% |
|
|
35,207 |
|
|
|
4.90 |
% |
|
|
0.51 |
% |
|
|
37,523 |
|
|
|
5.47 |
% |
|
|
0.57 |
% |
Regular
savings
|
|
|
99,492 |
|
|
|
12.71 |
% |
|
|
1.04 |
% |
|
|
65,711 |
|
|
|
9.14 |
% |
|
|
1.15 |
% |
|
|
65,475 |
|
|
|
9.55 |
% |
|
|
0.83 |
% |
Money
market
|
|
|
160,736 |
|
|
|
20.54 |
% |
|
|
1.69 |
% |
|
|
168,107 |
|
|
|
23.39 |
% |
|
|
2.94 |
% |
|
|
165,984 |
|
|
|
24.21 |
% |
|
|
3.18 |
% |
Certificates
of deposit
|
|
|
375,867 |
|
|
|
48.02 |
% |
|
|
3.34 |
% |
|
|
347,647 |
|
|
|
48.37 |
% |
|
|
4.58 |
% |
|
|
319,514 |
|
|
|
46.60 |
% |
|
|
4.52 |
% |
Total
deposits
|
|
$ |
782,663 |
|
|
|
100.00 |
% |
|
|
2.10 |
% |
|
$ |
718,682 |
|
|
|
100.00 |
% |
|
|
3.03 |
% |
|
$ |
685,686 |
|
|
|
100.00 |
% |
|
|
2.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table sets forth our time deposits classified by interest rate as of
the dates indicated.
|
|
At
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate
|
|
|
|
|
|
|
|
|
|
Less
than 2.00%
|
|
$ |
10,119 |
|
|
$ |
3 |
|
|
$ |
2,788 |
|
2.00-2.99%
|
|
|
94,010 |
|
|
|
9,280 |
|
|
|
35,404 |
|
3.00-3.99%
|
|
|
215,796 |
|
|
|
37,040 |
|
|
|
21,682 |
|
4.00-4.99%
|
|
|
54,329 |
|
|
|
247,487 |
|
|
|
161,688 |
|
5.00-5.99%
|
|
|
1,613 |
|
|
|
53,837 |
|
|
|
97,952 |
|
Total
time deposits
|
|
$ |
375,867 |
|
|
$ |
347,647 |
|
|
$ |
319,514 |
|
The
following table sets forth the amount and maturities of our time deposits at
December 31, 2008.
|
|
|
|
|
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%
|
|
$ |
9,172 |
|
|
$ |
947 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
10,119 |
|
2.00-2.99%
|
|
|
88,826 |
|
|
|
5,184 |
|
|
|
- |
|
|
|
- |
|
|
|
94,010 |
|
3.00-3.99%
|
|
|
158,906 |
|
|
|
20,998 |
|
|
|
33,516 |
|
|
|
2,376 |
|
|
|
215,796 |
|
4.00-4.99%
|
|
|
23,958 |
|
|
|
12,744 |
|
|
|
2,451 |
|
|
|
15,176 |
|
|
|
54,329 |
|
5.00-5.99%
|
|
|
206 |
|
|
|
1,300 |
|
|
|
- |
|
|
|
107 |
|
|
|
1,613 |
|
Total
|
|
$ |
281,068 |
|
|
$ |
41,173 |
|
|
$ |
35,967 |
|
|
$ |
17,659 |
|
|
$ |
375,867 |
|
The
following table sets forth changes in our interest-bearing deposit balances for
the periods indicated.
|
|
For
the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
616,672 |
|
|
$ |
588,496 |
|
|
$ |
560,310 |
|
Net
deposits before interest
|
|
|
|
|
|
|
|
|
|
|
|
|
credited
|
|
|
33,978 |
|
|
|
6,124 |
|
|
|
9,563 |
|
Interest
credited
|
|
|
17,835 |
|
|
|
22,052 |
|
|
|
18,623 |
|
Net
increase in deposits
|
|
|
51,813 |
|
|
|
28,176 |
|
|
|
28,186 |
|
Ending
balance
|
|
$ |
668,485 |
|
|
$ |
616,672 |
|
|
$ |
588,496 |
|
As of
December 31, 2008, the aggregate amount of outstanding certificates of deposit
in amounts greater than or equal to $100,000 was approximately $150.4
million. The following table sets forth the maturity of those
certificates as of December 31, 2008, in thousands.
Three
months or less
|
|
$ |
55,336 |
|
Over
three months through six months
|
|
|
26,088 |
|
Over
six months through one year
|
|
|
33,713 |
|
Over
one year to three years
|
|
|
28,057 |
|
Over
three years
|
|
|
7,162 |
|
Total
|
|
$ |
150,356 |
|
Borrowings. Our
borrowings consist of advances from the Federal Home Loan Bank of Boston and
collateralized repurchase agreements with our customers and other financial
institutions. As of December 31, 2008, we had Federal Home Loan Bank advances of
$208.6 million, or 20.1% of total liabilities, with a weighted average maturity
of 2.1 years and a weighted average rate of 3.32%. As a member of the Federal
Home Loan Bank of Boston, we can currently borrow up to approximately $503.0
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
$ |
208,564 |
|
|
$ |
107,997 |
|
|
$ |
169,806 |
|
Average
amount outstanding during year
|
|
|
178,699 |
|
|
|
158,595 |
|
|
|
127,397 |
|
Interest
expense incurred during year
|
|
|
6,739 |
|
|
|
7,617 |
|
|
|
5,621 |
|
Maximum
amount outstanding at any month-end
|
|
|
228,214 |
|
|
|
187,941 |
|
|
|
169,806 |
|
Average
interest rate during the year
|
|
|
3.77 |
% |
|
|
4.80 |
% |
|
|
4.41 |
% |
Weighted
average interest rate on end of period balances
|
|
|
3.32 |
% |
|
|
4.55 |
% |
|
|
4.73 |
% |
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Amount
|
|
|
Average
Rate
|
|
|
Amount
|
|
|
Average
Rate
|
|
|
Amount
|
|
|
Average
Rate
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
1 year
|
|
$ |
55,000 |
|
|
|
1.26 |
% |
|
$ |
17,152 |
|
|
|
5.00 |
% |
|
$ |
65,000 |
|
|
|
5.16 |
% |
Over
1 year to 2 years
|
|
|
22,279 |
|
|
|
4.35 |
% |
|
|
13,000 |
|
|
|
5.13 |
% |
|
|
16,411 |
|
|
|
5.06 |
% |
Over
2 years to 3 years
|
|
|
52,321 |
|
|
|
4.03 |
% |
|
|
26,767 |
|
|
|
4.15 |
% |
|
|
13,000 |
|
|
|
5.13 |
% |
Over
3 years to 4 years
|
|
|
8,033 |
|
|
|
4.34 |
% |
|
|
23,267 |
|
|
|
4.60 |
% |
|
|
16,111 |
|
|
|
3.20 |
% |
Over
4 years to 5 years
|
|
|
41,894 |
|
|
|
4.02 |
% |
|
|
9,968 |
|
|
|
4.34 |
% |
|
|
39,184 |
|
|
|
4.60 |
% |
Over
5 years
|
|
|
29,037 |
|
|
|
3.84 |
% |
|
|
17,843 |
|
|
|
4.36 |
% |
|
|
20,100 |
|
|
|
4.32 |
% |
|
|
$ |
208,564 |
|
|
|
3.32 |
% |
|
$ |
107,997 |
|
|
|
4.55 |
% |
|
$ |
169,806 |
|
|
|
4.73 |
% |
Included
in the balance of advances due within one year at December 31, 2008 are $42.0
million in short-term borrowings which had an interest rate of 0.0625% and
matured on January 2, 2009.
Securities
sold under agreements to repurchase include funds borrowed from customers on an
overnight basis. At December 31, 2008 the Company had $18.0 million of
repurchase agreements outstanding with its customers at a weighted average rate
of 1.60%. The following table summarizes our customer repurchase agreements at
and for the periods shown:
|
|
For
the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
$ |
18,042 |
|
|
$ |
13,864 |
|
|
$ |
10,425 |
|
Average
amount outstanding during year
|
|
|
8,534 |
|
|
|
7,788 |
|
|
|
5,546 |
|
Interest
expense incurred during year
|
|
|
158 |
|
|
|
259 |
|
|
|
167 |
|
Maximum
amount outstanding at any month-end
|
|
|
18,042 |
|
|
|
13,864 |
|
|
|
10,425 |
|
Average
interest rate during the year
|
|
|
1.85 |
% |
|
|
3.33 |
% |
|
|
3.01 |
% |
Weighted
average interest rate on end of period balances
|
|
|
1.60 |
% |
|
|
3.12 |
% |
|
|
3.38 |
% |
In
addition the Company had a $10.0 million structured term repurchase agreement
secured through another financial institution. This $10.0 million repurchase
agreement matures in 2018, is callable in 2011 and has a rate of
2.73%. All of the repurchase agreements are secured by
mortgage-backed securities issued by government sponsored
enterprises.
Subsidiary
Activities
UCB
Securities, Inc. is a wholly owned subsidiary of United Bank and was established
in 1998 as a Massachusetts security corporation for the purpose of buying,
selling and holding investment securities. 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, 2008, UCB Securities, Inc.
had total assets of $132.0 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, 2008, 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, 2008, we had 201 full-time employees and 22 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 also
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.
Certain
of the regulatory requirements that are or will be applicable to United Bank and
United Financial Bancorp, Inc., are described below. This description
of statutes and regulations is not intended to be a complete explanation of such
statutes and regulations and their effects on United Bank and United Financial
Bancorp, Inc. and is qualified in its entirety by reference to the actual
statutes and regulations. 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 45%
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. In assessing an
institution’s capital adequacy, the Office of Thrift Supervision takes into
consideration not only these numeric factors but also qualitative factors as
well, and has the authority to establish higher capital requirements for
individual savings banks where necessary.
At
December 31, 2008, 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, 2008, 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,
2008, 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. 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 savings bank’s net income for that year to date plus the savings bank’s
retained net income for the preceding two years;
· the
savings bank 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
savings bank 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 savings bank’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. A savings
bank’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.
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 savings bank. 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 banks 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
$1.0 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 3% leverage capital, 4% Tier 1 risk-based capital or 8% total
risk-based capital);
|
|
·
|
significantly
undercapitalized (less than 3% leverage capital, 3% Tier 1 risk-based
capital or 6% total risk-based capital);
and
|
|
·
|
critically
undercapitalized (less than 2% tangible
capital).
|
Generally,
the Office of Thrift Supervision 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, 2008, United Bank met the criteria for being considered
“well-capitalized.”
Insurance for
Deposit Accounts. United Bank is a member of the Deposit
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation. Deposit accounts at United Bank are insured by the Federal Deposit
Insurance Corporation, generally up to a maximum of $100,000 for each separately
insured depositor and up to a maximum of $250,000 for self-directed retirement
accounts. However, the Federal Deposit Insurance Corporation increased the
deposit insurance available on all deposit accounts to $250,000, effective until
December 31, 2009. In addition, certain noninterest-bearing
transaction accounts maintained with financial institutions participating in the
Federal Deposit Insurance Corporation’s Temporary Liquidity Guarantee Program
are fully insured regardless of the dollar amount until December 31,
2009. United Bank has opted to participate in the Federal Deposit
Insurance Corporation’s Temporary Liquidity Guarantee Program. See “—Temporary
Liquidity Guarantee Program.”
The
Federal Deposit Insurance Corporation imposes an assessment against all
depository institutions for deposit insurance. This assessment is based on the
risk category of the institution and, prior to 2009, ranged from 5 to 43 basis
points of the institution’s deposits. On February 27, 2009, the
Federal Deposit Insurance Corporation published a final rule raising the current
deposit insurance assessment rates to a range from 12 to 45 basis points
beginning April 1, 2009. Additionally, the Federal Deposit Insurance
Corporation issued an interim final rule that would impose a special assessment
on all insured deposits as of June 30, 2009, which would be payable on September
30, 2009.
Insurance
of deposits may be terminated by the Federal Deposit Insurance Corporation upon
a finding that an institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the Federal
Deposit
Insurance
Corporation. We do not currently know of any practice, condition or violation
that might lead to termination of our deposit insurance.
In
addition to the Federal Deposit Insurance Corporation assessments, the Financing
Corporation (“FICO”) is authorized 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 former Federal Savings and Loan Insurance Corporation. The
bonds issued by the FICO are due to mature in 2017 through 2019. For the quarter
ended December 31, 2008, the annualized FICO assessment was equal to 1.10 basis
points for each $100 in domestic deposits maintained at an
institution.
Temporary
Liquidity Guarantee Program. On October 14, 2008, the Federal
Deposit Insurance Corporation announced a new program – the Temporary Liquidity
Guarantee Program. This program has two components. One guarantees
newly issued senior unsecured debt of a participating organization, up to
certain limits established for each institution, issued between October 14, 2008
and June 30, 2009. The Federal Deposit Insurance Corporation will pay the unpaid
principal and interest on a Federal Deposit Insurance Corporation-guaranteed
debt instrument upon the uncured failure of the participating entity to make a
timely payment of principal or interest in accordance with the terms of the
instrument. The guarantee will remain in effect until June 30, 2012.
In return for the Federal Deposit Insurance Corporation’s guarantee,
participating institutions will pay the Federal Deposit Insurance Corporation a
fee based on the amount and maturity of the debt. United Financial Bancorp, Inc.
and United Bank both opted to participate in this component of the Temporary
Liquidity Guarantee Program.
The other
component of the program provides full federal deposit insurance coverage for
non-interest bearing transaction deposit accounts, regardless of dollar amount,
until December 31, 2009. An annualized 10 basis point assessment on balances in
noninterest-bearing transaction accounts that exceed the existing deposit
insurance limit of $250,000 will be assessed on a quarterly basis to insured
depository institutions that have not opted out of this component of the
Temporary Liquidity Guarantee Program. United Bank opted to
participate in this component of the Temporary Liquidity Guarantee
Program.
U.S. Treasury’s
Troubled Asset Relief Program Capital Purchase Program. The Emergency
Economic Stabilization Act of 2008 was enacted in October 2008 and provides the
U.S. Secretary of the Treasury with broad authority to implement certain actions
to help restore stability and liquidity to U.S. markets. One of the provisions
resulting from the legislation is the Troubled Asset Relief Program Capital
Purchase Program (“CPP”), which provides for direct equity investment in
perpetual preferred stock by the U.S. Treasury Department in qualified financial
institutions. The program is voluntary and requires an institution to comply
with a number of restrictions and provisions, including limits on executive
compensation, stock redemptions and declaration of dividends. The CPP
provides for a minimum investment of one percent of total risk-weighted assets
and a maximum investment equal to the lesser of three percent of total
risk-weighted assets or $25 billion. Participation in the program is not
automatic and is subject to approval by the U.S. Treasury
Department. United Financial Bancorp, Inc. determined not to
participate in the CPP.
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 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 ability to redeem FHLBB shares is
dependent on the redemption policies of the FHLBB. 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, 2008, United Bank was
in compliance with these reserve requirements.
Other
Regulations
Interest
and other charges collected or contracted for by United Bank are subject to
state usury laws and federal laws concerning interest rates. United
Bank’s operations are also subject to federal laws applicable to credit
transactions, such as the:
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Truth-In-Lending
Act, governing disclosures of credit terms to consumer
borrowers;
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Home
Mortgage Disclosure Act, requiring financial institutions to provide
information to enable the public and public officials to determine whether
a financial institution is fulfilling its obligation to help meet the
housing needs of the community it
serves;
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Equal
Credit Opportunity Act, prohibiting discrimination on the basis of race,
creed or other prohibited factors in extending
credit;
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Fair
Credit Reporting Act, governing the use and provision of information to
credit reporting agencies;
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Fair
Debt Collection Act, governing the manner in which consumer debts may be
collected by collection agencies;
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Truth
in Savings Act; and
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rules
and regulations of the various federal agencies charged with the
responsibility of implementing such federal
laws.
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The operations of United Bank also are
subject to the:
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Right
to Financial Privacy Act, which imposes a duty to maintain confidentiality
of consumer financial records and prescribes procedures for complying with
administrative subpoenas of financial
records;
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Electronic
Funds Transfer Act and Regulation E promulgated thereunder, which govern
automatic deposits to and withdrawals from deposit accounts and customers’
rights and liabilities arising from the use of automated teller machines
and other electronic banking
services;
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Check
Clearing for the 21st
Century Act (also known as “Check 21”), which gives “substitute checks,”
such as digital check images and copies made from that image, the same
legal standing as the original paper
check;
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The
USA PATRIOT Act, which requires savings banks to, among other things,
establish broadened anti-money laundering compliance programs, due
diligence policies and controls to ensure the detection and reporting of
money laundering. Such required compliance programs are
intended to supplement existing compliance requirements, also applicable
to financial institutions, under the Bank Secrecy Act and the Office of
Foreign Assets Control regulations;
and
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The
Gramm-Leach-Bliley Act, which places limitations on the sharing of
consumer financial information by financial institutions with unaffiliated
third parties. Specifically, the
Gramm-
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Leach-Bliley
Act requires all financial institutions offering financial products or
services to retail customers to provide such customers with the financial
institution’s privacy policy and provide such customers the opportunity to
“opt out” of the sharing of certain personal financial information with
unaffiliated third parties.
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Sarbanes-Oxley
Act of 2002
The
Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance,
auditing and accounting, executive compensation, and enhanced and timely
disclosure of corporate information. As directed by the Sarbanes-Oxley Act, the
Company’s Chief Executive Officer and Chief Financial Officer are required to
certify that its quarterly and annual reports do not contain any untrue
statement of a material fact. The rules adopted by the Securities and Exchange
Commission under the Sarbanes-Oxley Act have several requirements, including
having these officers certify that: they are responsible for establishing,
maintaining and regularly evaluating the effectiveness of the Company’s internal
control over financial reporting; they have made certain disclosures to the
Company’s auditors and the audit committee of the Board of Directors about the
Company’s internal control over financial reporting; and they have included
information in the Company’s quarterly and annual reports about their evaluation
and whether there have been changes in its internal control over financial
reporting or in other factors that could materially affect 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. Unlike bank holding companies, federal savings and
loan holding companies are not subject to any regulatory capital requirements or
to supervision by the Federal Reserve Board.
Under
federal law, the business activities of 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, as well as activities that are 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.
The
Office of Thrift Supervision is prohibited from approving any acquisition that
would result in a multiple savings and loan holding company controlling savings
institutions in more than one state, subject to two exceptions:
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(i)
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the
approval of interstate supervisory acquisitions by savings and loan
holding companies; and
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(ii)
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the
acquisition of a savings institution in another state if the laws of the
state of the target savings institution specifically permit such
acquisition.
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The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
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, Inc. or United Bank.
The
Internal Revenue Service (“IRS”) commenced an examination of the Company’s 2005
and 2006 federal income tax returns in the second quarter of
2007. 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 change in fair value calculated
under IRC Sec. 475 is considered a temporary difference in the Company’s FAS109
deferred income tax calculations. In June 2008, the Company agreed to a
settlement of the proposed adjustments with the IRS. As a result, for
tax years 2005 and 2006 the Company had a tax deficiency of $994,000 and related
interest due of $76,000. In conjunction with the
settlement, the Company has amended its calculation of the fair market value of
its residential mortgage portfolio beginning with the 2007 tax
year.
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, 2008, 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 IRC 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 $1.3 million contribution carryforward at December 31,
2007, related to its $3.6 million contribution to fund United Charitable
Foundation in 2005. The Company utilized its remaining carryforward
in 2008.
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, until 2009 a consolidated tax return cannot
be filed. Instead, United Financial Bancorp, Inc., United Bank, and each of
their subsidiaries file separate annual income tax returns. Beginning in 2009,
United Financial Bancorp, Inc. and United Bank will be required to file a
combined return pursuant to a Massachusetts law change enacted in July 2008. The
security corporation subsidiary will continue to file separately. United
Financial Bancorp, Inc.’s state tax returns, as well as those of United Bank and
its subsidiaries, are not currently under audit. The years after 2004
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, are not 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.
Due to
this legislative change, beginning in 2010 the Massachusetts financial
institution tax rate will decrease by 0.5% each year for three years until 2012,
when it will become 9% and will remain at that rate.
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.
An
investment in our common stock involves risk. You should carefully consider the
risks described below and all other information contained in this annual report
on Form 10-K before you decide to buy our common stock. It is possible that
risks and uncertainties not listed below may arise or become material in the
future and affect our business.
The
United States Economy Is In Recession. A Prolonged Economic Downturn, Especially
One Affecting Our Geographic Market Area, Could Materially Affect our Business
and Financial Results.
The
United States economy entered a recession in the fourth quarter of
2007. Throughout the course of 2008 and in the first quarter of 2009,
economic conditions continued to worsen, due in large part to the fallout from
the collapse of the sub-prime mortgage market. While we did not originate or
invest in sub-prime mortgages, our lending business is tied, in large part, to
the housing market. Declines in home prices, increases in
foreclosures and higher unemployment have adversely affected the credit
performance of real estate-related loans, resulting in the write-down of asset
values. The continuing housing slump also has resulted in reduced demand for the
construction of new housing, further declines in home prices, and increased
delinquencies on our construction, residential and commercial mortgage loans.
Further, the ongoing concern about the stability of the financial markets in
general has caused many lenders to reduce or cease providing funding to
borrowers. These conditions may also cause a further reduction in loan demand,
and increases in our non-performing assets, net charge-offs and provisions for
loan losses.
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:
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the
interest income we earn on our interest-earning assets, such as loans and
securities; and
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the
interest expense we pay on our interest-bearing liabilities, such as
deposits and borrowings.
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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, 2008, 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 $313.5 million. Unrealized net gains on these
available-for-sale securities totaled $6.2 million at December 31, 2008 and are
reported as a separate component of stockholders’ equity. 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,
2008, 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 3.3% decrease in net interest income over the following 12
months.
As
a Result of Our Emphasis on Originating Commercial Real Estate and Commercial
and Industrial Loans, Our Credit Risk Has and Will Continue to
Increase. Continued Weakness or a Deeper Downturn in the Real Estate
Market and Local Economy Could Adversely Affect Our Earnings.
At
December 31, 2008, our portfolio of commercial real estate loans totaled $248.5
million, or 28.6% of our total loans, and our portfolio of commercial and
industrial loans totaled $84.9 million, or 9.8% of our total loans. These loans
have increased as a percentage of our total loan portfolio in recent years and
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
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 0.95%
of total loans and 171.98% of non-performing loans at December 31, 2008,
compared to 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.
Further
Declines in the Value of Certain Investment Securities Could Require
Write-Downs, Which Would Reduce our Earnings.
At
December 31, 2008, our investment portfolio included $1.5 million in trust
preferred securities and $12.5 million in municipal bonds. During
2008, we recognized a $1.3 million charge for the other-than-temporary
impairment of certain trust preferred securities and a $94,000 charge for the
other-than-temporary impairment of one municipal security. A number
of factors or combinations of factors could cause us to conclude in one or more
future reporting periods that an unrealized loss that exists with respect to
these securities constitutes an impairment that is other than temporary. These
factors include, but are not limited to, failure to make scheduled interest
payments, an increase in the severity of the unrealized loss on a particular
security, an increase in the continuous duration of the unrealized loss without
an improvement in value or changes in market conditions and/or industry or
issuer specific factors that would render us unable to forecast a full recovery
in value. An other-than-temporary impairment write-down would reduce our
earnings.
Future
Legislative or Regulatory Actions Responding to Financial and Market Weakness
Could Affect Us Adversely. There Can Be No Assurance that Actions of the U.S.
Government, Federal Reserve and Other Governmental and Regulatory Bodies For the
Purpose of Stabilizing the Financial Markets Will Achieve the Intended
Effect.
In response to the financial crises
affecting the banking system and financial markets, the U.S. Congress has passed
legislation and the U.S. Treasury has promulgated programs designed to purchase
assets from, provide equity capital to, and guarantee the liquidity of the
financial services industry. Specifically, Congress adopted the
Emergency Economic Stabilization Act of 2008, under which the U.S. Treasury has
the authority to expend up to $700 billion to assist in stabilizing and
providing liquidity to the U.S. financial system. On October 14, 2008, the
U.S. Treasury announced the Capital Purchase Program, under which it will
purchase up to $250 billion of non-voting senior preferred shares of certain
qualified financial institutions in an attempt to encourage financial
institutions to build capital to increase the flow of financing to businesses
and consumers and to support the economy. In addition, Congress temporarily
increased FDIC deposit insurance from $100,000 to $250,000 per depositor through
December 31, 2009. The FDIC has also announced the creation of the
Temporary Liquidity Guarantee Program which is intended to strengthen confidence
and encourage liquidity in financial institutions by temporarily guaranteeing
newly issued senior unsecured debt of participating organizations and providing
full insurance coverage for noninterest-bearing transaction deposit accounts
(such as business checking accounts, interest-bearing transaction accounts
paying 50 basis points or less and lawyers’ trust accounts), regardless of
dollar amount until December 31, 2009. Finally, in February
2009, the American Recovery and Reinvestment Act of 2009 was enacted, which is
intended to expand and establish government spending programs and provide
certain tax cuts to stimulate the economy. The U.S. government continues to
evaluate and develop various programs and initiatives designed to stabilize the
financial and housing markets and stimulate the economy, including the
U.S. Treasury’s recently announced Financial Stability Plan and the
recently announced foreclosure prevention program.
The
potential exists for additional federal or state laws and regulations regarding
lending and funding practices and liquidity standards, and bank regulatory
agencies are expected to be active in responding to concerns and trends
identified in examinations, and the issuance of many formal enforcement orders
is expected. Actions taken to date, as well as potential actions, may
not have the beneficial effects that are intended, particularly with respect to
the extreme levels of volatility and limited credit availability currently being
experienced. In addition, new laws, regulations, and other regulatory
changes will increase our costs of regulatory compliance and of doing business,
and otherwise affect our operations. Our FDIC insurance premiums have increased,
and may continue to increase, because market developments have significantly
depleted the insurance fund of the FDIC and reduced the ratio of reserves to
insured deposits. New laws, regulations, and other regulatory changes, along
with negative developments in the financial services industry and the credit
markets, may significantly affect the markets in which we do business, the
markets for and value of our loans and investments, and our ongoing operations,
costs and profitability.
If
our Investment in the Federal Home Loan Bank of Boston is Classified as
Other-Than-Temporarily Impaired or as Permanently Impaired, our Earnings and
Stockholders’ Equity Would Decrease.
We own
common stock of the Federal Home Loan Bank of Boston. We hold this stock to
qualify for membership in the Federal Home Loan Bank System and to be eligible
to borrow funds under the Federal Home Loan Bank of Boston’s advance program.
The aggregate cost and fair value of our Federal Home Loan Bank of Boston common
stock as of December 31, 2008 was $12.2 million based on its par
value. There is no market for our Federal Home Loan Bank of Boston common
stock. Recent published reports indicate that certain member banks of
the Federal Home Loan Bank System may be subject to accounting rules and asset
quality risks that could result in materially lower regulatory capital
levels. In an extreme situation, it is possible that the
capitalization of a Federal Home Loan Bank, including the Federal Home Loan Bank
of Boston, could be substantially diminished. Consequently, we
believe that there is a risk that our investment in Federal Home Loan Bank of
Boston common stock could be impaired at some time in the future. If
this occurs, it would cause our earnings and stockholders’ equity to decrease by
the after-tax amount of the impairment charge.
The
Federal Home Loan Bank of Boston Suspended Dividends During the Fourth Quarter
of 2008. This Will Negatively Affect our Earnings.
The Federal Home Loan Bank of Boston
suspended dividends during the fourth quarter of 2008, and has stated that
resuming payment of dividends in 2009 is unlikely. We received
$402,000 in dividends from the Federal Home Loan Bank of Boston during the year
ended December 31, 2008, and the failure of the Federal Home Loan Bank of Boston
to pay dividends for any quarter will reduce our earnings during that
quarter.
Our
Wholesale Funding Sources May Prove Insufficient to Replace Deposits at Maturity
and Support Our Future Growth.
We must
maintain sufficient funds to respond to the needs of depositors and borrowers.
As a part of our liquidity management, we use a number of funding sources in
addition to core deposit growth and repayments and maturities of loans and
investments. As we continue to grow, we are likely to become more dependent on
these sources, which include Federal Home Loan Bank advances, proceeds from the
sale of loans and liquidity resources of the holding company. At December 31,
2008, we had approximately $209 million of FHLB advances outstanding. Our
financial flexibility will be severely constrained if we are unable to maintain
our access to funding or if adequate financing is not available to accommodate
future growth at acceptable interest rates. Finally, if we are required to rely
more heavily on more expensive funding sources to support future growth, our
revenues may not increase proportionately to cover our costs. In this case, our
operating margins and profitability would be adversely affected.
Lack
of Consumer Confidence in Financial Institutions May Decrease Our Level of
Deposits.
Our level
of deposits may be affected by lack of consumer confidence in financial
institutions, which has resulted in large numbers of depositors unwilling to
maintain deposits that are not insured by the Federal Deposit Insurance
Corporation. In some cases, depositors have withdrawn deposits and invested
uninsured funds in investments perceived as being more secure, such as
securities issued by the U.S. Treasury. These consumer preferences may force us
to pay higher interest rates to retain deposits and may constrain liquidity as
we seek to meet funding needs caused by reduced deposit levels.
Economic
Conditions May Adversely Affect Our Liquidity.
In the
past year, significant declines in the values of mortgage-backed securities and
derivative securities issued by financial institutions, government sponsored
entities, and major commercial and investment banks has led to decreased
confidence in financial markets among borrowers, lenders, and depositors, as
well as disruption and extreme volatility in the capital and credit markets and
the failure of some entities in the financial sector. As a result, many lenders
and institutional investors have reduced or ceased to provide funding to
borrowers. Continued turbulence in the capital and credit markets may adversely
affect our liquidity and financial condition and the willingness of certain
counterparties and customers to do business with us.
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.
Recent
Negative Developments in the Financial Services Industry And the Credit Markets
May Subject Us to Additional Regulation.
As a
result of the recent financial crisis, the potential exists for the promulgation
of new federal or state laws and regulations regarding lending and funding
practices and liquidity standards, and bank regulatory agencies are expected to
be active in responding to concerns and trends identified in examinations, which
are expected to result in the issuance of many formal enforcement orders.
Negative developments in the financial services industry and the credit markets,
and the impact of new legislation in response to these developments, may
negatively affect our operations by restricting our business operations,
including our ability to originate or sell loans and pursue business
opportunities. Compliance with such regulation also will likely increase our
costs.
Our
Future Growth May Require Us to Raise Additional Capital in the Future, But That
Capital May Not Be Available When It Is Needed.
We are
required by regulatory authorities to maintain adequate levels of capital to
support our operations. We believe that our current capital levels will satisfy
our regulatory requirements for the foreseeable future. We may at some point,
however, need to raise additional capital to support our continued growth. Our
ability to raise additional capital will depend, in part, on conditions in the
capital markets at that time, which are outside our control, and on our
financial performance. Accordingly, we may be unable to raise additional
capital, if and when needed, on terms acceptable to us, or at all. If we cannot
raise additional capital when needed, our ability to further expand our
operations through internal growth and acquisitions could be materially
impaired. In addition, if we decide to raise additional equity capital, your
interest in our common stock could be diluted.
Our
Expenses Will Increase as a Result of Increases in FDIC Insurance
Premiums.
The FDIC
imposes an assessment against financial institutions for deposit insurance. This
assessment is based on the risk category of the institution and currently ranges
from 5 to 43 basis points of the institution’s deposits. On February 27, 2009,
the FDIC issued a final rule that increases the current deposit insurance
assessment rates to a range from 12 to 45 basis points beginning April 1,
2009. Additionally, the FDIC has issued an interim rule that would
impose a special assessment on all insured deposits as of June 30, 2009, which
would be paid on September 30, 2009. The increase in the assessment rates and
the special assessment will increase our expenses.
ITEM
1B. UNRESOLVED STAFF COMMENTS Not
applicable.
The
following table provides certain information as of December 31, 2008 with
respect to our main office located in West Springfield and our 14 other full
service branch offices, our drive-up facilities and our financial service
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
|
|
|
$
|
1,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full
Service Branches:
|
|
|
|
|
|
|
|
|
|
|
|
|
115
State Street
Springfield,
MA 01103
|
|
Leased
|
|
(1)
|
|
|
3,401
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1077
St. James Avenue
Springfield,
MA 01104
|
|
Owned
|
|
2003
|
|
|
8,354
|
|
|
|
864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
459
Main Street
Indian
Orchard, MA 01151
|
|
Leased
|
|
(2)
|
|
|
2,560
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
528
Center Street
Ludlow,
MA 01056
|
|
Owned
|
|
2002
|
|
|
3,000
|
|
|
|
966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1930
Wilbraham Road
Springfield,
MA 01129
|
|
Owned
|
|
2001
|
|
|
2,304
|
|
|
|
668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Elm Street
Westfield,
MA 01085
|
|
Owned
|
|
1981
|
|
|
8,500
|
|
|
|
727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Russell Road
Huntington,
MA 01050
|
|
Owned
|
|
2001
|
|
|
720
|
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
Southampton Road
Westfield,
MA 01085
|
|
Leased
|
|
(6)
|
|
|
2,890
|
|
|
|
1,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1830
Northampton Street
Holyoke,
MA 01040
|
|
Owned
|
|
1994
|
|
|
6,409
|
|
|
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
Shaker Road
East
Longmeadow, MA 01028
|
|
Leased
|
|
2008
(7)
|
|
|
2,411
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
806
Suffield Street
Agawam,
MA 01001
|
|
Leased
|
|
2008
(8)
|
|
|
2,972
|
|
|
|
1,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
52
Van Deene Avenue
West
Springfield, MA 01089
|
|
Owned
|
|
2005 (9)
|
|
|
547
|
|
|
|
620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Westfield Street
West
Springfield, MA 01089
|
|
Owned
|
|
(10)
|
|
|
1,720
|
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140
Main Street
Northampton,
MA 01060
|
|
Leased
|
|
2006 (11)
|
|
|
1,375
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
491
Pleasant Street
Northampton,
MA 01060
|
|
Leased
|
|
2008
(12)
|
|
|
7,405
|
|
|
|
542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 2013 with an
additional five-year renewal option.
|
(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)
|
United
Bank has a lease for a ten-year period expiring in January 2018 with a
renewal option for ten additional years.
|
(8)
|
United
Bank has a lease for a twenty-year period expiring in March 2028 with two
five-year renewal options. This lease
|
|
is
classified as a capitalized lease for accounting and reporting
purposes.
|
|
|
|
|
(9)
|
This
office is a drive-up facility only.
|
|
|
|
|
|
|
|
|
(10)
|
A
portion of this facility is used as a Wealth Management office which
offers insurance, investment products and financial
|
|
planning
services.
|
|
|
|
|
|
|
|
|
|
|
(11)
|
United
Bank has a two-year lease for this Wealth Management services facility
which expires in November 2010 and has one
|
|
two-year
renewal option.
|
|
|
|
|
|
|
|
|
|
|
(12)
|
This
office is an express drive-up branch.
|
|
|
|
|
|
|
|
|
The net
book value of our premises, land and equipment, including capitalized lease
assets, was $10.7 million at December 31, 2008.
ITEM
3. LEGAL PROCEEDINGS
The
Company and its subsidiary are subject to various legal actions arising in the
normal course of business. At December 31, 2008, we were not involved
in any legal proceedings that were material to the Company’s financial condition
or results of operations.
ITEM
4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal
year covered by this report, the Company did not submit any matters to the vote
of security holders.
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, 2009 was 2,472. 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, 2008
and 2007.
At the
close of business on December 31, 2008, there were 17,501,949 shares
outstanding. The high and low sales prices for the quarterly periods noted below
were obtained from the NASDAQ Global Select Market.
|
|
Price Per
Share (1)
|
|
|
Cash
|
|
|
|
High
|
|
|
Low
|
|
|
Dividend
Declared
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Fourth
quarter
|
|
$ |
15.32 |
|
|
$ |
11.00 |
|
|
$ |
0.07 |
|
Third
quarter
|
|
|
17.10 |
|
|
|
10.97 |
|
|
|
0.07 |
|
Second
quarter
|
|
|
12.47 |
|
|
|
10.71 |
|
|
|
0.07 |
|
First
quarter
|
|
|
12.00 |
|
|
|
10.23 |
|
|
|
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) As
a result of the Company's second-step conversion and offering, all share
prices for 2007 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, 2008, (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.
|
|
|
Index
|
|
07/13/05
|
|
|
12/31/05
|
|
|
12/31/06
|
|
|
12/31/07
|
|
|
12/31/08
|
|
United
Financial Bancorp, Inc.
|
|
|
100.00 |
|
|
|
98.13 |
|
|
|
119.32 |
|
|
|
101.73 |
|
|
|
141.84 |
|
Russell
2000
|
|
|
100.00 |
|
|
|
101.41 |
|
|
|
120.04 |
|
|
|
118.16 |
|
|
|
78.23 |
|
SNL
Thrift MHCs Index
|
|
|
100.00 |
|
|
|
100.51 |
|
|
|
137.78 |
|
|
|
121.12 |
|
|
|
127.07 |
|
SNL
Thrift Index
|
|
|
100.00 |
|
|
|
100.76 |
|
|
|
117.45 |
|
|
|
70.46 |
|
|
|
44.84 |
|
On
January 15, 2009, the Board of Directors of United Financial Bancorp, Inc.
declared a cash dividend of $0.07 per share. The dividend will be
payable on March 10, 2009 to shareholders of record as of February 17,
2009.
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.”
Information at December 31, 2008 with
regard to stockholder approval of compensation plans under which equity
securities of the Company are authorized for issuance is provided in the
Company’s proxy statement related to the Company’s 2009 Annual Meeting of
Stockholders.
(c) The
following table provides certain information with regard to shares repurchased
by the Company in the fourth quarter of 2008.
|
|
|
|
|
|
|
|
|
|
|
(d)
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
Maximum
Number
|
|
|
|
|
|
|
|
|
|
Total
Number of
|
|
|
(or
Approximate
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Dollar
Value)
|
|
|
|
(a)
|
|
|
(b)
|
|
|
Purchased
as Part
|
|
|
of
Shares that
|
|
|
|
Total
Number
|
|
|
Average
Price
|
|
|
of
Publicly
|
|
|
May
Yet Be
|
|
|
|
of
Shares
|
|
|
Paid
Per
|
|
|
Announced
Plans
|
|
|
Purchased
Under the
|
|
Period:
|
|
Purchased
|
|
|
Share
|
|
|
or
Programs
|
|
|
Plans
or Programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
1 -31, 2008
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
1 - 30, 2008
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
1 -31, 2008
|
|
|
206,200 |
|
|
|
13.75 |
|
|
|
206,200 |
|
|
|
679,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
206,200 |
|
|
$ |
13.75 |
|
|
|
206,200 |
|
|
|
|
|
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, 2008 and 2007 and for the years ended December 31,
2008, 2007 and 2006 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, 2005 and 2004 is derived in
part from audited consolidated financial statements that do not appear in this
Annual Report.
|
|
At
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In
thousands)
|
|
Selected
Financial Condition Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
1,263,134 |
|
|
$ |
1,079,281 |
|
|
$ |
1,009,433 |
|
|
$ |
906,513 |
|
|
$ |
772,008 |
|
Cash
and cash equivalents
|
|
|
13,572 |
|
|
|
14,254 |
|
|
|
25,419 |
|
|
|
15,843 |
|
|
|
23,233 |
|
Short-term
investments
|
|
|
1,071 |
|
|
|
1,030 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Investment
securities available-for-sale
|
|
|
12,395 |
|
|
|
53,676 |
|
|
|
80,963 |
|
|
|
111,763 |
|
|
|
50,650 |
|
Investment
securities held-to-maturity
|
|
|
3,191 |
|
|
|
3,632 |
|
|
|
3,241 |
|
|
|
3,325 |
|
|
|
2,498 |
|
Mortgage-backed
securities available-for-sale
|
|
|
301,111 |
|
|
|
147,581 |
|
|
|
109,274 |
|
|
|
114,702 |
|
|
|
101,679 |
|
Loans, net (1)
|
|
|
864,421 |
|
|
|
819,117 |
|
|
|
756,180 |
|
|
|
630,558 |
|
|
|
569,243 |
|
Deposits
|
|
|
782,663 |
|
|
|
718,682 |
|
|
|
685,686 |
|
|
|
653,611 |
|
|
|
613,672 |
|
FHLB
advances
|
|
|
208,564 |
|
|
|
107,997 |
|
|
|
169,806 |
|
|
|
101,880 |
|
|
|
86,694 |
|
Repurchase
agreements
|
|
|
28,042 |
|
|
|
13,864 |
|
|
|
10,425 |
|
|
|
8,434 |
|
|
|
4,317 |
|
Stockholders'
equity
|
|
|
227,714 |
|
|
|
226,120 |
|
|
|
137,711 |
|
|
|
137,005 |
|
|
|
62,255 |
|
Non-performing assets
(2)
|
|
|
5,795 |
|
|
|
2,665 |
|
|
|
1,850 |
|
|
|
3,319 |
|
|
|
3,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars
in thousands, except per share amounts)
|
|
Selected
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and dividend income
|
|
$ |
64,814 |
|
|
$ |
59,250 |
|
|
$ |
52,202 |
|
|
$ |
43,233 |
|
|
$ |
36,532 |
|
Interest
expense
|
|
|
25,003 |
|
|
|
30,083 |
|
|
|
24,647 |
|
|
|
16,206 |
|
|
|
12,148 |
|
Net
interest income before provision for loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
losses
|
|
|
39,811 |
|
|
|
29,167 |
|
|
|
27,555 |
|
|
|
27,027 |
|
|
|
24,384 |
|
Provision
for loan losses
|
|
|
1,846 |
|
|
|
1,425 |
|
|
|
969 |
|
|
|
917 |
|
|
|
983 |
|
Net
interest income after provision for loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
losses
|
|
|
37,965 |
|
|
|
27,742 |
|
|
|
26,586 |
|
|
|
26,110 |
|
|
|
23,401 |
|
Non-interest
income
|
|
|
5,220 |
|
|
|
5,735 |
|
|
|
5,392 |
|
|
|
5,020 |
|
|
|
5,134 |
|
Non-interest
expense
|
|
|
30,690 |
|
|
|
26,039 |
|
|
|
24,036 |
|
|
|
24,112 |
|
|
|
19,179 |
|
Income
before taxes
|
|
|
12,495 |
|
|
|
7,438 |
|
|
|
7,942 |
|
|
|
7,018 |
|
|
|
9,356 |
|
Income
tax expense
|
|
|
5,197 |
|
|
|
3,061 |
|
|
|
3,018 |
|
|
|
2,649 |
|
|
|
3,828 |
|
Net
income
|
|
$ |
7,298 |
(4) |
|
$ |
4,377 |
|
|
$ |
4,924 |
|
|
$ |
4,369 |
(5) |
|
$ |
5,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
(12)
|
|
$ |
0.45 |
|
|
$ |
0.26 |
|
|
$ |
0.29 |
|
|
$ |
0.33 |
|
|
$ |
0.58 |
|
Diluted earnings per share
(12)
|
|
$ |
0.45 |
|
|
$ |
0.26 |
|
|
$ |
0.29 |
|
|
$ |
0.33 |
|
|
$ |
0.58 |
|
Dividends per share (3)
|
|
$ |
0.27 |
|
|
$ |
0.24 |
|
|
$ |
0.20 |
|
|
NA
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares outstanding
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,043,727 |
|
|
|
16,852,566 |
|
|
|
17,139,599 |
|
|
|
13,193,088 |
|
|
|
9,564,571 |
|
Diluted
|
|
|
16,126,561 |
|
|
|
16,905,713 |
|
|
|
17,149,027 |
|
|
|
13,193,088 |
|
|
|
9,564,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
or For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Selected
Financial Ratios and Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Ratios (6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets
|
|
|
0.62 |
%
(13) |
|
|
0.42 |
% |
|
|
0.51 |
% |
|
|
0.51 |
%
(11) |
|
|
0.73 |
% |
Return
on average equity
|
|
|
3.23 |
%
(13) |
|
|
2.99 |
% |
|
|
3.59 |
% |
|
|
4.45 |
%
(11) |
|
|
9.25 |
% |
Average
equity to average assets
|
|
|
19.06 |
% |
|
|
14.17 |
% |
|
|
14.35 |
% |
|
|
11.42 |
% |
|
|
7.87 |
% |
Equity
to total assets at end of period (6)
|
|
|
18.03 |
% |
|
|
20.95 |
% |
|
|
13.64 |
% |
|
|
15.11 |
% |
|
|
8.06 |
% |
Interest
rate spread (7)
|
|
|
2.69 |
% |
|
|
2.08 |
% |
|
|
2.23 |
% |
|
|
2.77 |
% |
|
|
3.03 |
% |
Net
interest margin (8)
|
|
|
3.47 |
% |
|
|
2.91 |
% |
|
|
2.97 |
% |
|
|
3.27 |
% |
|
|
3.33 |
% |
Average
interest-earning assets to average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest-bearing
liabilitites
|
|
|
135.95 |
% |
|
|
127.77 |
% |
|
|
128.10 |
% |
|
|
125.61 |
% |
|
|
118.30 |
% |
Total
non-interest expense to average total assets
|
|
|
2.59 |
% |
|
|
2.52 |
% |
|
|
2.51 |
% |
|
|
2.81 |
%
(11) |
|
|
2.53 |
% |
Efficiency
ratio (9)
|
|
|
66.16 |
% |
|
|
74.02 |
% |
|
|
72.95 |
% |
|
|
75.25 |
%
(11) |
|
|
64.98 |
% |
Dividend
payout ratio
|
|
|
60.78 |
% |
|
|
40.15 |
% |
|
|
29.69 |
% |
|
NA
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Capital Ratios
(6,10):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I risk-based capital
|
|
|
17.76 |
% |
|
|
19.25 |
% |
|
|
14.83 |
% |
|
|
17.21 |
% |
|
|
11.67 |
% |
Tier
I (core) capital
|
|
|
12.31 |
% |
|
|
14.00 |
% |
|
|
10.57 |
% |
|
|
11.63 |
% |
|
|
8.11 |
% |
Tangible
Equity Ratio
|
|
|
12.31 |
% |
|
|
14.00 |
% |
|
NA
|
|
|
NA
|
|
|
NA
|
|
Total
risk-based capital
|
|
|
18.71 |
% |
|
|
20.25 |
% |
|
|
15.86 |
% |
|
|
18.28 |
% |
|
|
12.76 |
% |
Asset Quality Ratios
(6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing
assets as a percent of total assets (2)
|
|
|
0.46 |
% |
|
|
0.25 |
% |
|
|
0.18 |
% |
|
|
0.37 |
% |
|
|
0.49 |
% |
Non-performing
loans as a percent of total loans (2)
|
|
|
0.55 |
% |
|
|
0.22 |
% |
|
|
0.17 |
% |
|
|
0.27 |
% |
|
|
0.66 |
% |
Allowance
for loan losses as a percent of total loans
|
|
|
0.95 |
% |
|
|
0.94 |
% |
|
|
0.95 |
% |
|
|
1.00 |
% |
|
|
1.00 |
% |
Allowance
for loan losses as a percent of non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
performing
loans (2)
|
|
|
171.98 |
% |
|
|
432.16 |
% |
|
|
560.40 |
% |
|
|
371.69 |
% |
|
|
151.96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of full service customer facilities
|
|
|
15 |
|
|
|
13 |
|
|
|
13 |
|
|
|
11 |
|
|
|
11 |
|
(1)
|
The
allowance for loan losses at December 31, 2008, 2007, 2006, 2005 and 2004
was $8.3 million, $7.7 million, $7.2 million, $6.4 million and $5.8
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid to public stockholders
|
|
$ |
4,436 |
|
|
$ |
1,757 |
|
Dividends
paid to United Mutual
|
|
|
|
|
|
|
|
|
Holding
Company
|
|
|
N/A |
|
|
|
- |
|
Total
dividends paid
|
|
$ |
4,436 |
|
|
$ |
1,757 |
|
|
Payments
listed above for the year ended December 31, 2007 exclude cash dividends
waived by United Mutual Holding Company of $2.2 million. United Mutual
Holding Company began waiving dividends on January 20, 2006 and, as of
December 31, 2007, had waived dividends totaling $4.0 million. United
Mutual Holding Company was dissolved in December,
2007.
|
(4)
|
Exclusive
of the $1.4 million OTTI charge and related tax effect of $550,000, net
income in 2008 would have been $8.1
million.
|
(5)
|
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.
|
(6)
|
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.
|
(7)
|
The
interest rate spread represents the difference between weighted-average
yield on interest-earning assets and the weighted-average cost of
interest-bearing liabilities.
|
(8)
|
The
net interest margin represents net interest income as a percent of average
interest-earning assets.
|
(9)
|
The
efficiency ratio represents non-interest expense divided by the sum of net
interest income and non-interest income and excludes gains/losses on sales
of securities and loans and impairment charges on
securities.
|
(10)
|
Regulatory
Capital Ratios are reported for United Bank
only.
|
(11)
|
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.
|
(12)
|
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 syndicated offering. All earnings per share
data and share information have been adjusted by the exchange ratio for
2007 and all periods prior.
|
(13)
|
Exclusive
of the $1.4 million OTTI charge and related tax effect of $550,000, the
return on average assets and average equity would have been 0.68% and
3.59%, respectively.
|
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 federal home loan
bank stock and 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 $10.6 million, or 36.5%, to $39.8 million for the year ended December
31, 2008 from $29.2 million for the year ended December 31, 2007 due to net
interest margin expansion and growth in average interest-earning assets. Net
interest margin increased 56 points to 3.47% for the year ended December 31,
2008 compared to 2.91% for the year ended December 31, 2007 reflecting the use
of net proceeds from the Company’s second-step offering to fund asset growth and
a significant decrease in the cost of deposits as a result of a 400 basis points
reduction in the federal funds rate from 4.25% at December 11, 2007 to 0.25% at
December 31, 2008. Average earning assets expanded $145.6 million, or
14.5%, to $1.1 billion for the year ended December 31, 2008, mainly due to loan
growth and purchases of mortgage-backed securities.
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, impairment
charges for 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.
Evaluation of the
Investment Portfolio for Other-Than-Temporary Impairment. The
evaluation of the investment portfolio for other-than-temporary impairment is
also a critical accounting estimate. In evaluating the investment
portfolio for other-than-temporary impairment, management considers the issuer’s
credit rating, credit outlook, payment status and financial condition, the
length of time the bond has been in a loss position, the size of the loss
position and other meaningful information. 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. A number of factors or combinations of
factors could cause us to conclude in one or more future reporting periods that
an unrealized loss that exists with respect to these securities constitutes an
impairment that is other than temporary. These factors include, but are not
limited to, failure to make scheduled principal and/or interest payments, an
increase in the severity of the unrealized loss on a particular security, an
increase in the continuous duration of the unrealized loss without an
improvement in value or changes in market conditions and/or industry or issuer
specific factors that would render us unable to forecast a full recovery in
value.
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, 14 branch offices, two offsite ATMs and two drive-up
facilities.
Expanding our
Branch Network. We currently operate from 15 full-service
banking offices, a drive-up only facility and a drive-up express facility, and
we intend to open one new branch office in 2009. 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 $57.1
million of commercial real estate loans and $97.3 million of commercial and
industrial loans during the year ended December 31, 2008. At December 31, 2008,
our commercial real estate loans and commercial and industrial loans totaled
$248.5 million and $84.9 million, respectively. The additional
capital raised from our 2007 “second-step” conversion offering has increased our
commercial lending capacity by enabling us to originate more loans and loans
with larger balances. Originating more commercial real estate loans 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. During the past year, however, deterioration in economic conditions
and the real estate market have contributed to an increase in non-performing
assets from $2.7 million, or 0.25% of total assets, at December 31, 2007 to $5.8
million, or 0.46% of total assets, at December 31, 2008. In addition,
net charge-offs have increased from 0.13% of average loans outstanding for the
year ended December 31, 2007 to 0.15% of our average loans outstanding for the
year ended December 31, 2008. Continued weakness or further deterioration in the
economy and the real estate market may lead to future increases in
non-performing assets and net charge-offs.
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 core account balances and total number of
accounts during 2008. At December 31, 2008, core deposits (demand deposits, NOW
accounts, money market accounts and savings accounts) totaled $406.8 million, or
52.0% of total deposits, compared to $371.0 million, or 51.6% of our total
deposits, at December 31, 2007.
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, 2008 and 2007
Balance Sheet
Summary Total assets increased $183.9 million, or 17.0%, to
$1.3 billion at December 31, 2008 from $1.1 billion at December 31, 2007, as a
result of a $112.2 million, or 55.8%, increase in securities available for sale,
a $45.3 million, or 5.5%, increase in total loans and a $20.5 million increase
in bank-owned life insurance. Balance sheet growth was funded by a $100.6
million, or 93.1%, increase in Federal Home Loan Bank advances, a $64.0 million,
or 8.9%, increase in total deposits, and a $14.2 million, or 102.2%, increase in
repurchase agreements. At year end, the Company continued to have considerable
liquidity including significant unused borrowing capacity at the Federal Home
Loan Bank and access to funding through the repurchase agreement and brokered
deposit markets. The Company’s balance sheet is also supported by a strong
capital position, with total stockholders’ equity of $227.7 million, or 18.0% of
total assets, at December 31, 2008.
Loans Net
loans increased $45.3 million, or 5.5%, to $864.4 million at December 31, 2008
from $819.1 million at December 31, 2007. Commercial real estate
loans increased $33.7 million, or 15.7%, to $248.5 million, and commercial and
industrial loans increased $3.0 million, or 4.1%, to $84.9 million, as a result
of economic activity in our primary market area, competitive pricing, attractive
products and services, established relationships and successful business
development efforts. The increase in commercial mortgage balances
also reflects the purchase of $15.0 million of loans in the fourth quarter of
2008. One- to four-family residential mortgage loans increased $17.0
million, or 5.0%, to $356.4 million at December 31, 2008, as a result of healthy
real estate transaction activity during the first six months of 2008, a
relatively low interest rate environment and our practice of originating
residential loans almost exclusively for portfolio. Home equity loans
increased $4.5 million, or 3.9%, to $120.7 million, largely as a result of
healthy demand, business development efforts and attractive products and
pricing. Construction loans decreased $10.0 million, or 23.7%, to
$32.1 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. Automobile loan balances declined $5.1
million, or 22.8%, to $17.3 million in connection with a slow-down in demand in
connection with weaker car sales and payments on existing loans. We
continued to focus our efforts on growing the commercial real estate and
commercial and industrial loan portfolios in order to increase our interest
income and improve our net interest rate spread.
Asset
Quality Throughout the course of 2008 and in the first quarter
of 2009, economic conditions continued to worsen, due in large part to the
fallout from the collapse of the sub-prime mortgage market. While we did not
originate or invest in sub-prime mortgages, our lending business is tied, in
large part, to the housing market. Declines in home prices, increases
in foreclosures and higher unemployment have adversely affected the credit
performance of real estate-related loans, resulting in the write-down of asset
values. The continuing housing slump also has resulted in reduced demand for the
construction of new housing, further declines in home prices, and increased
delinquencies on our construction, residential and commercial mortgage
loans. Our asset quality has also been impacted by a strategy adopted
several years ago to emphasize the origination of commercial and industrial
loans and commercial mortgages. These loans have increased as a
percentage of our total loan portfolio in recent years and generally have more
risk than one- to four-family residential mortgage loans. Because the repayment
of commercial and industrial loans and commercial mortgages 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.
As a
result of a slowing economy and deterioration in the housing market, we have
experienced increases in non-performing loans and classified
assets. Non-performing loans increased $3.0 million to $4.8 million,
or 0.55% of total loans, at December 31, 2008 compared to $1.8 million, or 0.22%
of total loans, at December 31, 2007. The increase in non-performing loans was
primarily due to several residential and commercial real estate loans which
became more than 90 days past due during 2008. In addition to
the nonperforming loans, the Company has identified $44.8 million of classified
assets at December 31, 2008, as compared to $35.6 million at December 31,
2007. Classified assets include loans that are currently performing,
are of lesser quality and are reported as
special
mention, substandard, doubtful or loss, as well as other real estate
owned. At December 31, 2008 and 2007, classified loans primarily
consisted of special mention and substandard commercial business loans and
commercial mortgages. Other real estate owned totaled $998,000 at
December 31, 2008 and was comprised of four residential
properties. Management cannot predict the extent to which economic
conditions may worsen or other factors may impact borrowers and the classified
assets. Accordingly, there can be no assurance that additional loans
will not become 90 days or more past due, be placed on nonaccrual status, become
classified or restructured, or require increased allowance coverage and
provision for loan losses.
Deposits Total
deposits increased $64.0 million, or 8.9%, to $782.7 million at December 31,
2008 from $718.7 million at December 31, 2007, mainly due to attractive products
and services, competitive pricing, excellent customer service, targeted
promotional activities and the opening of two new branches. Core
deposits increased $35.8 million, or 9.6%, to $406.8 million at December 31,
2008, and represented 52% of total deposits at that date. Federal Home Loan Bank
advances increased $100.6 million, or 93.1%, to $208.6 million at December
31, 2008, and were used to fund asset growth. Repurchase agreements
increased $14.2 million to $28.0 million at December 31, 2008 from $13.9 million
at December 31, 2007, reflecting a $10 million, term, reverse repurchase
agreement secured through another financial institution in 2008 and routine
fluctuations in overnight sweep accounts for certain business
customers.
Total
Stockholders’ Equity Total stockholders’ equity increased $1.6
million, or 0.7%, to $227.7 million at December 31, 2008 from $226.1 million at
December 31, 2007, mainly as a result of net income of $7.3 million for the year
ended December 31, 2008, and a $3.1 million increase in net unrealized gains on
securities available for sale. These increases were partially offset
by cash dividend payments of $4.4 million, restricted stock awards of $4.2
million granted under the 2008 Equity Incentive Plan, and repurchases of our
common stock totaling $3.5 million.
Comparison
of Operating Results for the Years Ended December 31, 2008 and 2007
Net
Income. Our net income for the year ended December 31, 2008
totaled $7.3 million, or $0.45 per diluted share, compared to $4.4 million, or
$0.26 per diluted share, for the year ended December 31, 2007.
The Company’s improved results were largely due to a significant increase in net
interest income, driven by a 56 basis points increase in our net interest margin
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. Our
improved operating performance was also favorably affected by an increase in fee
income from deposit and wealth management accounts, partially offset by higher
provisions for loan losses, other-than-temporary impairment losses on securities
and an increase 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.
|
|
Years
Ended December 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
|
|
$ |
356,685 |
|
|
$ |
20,069 |
|
|
|
5.63 |
% |
|
$ |
342,719 |
|
|
$ |
19,380 |
|
|
|
5.65 |
% |
Commercial
real estate
|
|
|
260,675 |
|
|
|
16,411 |
|
|
|
6.30 |
% |
|
|
235,600 |
|
|
|
15,590 |
|
|
|
6.62 |
% |
Home
equity loans
|
|
|
119,401 |
|
|
|
6,793 |
|
|
|
5.69 |
% |
|
|
117,640 |
|
|
|
7,704 |
|
|
|
6.55 |
% |
Commercial
and industrial
|
|
|
83,470 |
|
|
|
5,223 |
|
|
|
6.26 |
% |
|
|
75,348 |
|
|
|
5,513 |
|
|
|
7.32 |
% |
Consumer
and other
|
|
|
30,211 |
|
|
|
1,679 |
|
|
|
5.56 |
% |
|
|
30,586 |
|
|
|
1,625 |
|
|
|
5.31 |
% |
Total
loans
|
|
|
850,442 |
|
|
|
50,175 |
|
|
|
5.90 |
% |
|
|
801,893 |
|
|
|
49,812 |
|
|
|
6.21 |
% |
Investment
securities
|
|
|
280,447 |
|
|
|
14,109 |
|
|
|
5.03 |
% |
|
|
177,000 |
|
|
|
8,200 |
|
|
|
4.63 |
% |
Other
interest-earning assets
|
|
|
16,103 |
|
|
|
530 |
|
|
|
3.29 |
% |
|
|
22,543 |
|
|
|
1,238 |
|
|
|
5.49 |
% |
Total
interest-earning assets
|
|
|
1,146,992 |
|
|
|
64,814 |
|
|
|
5.65 |
% |
|
|
1,001,436 |
|
|
|
59,250 |
|
|
|
5.92 |
% |
Noninterest-earning
assets
|
|
|
39,501 |
|
|
|
|
|
|
|
|
|
|
|
32,744 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
1,186,493 |
|
|
|
|
|
|
|
|
|
|
$ |
1,034,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
accounts
|
|
$ |
84,816 |
|
|
|
1,015 |
|
|
|
1.20 |
% |
|
$ |
64,029 |
|
|
|
593 |
|
|
|
0.93 |
% |
Money
market accounts
|
|
|
170,439 |
|
|
|
3,336 |
|
|
|
1.96 |
% |
|
|
178,005 |
|
|
|
5,631 |
|
|
|
3.16 |
% |
NOW
accounts
|
|
|
32,228 |
|
|
|
171 |
|
|
|
0.53 |
% |
|
|
33,890 |
|
|
|
178 |
|
|
|
0.53 |
% |
Certificates
of deposit
|
|
|
363,836 |
|
|
|
13,309 |
|
|
|
3.66 |
% |
|
|
337,193 |
|
|
|
15,540 |
|
|
|
4.61 |
% |
Total
interest-bearing deposits
|
|
|
651,319 |
|
|
|
17,831 |
|
|
|
2.74 |
% |
|
|
613,117 |
|
|
|
21,942 |
|
|
|
3.58 |
% |
FHLB
advances
|
|
|
178,699 |
|
|
|
6,739 |
|
|
|
3.77 |
% |
|
|
158,595 |
|
|
|
7,617 |
|
|
|
4.80 |
% |
Other
interest-bearing liabilities
|
|
|
13,686 |
|
|
|
433 |
|
|
|
3.16 |
% |
|
|
12,042 |
|
|
|
524 |
|
|
|
4.35 |
% |
Total
interest-bearing liabilities
|
|
|
843,704 |
|
|
|
25,003 |
|
|
|
2.96 |
% |
|
|
783,754 |
|
|
|
30,083 |
|
|
|
3.84 |
% |
Demand
deposits
|
|
|
107,182 |
|
|
|
|
|
|
|
|
|
|
|
99,155 |
|
|
|
|
|
|
|
|
|
Other
noninterest-bearing liabilities
|
|
|
9,503 |
|
|
|
|
|
|
|
|
|
|
|
4,725 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
960,389 |
|
|
|
|
|
|
|
|
|
|
|
887,634 |
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
226,104 |
|
|
|
|
|
|
|
|
|
|
|
146,546 |
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$ |
1,186,493 |
|
|
|
|
|
|
|
|
|
|
$ |
1,034,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$ |
39,811 |
|
|
|
|
|
|
|
|
|
|
$ |
29,167 |
|
|
|
|
|
Interest
rate spread(1)
|
|
|
|
|
|
|
|
|
|
|
2.69 |
% |
|
|
|
|
|
|
|
|
|
|
2.08 |
% |
Net
interest-earning assets(2)
|
|
$ |
303,288 |
|
|
|
|
|
|
|
|
|
|
$ |
217,682 |
|
|
|
|
|
|
|
|
|
Net
interest margin(3)
|
|
|
|
|
|
|
|
|
|
|
3.47 |
% |
|
|
|
|
|
|
|
|
|
|
2.91 |
% |
Average
interest-earning assets to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average
interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
135.95 |
% |
|
|
|
|
|
|
|
|
|
|
127.77 |
% |
____________________________
|
(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,
|
|
|
|
2008
vs. 2007
|
|
|
|
Increase
(Decrease) Due to
|
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$ |
786 |
|
|
$ |
(97 |
) |
|
$ |
689 |
|
Commercial
real estate
|
|
|
1,603 |
|
|
|
(782 |
) |
|
|
821 |
|
Home
equity loans
|
|
|
113 |
|
|
|
(1,024 |
) |
|
|
(911 |
) |
Commercial
and industrial
|
|
|
557 |
|
|
|
(847 |
) |
|
|
(290 |
) |
Consumer
and other
|
|
|
(20 |
) |
|
|
74 |
|
|
|
54 |
|
Total
loans
|
|
|
3,039 |
|
|
|
(2,676 |
) |
|
|
363 |
|
Investment
securities
|
|
|
5,151 |
|
|
|
758 |
|
|
|
5,909 |
|
Other
interest-earning assets
|
|
|
(295 |
) |
|
|
(413 |
) |
|
|
(708 |
) |
Total
interest-earning assets
|
|
|
7,895 |
|
|
|
(2,331 |
) |
|
|
5,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
accounts
|
|
|
223 |
|
|
|
199 |
|
|
|
422 |
|
Money
market accounts
|
|
|
(230 |
) |
|
|
(2,065 |
) |
|
|
(2,295 |
) |
NOW
accounts
|
|
|
(9 |
) |
|
|
2 |
|
|
|
(7 |
) |
Certificates
of deposit
|
|
|
1,158 |
|
|
|
(3,389 |
) |
|
|
(2,231 |
) |
Total
interest-bearing deposits
|
|
|
1,142 |
|
|
|
(5,253 |
) |
|
|
(4,111 |
) |
FHLB
advances
|
|
|
889 |
|
|
|
(1,767 |
) |
|
|
(878 |
) |
Other
interest-bearing liabilities
|
|
|
65 |
|
|
|
(156 |
) |
|
|
(91 |
) |
Total
interest-bearing liabilities
|
|
|
2,096 |
|
|
|
(7,176 |
) |
|
|
(5,080 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in net interest income
|
|
$ |
5,799 |
|
|
$ |
4,845 |
|
|
$ |
10,644 |
|
Net Interest
Income Before Provision for Loan Losses. Net interest income
before provision for loan losses increased $10.6 million, or 36.5%, to
$39.8 million for the year ended December 31, 2008, from $29.2 million for
the year ended December 31, 2007, reflecting growth in average earning assets
and net interest margin expansion. Net interest margin increased 56 basis points
to 3.47% for the year ended December 31, 2008, due to the use of net proceeds
from the Company’s second-step stock 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 4.00% reduction in the federal funds rate from 4.25% at December
11, 2007 to 0.25% at December 31, 2008.
Interest
Income. Interest income increased $5.6 million, or 9.4%, to
$64.8 million for the year ended December 31, 2008 from $59.2 million for the
prior year period, reflecting expansion in total average interest-earning asset
balances, partially offset by a decrease in the yield on average
interest-earning assets. Total average interest-earning asset balances increased
$145.6 million, or 14.5%, to $1.1 billion for the year ended December 31, 2008
due in large part to purchases of investment securities and loan growth, funded
largely by deposit growth and the proceeds of the December 2007 second-step
stock offering. Total average investment securities increased by
$103.4 million, or 58.4%, to $280.4 million primarily due to purchases of
mortgage-backed securities in connection with the implementation of a strategy
to deploy excess capital and liquidity resulting from the Company’s 2007
second-step stock offering. Total average loans increased $48.5 million, or
6.1%, to $850.4 million for the year ended December 31, 2008, as a result of
healthy origination activity, partially offset by prepayments and normal
amortization. The yield on average interest-earning assets decreased 27 basis
points to 5.65% for the year ended December 31, 2008, reflecting the lower
interest rate environment. 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 decrease in market rates was primarily limited to home equity, commercial
loans and commercial real estate loans due to the significant number of loans
tied to the prime rate or a shorter-term index. The impact of the decrease in
market rates on loan yields was partially offset by purchases of higher yielding
mortgage backed securities.
Interest
Expense. Interest expense decreased $5.1 million, or 16.9%, to
$25.0 million for the year ended December 31, 2008, from $30.1 million for
the year ended December 31, 2007, due to a decrease in the average rate paid on
interest-bearing liabilities, partially offset by growth in average
interest-bearing liabilities. The average rate paid on interest-bearing
liabilities decreased 88 basis points to 2.96% for the year ended December 31,
2008, reflecting the repricing of money market and certificate of deposit
account balances in response to interest rate cuts initiated by the Federal
Reserve Board. Since a large portion of the Company’s interest-bearing
liabilities are short-term, the impact of the reduction in market rates was
significant. Average interest-bearing liabilities increased $60.0 million,
or 7.7%, to $843.7 million for the year ended December 31, 2008, reflecting
growth in interest-bearing deposits and FHLB advances. Total average
interest-bearing deposits increased $38.2 million, or 6.2%, to $651.3 million
for the year ended December 31, 2008, mainly due to growth in core deposits and
certificates of deposit as a result of successful business development and
marketing efforts, competitive product services and pricing and new branches
opened in 2008. Total average FHLB advances increased $20.1 million, or 12.7%,
to $178.7 million, and were used to fund asset growth and to take advantage of
the lower interest rates.
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 $1.8 million for the year ended December 31, 2008 as compared to $1.4
million for the year ended December 31, 2007, reflecting an increase in reserves
for non-performing and classified loans as well as a higher level of net
charge-offs. The allowance for loan losses was $8.3 million, or 0.95% of
loans outstanding at December 31, 2008.
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. While a significant portion of our portfolio
continues to be secured by one- to four-family residential mortgage loans, in
recent years we have emphasized the origination of commercial real estate loans
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 decreased $515,000, or 9.0%, to
$5.2 million for the year ended December 31, 2008 from $5.7 million for the
2007 period mainly due to impairment charges of $1.4 million in 2008 compared to
$180,000 in 2007. Management evaluated its securities portfolio and recognized a
pre-tax, non-cash charge of $1.3 million in 2008 for other-than-temporary
impairment (“OTTI”) of the Company’s $2.8 million trust preferred securities
portfolio. Management also recognized an OTTI charge of $94 in 2008
for a $388 municipal security. Management based its assessment on the
issuer’s credit rating, credit outlook, payment status and financial condition,
the length of time the bond has been in a loss position, the size of the loss
position and other meaningful information (for additional information regarding
the evaluation of OTTI refer to Note C – Investment Securities to the
Consolidated Financial Statements). These impairment charges were offset in part
by growth in fee income on depositors’ accounts and wealth management accounts,
an increase of $199,000 in income from bank-owned life insurance and 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. Fee income on depositors’ accounts
increased $206,000, or 4.6%, as a result of
growth in
transaction account balances and activity. Wealth management income increased
$107,000, or 15.5%, as a result of the retention of new accounts opened due to
successful business development efforts and the acquisition of the Levine
Financial Group in March 2006.
Non-interest
Expense. Non-interest expense increased $4.7 million, or
17.9%, to $30.7 million for the year ended December 31, 2008, from $26.0
million for the prior year period. Total salaries and benefits increased $2.5
million, or 17.0%, mainly due to staffing costs for new branches opened in 2008,
new employees hired to support and facilitate the growth of the Company, a
higher incentive compensation accrual associated with improved financial
performance and annual wage increases. Occupancy costs grew $402,000, or 20.9%,
principally attributable to new branches opened in 2008. Data processing costs
increased $455,000, or 16.6%, reflecting a larger loan and deposit base, new
branches opened in 2008 and costs for a new branch imaging process. Professional
services increased $403,000, or 31.6%, as a result of higher legal and
consulting expenses and costs incurred in connection with the Company’s annual
stockholders meeting at which the 2008 incentive plan was approved. Other
expenses increased $801,000, or 20.6%, primarily due to an increase of $429,000
in Federal Deposit Insurance Corporation insurance premiums, an increase in
other real estate owned expenses of $177,000, and a $113,000 interest assessment
related to an income tax payment deficiency.
Income Tax
Expense. Income tax expense increased $2.1 million, or 7.0%,
to $5.1 million for year ended December 31, 2008 from $3.1 million for the
comparable 2007 period, due to higher income before income taxes and a slight
increase in the effective tax rate from 41.2% in 2007 to 41.6% in
2008.
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
was $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 higher 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 increases in total average interest-earning asset
balances and 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 have fixed interest rates 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 due to growth in money market and certificate of deposit balances,
partially offset by a reduction in savings balances. The decrease 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 increase in market rates was significant.
Provision for
Loan Losses. 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.
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.
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) emphasizing increasing our 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 of +200 basis points at December
31, 2008 and +200 and -200 basis points at December 31, 2007. Due to the
historically low level of interest rates, a model reflecting a downward shift in
the yield curve is not relevant and was not produced for 2008.
Net
Interest Income At-Risk
|
|
|
|
|
|
|
|
Estimated
Increase (Decrease)
|
|
Estimated
Increase (Decrease)
|
Change
in Interest Rates
|
|
in
NII
|
|
in
NII
|
(basis
points)
|
|
(December
31, 2008)
|
|
(December
31, 2007)
|
|
|
|
|
|
-200
|
|
NA
|
|
2.1%
|
Stable
|
|
0.0%
|
|
0.0%
|
+200
|
|
(3.3)%
|
|
(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
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
low level of market interest rates, we did not prepare a net portfolio value
calculation for any interest rate decreases in 2008 or for an interest rate
decrease of greater than 200 basis points in 2007. 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, 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 |
|
|
$ |
122,901 |
|
|
$ |
(66,712 |
) |
|
|
(35 |
)% |
|
|
10.52 |
% |
|
|
(424 |
) |
|
+200 |
|
|
|
147,220 |
|
|
|
(42,393 |
) |
|
|
(22 |
) |
|
|
12.19 |
|
|
|
(257 |
) |
|
+100 |
|
|
|
170,707 |
|
|
|
(18,906 |
) |
|
|
(10 |
) |
|
|
13.68 |
|
|
|
(108 |
) |
|
0 |
|
|
|
189,613 |
|
|
|
|
|
|
|
|
|
|
|
14.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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)
|
|
|
|
|
|
|
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.
|
|
|
|
|
The
tables above indicate that at December 31, 2007, in the event of a 100 basis
point decrease in interest rates, we would experience an 8% increase in net
portfolio value. We did not prepare a net portfolio value calculation
for interest rate decreases in 2008 due to the historically low interest rate
environment. In the event of a 300 basis point increase in interest rates at
December 31, 2008 and at December 31, 2007, we would experience a 35% 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
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, 2008, our liquidity ratio was
35.02%.
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, 2008, cash and cash
equivalents
totaled $13.6 million. Securities classified as available-for-sale,
which provide additional sources of liquidity, totaled $313.5 million at
December 31, 2008. In addition, at December 31, 2008, we had the ability to
borrow a total of approximately $503.0 million from the Federal Home Loan Bank
of Boston. On that date, we had $208.6 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, 2008, we had $10.5 million in loan commitments outstanding. In
addition to commitments to originate loans, we had $155.4 million in unused
lines of credit to borrowers. Certificates of deposit due within one year of
December 31, 2008 totaled $281.1 million, or 35.9% 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,
2009. We believe, however, based on past experience, 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 2008, we originated $299.8 million of loans and purchased $232.0
million of securities. In 2007, we originated $303.7 million of loans and
purchased $90.5 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 $64.0
million and $33.0 million for the years ended December 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 of Boston, which provide an
additional source of funds. Federal Home Loan Bank advances increased $100.6
million for the year ended December 31, 2008 to fund loan originations and
purchases of mortgage-backed securities. For the year ended December 31, 2007,
Federal Home Loan Bank advances decreased $61.8 million reflecting the use of a
portion of the net proceeds raised from the Company’s second-step offering to
pay down short term borrowings. 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 $282.1 million at December 31,
2008 and $293.2 million at December 31, 2007. At December 31, 2008 and 2007, the
Bank had no borrowing against the line of credit. We also have access to
funding through the repurchase agreement and brokered CD markets and have
received approval from the Federal Reserve Bank to access its discount window.
The Bank and the Company also applied for and received approval from the FDIC to
issue guaranteed debt through the Temporary Liquidity Guarantee Program
(“TLGP”). The FDIC has created this program to strengthen confidence and
encourage liquidity in the banking system by guaranteeing newly issued senior
unsecured debt of banks, thrifts, and certain holding companies, and by
providing full coverage of non-interest bearing deposit transaction accounts,
regardless of dollar amount.
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, 2008, 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, 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
|
|
|
|
(In
thousands)
|
|
Contractual
Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit
|
|
$ |
281,068 |
|
|
$ |
77,139 |
|
|
$ |
17,659 |
|
|
$ |
- |
|
|
$ |
375,867 |
|
Federal
Home Loan Bank advances
|
|
|
55,000 |
|
|
|
74,600 |
|
|
|
49,927 |
|
|
|
29,037 |
|
|
|
208,564 |
|
Repurchase
agreements
|
|
|
18,042 |
|
|
|
- |
|
|
|
- |
|
|
|
10,000 |
|
|
|
28,042 |
|
Standby
letters of credit
|
|
|
1,156 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,156 |
|
Operating
leases
|
|
|
595 |
|
|
|
992 |
|
|
|
721 |
|
|
|
2,917 |
|
|
|
5,225 |
|
Capitalized
leases
|
|
|
252 |
|
|
|
504 |
|
|
|
503 |
|
|
|
4,011 |
|
|
|
5,270 |
|
Future
benefits to be paid under retirement plans
|
|
|
198 |
|
|
|
3,064 |
|
|
|
1,037 |
|
|
|
760 |
|
|
|
5,059 |
|
Total
|
|
$ |
356,311 |
|
|
$ |
156,299 |
|
|
$ |
69,847 |
|
|
$ |
46,725 |
|
|
$ |
629,182 |
|
Commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
to extend credit
|
|
$ |
181,541 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
181,541 |
|
Commitment
to invest in venture capital fund
|
|
$ |
900 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
900 |
|
Total
|
|
$ |
182,441 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
182,441 |
|
Recent
Accounting Pronouncements
In
June 2006, the
Emerging Issues Task Force (“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 Statement of Financial Accounting Standards
No.157 (“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 (see Note M). 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. 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
February 2008, the FASB issued FASB Staff Position (“FSP”) 157-2, “Effective
Date of FASB Statement No. 157,” which permits 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. The Company is currently evaluating the impact, if any,
that the adoption of FSP 157-2 will have on its Consolidated Financial
Statements.
Impact
of Inflation and Changing Prices
The
consolidated financial statements and related notes of United Financial Bancorp,
Inc. have been prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). GAAP generally
requires the
measurement of financial position and operating results in terms of historical
dollars without consideration for changes in the relative purchasing power of
money over time due to inflation. The impact of inflation is
reflected in the increased cost of our operations. Unlike industrial
companies, our assets and liabilities are primarily monetary in
nature. As a result, changes in market interest rates have a greater
impact on performance than the effects of inflation.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
For
information regarding market risk, see Item 7- “Management’s Discussion and
Analysis of Financial Conditions and Results of Operations.”
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, 2008 and 2007, 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, 2008. 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, 2008 and 2007, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2008 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, 2008, 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 11,
2009 expressed an unqualified opinion thereon.
/s/ Grant
Thornton LLP
Boston,
Massachusetts
March 11,
2009
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Consolidated
Balance Sheets
December
31, 2008 and 2007
(Dollars
in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$ |
10,356 |
|
|
$ |
14,219 |
|
Interest-bearing
deposits
|
|
|
3,216 |
|
|
|
35 |
|
Total
cash and cash equivalents
|
|
|
13,572 |
|
|
|
14,254 |
|
|
|
|
|
|
|
|
|
|
Short-term
investments
|
|
|
1,071 |
|
|
|
1,030 |
|
Securities
available for sale, at fair value
|
|
|
313,506 |
|
|
|
201,257 |
|
Securities
held to maturity, at amortized cost (fair value of $3,238
at
|
|
|
|
|
|
|
|
|
December
31, 2008 and $3,631 at December 31, 2007)
|
|
|
3,191 |
|
|
|
3,632 |
|
Loans,
net of allowance for loan losses of $8,250 at December 31,
2008
|
|
|
|
|
|
|
|
|
and
$7,714 at December 31, 2007
|
|
|
864,421 |
|
|
|
819,117 |
|
Other
real estate owned
|
|
|
998 |
|
|
|
880 |
|
Accrued
interest receivable
|
|
|
4,706 |
|
|
|
4,477 |
|
Deferred
tax asset, net
|
|
|
7,969 |
|
|
|
4,953 |
|
Stock
in the Federal Home Loan Bank of Boston
|
|
|
12,223 |
|
|
|
10,257 |
|
Banking
premises and equipment, net
|
|
|
12,125 |
|
|
|
10,600 |
|
Bank-owned
life insurance
|
|
|
27,173 |
|
|
|
6,652 |
|
Other
assets
|
|
|
2,179 |
|
|
|
2,172 |
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
1,263,134 |
|
|
$ |
1,079,281 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Interest-bearing
|
|
$ |
668,485 |
|
|
$ |
616,672 |
|
Non-interest-bearing
|
|
|
114,178 |
|
|
|
102,010 |
|
Total
deposits
|
|
|
782,663 |
|
|
|
718,682 |
|
Federal
Home Loan Bank of Boston advances
|
|
|
208,564 |
|
|
|
107,997 |
|
Repurchase
agreements
|
|
|
28,042 |
|
|
|
13,864 |
|
Escrow
funds held for borrowers
|
|
|
1,667 |
|
|
|
1,356 |
|
Capitalized
lease obligations
|
|
|
3,129 |
|
|
|
1,890 |
|
Accrued
expenses and other liabilities
|
|
|
11,355 |
|
|
|
9,372 |
|
Total
liabilities
|
|
|
1,035,420 |
|
|
|
853,161 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Notes E and L)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 2008 and December 31, 2007
|
|
|
178 |
|
|
|
178 |
|
Paid-in
capital
|
|
|
164,358 |
|
|
|
165,920 |
|
Retained
earnings
|
|
|
75,888 |
|
|
|
73,026 |
|
Unearned
compensation
|
|
|
(12,144 |
) |
|
|
(12,835 |
) |
Treasury
stock, at cost (261,798 shares at December 31, 2008)
|
|
|
(3,497 |
) |
|
|
- |
|
Accumulated
other comprehensive income (loss), net of taxes
|
|
|
2,931 |
|
|
|
(169 |
) |
Total
stockholders’ equity
|
|
|
227,714 |
|
|
|
226,120 |
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$ |
1,263,134 |
|
|
$ |
1,079,281 |
|
|
|
|
|
|
|
|
|
|
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, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Interest
and dividend income:
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
50,175 |
|
|
$ |
49,812 |
|
|
$ |
42,338 |
|
Investments
|
|
|
14,109 |
|
|
|
8,200 |
|
|
|
8,843 |
|
Other
interest-earning assets
|
|
|
530 |
|
|
|
1,238 |
|
|
|
1,021 |
|
Total
interest and dividend income
|
|
|
64,814 |
|
|
|
59,250 |
|
|
|
52,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
17,831 |
|
|
|
21,942 |
|
|
|
18,695 |
|
Short-term
borrowings
|
|
|
1,417 |
|
|
|
4,135 |
|
|
|
3,198 |
|
Long-term
debt
|
|
|
5,755 |
|
|
|
4,006 |
|
|
|
2,754 |
|
Total
interest expense
|
|
|
25,003 |
|
|
|
30,083 |
|
|
|
24,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income before provision for loan losses
|
|
|
39,811 |
|
|
|
29,167 |
|
|
|
27,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
1,846 |
|
|
|
1,425 |
|
|
|
969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income after provision for loan losses
|
|
|
37,965 |
|
|
|
27,742 |
|
|
|
26,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee
income on depositors’ accounts
|
|
|
4,638 |
|
|
|
4,432 |
|
|
|
4,190 |
|
Net
gain (loss) on sales of securities
|
|
|
23 |
|
|
|
(95 |
) |
|
|
(222 |
) |
Impairment
charges on securities
|
|
|
(1,377 |
) |
|
|
(180 |
) |
|
|
- |
|
Wealth
management income
|
|
|
799 |
|
|
|
692 |
|
|
|
426 |
|
Income
from bank-owned life insurance
|
|
|
357 |
|
|
|
158 |
|
|
|
273 |
|
Other
income
|
|
|
780 |
|
|
|
728 |
|
|
|
725 |
|
Total
non-interest income
|
|
|
5,220 |
|
|
|
5,735 |
|
|
|
5,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
|
17,359 |
|
|
|
14,835 |
|
|
|
12,888 |
|
Occupancy
expenses
|
|
|
2,327 |
|
|
|
1,925 |
|
|
|
1,792 |
|
Marketing
expenses
|
|
|
1,440 |
|
|
|
1,374 |
|
|
|
1,436 |
|
Data
processing expenses
|
|
|
3,190 |
|
|
|
2,735 |
|
|
|
2,474 |
|
Professional
fees
|
|
|
1,679 |
|
|
|
1,276 |
|
|
|
1,148 |
|
Other
expenses
|
|
|
4,695 |
|
|
|
3,894 |
|
|
|
4,298 |
|
Total
non-interest expense
|
|
|
30,690 |
|
|
|
26,039 |
|
|
|
24,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
12,495 |
|
|
|
7,438 |
|
|
|
7,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
5,197 |
|
|
|
3,061 |
|
|
|
3,018 |
|
NET
INCOME
|
|
$ |
7,298 |
|
|
$ |
4,377 |
|
|
$ |
4,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.45 |
|
|
$ |
0.26 |
|
|
$ |
0.29 |
|
Diluted
|
|
$ |
0.45 |
|
|
$ |
0.26 |
|
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,043,727 |
|
|
|
16,852,566 |
|
|
|
17,139,599 |
|
Diluted
|
|
|
16,126,561 |
|
|
|
16,905,713 |
|
|
|
17,149,027 |
|
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, 2008, 2007 and 2006
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Shares
|
|
|
Common
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Unearned
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
|
|
|
|
Outstanding
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Stock
|
|
|
Income
(Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,298 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,298 |
|
Net
unrealized gain on securities available for sale,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of reclassification adjustments and taxes
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,331 |
|
|
|
3,331 |
|
Adjustments
to pension and other post retirement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit
plans, net of reclassificaton adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
taxes
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(231 |
) |
|
|
(231 |
) |
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,398 |
|
Net
costs from issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pursuant
to second-step conversion
|
|
|
- |
|
|
|
- |
|
|
|
(26 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(26 |
) |
Repurchase
of stock to fund the 2008 Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
Plan
|
|
|
(359,581 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,240 |
) |
|
|
- |
|
|
|
(4,240 |
) |
Shares
repurchased in connection with restricted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
forfeited for tax purposes
|
|
|
(10,086 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(125 |
) |
|
|
- |
|
|
|
(125 |
) |
Reissuance
of treasury shares in connection with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restricted
stock grants and stock appreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rights
exercised
|
|
|
314,069 |
|
|
|
- |
|
|
|
(3,703 |
) |
|
|
- |
|
|
|
- |
|
|
|
3,703 |
|
|
|
- |
|
|
|
- |
|
Cash
dividends paid ($0.27 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,436 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,436 |
) |
Treasury
stock purchases
|
|
|
(206,200 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,835 |
) |
|
|
- |
|
|
|
(2,835 |
) |
Stock-based
compensation
|
|
|
- |
|
|
|
- |
|
|
|
1,992 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,992 |
|
ESOP
shares committed to be released
|
|
|
- |
|
|
|
- |
|
|
|
175 |
|
|
|
- |
|
|
|
691 |
|
|
|
- |
|
|
|
- |
|
|
|
866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2008
|
|
|
17,501,949 |
|
|
$ |
178 |
|
|
$ |
164,358 |
|
|
$ |
75,888 |
|
|
$ |
(12,144 |
) |
|
$ |
(3,497 |
) |
|
$ |
2,931 |
|
|
$ |
227,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2008, 2007 and 2006
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
7,298 |
|
|
$ |
4,377 |
|
|
$ |
4,924 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
1,846 |
|
|
|
1,425 |
|
|
|
969 |
|
ESOP
expense
|
|
|
866 |
|
|
|
625 |
|
|
|
407 |
|
Stock-based
compensation
|
|
|
1,992 |
|
|
|
1,880 |
|
|
|
728 |
|
Amortization
of premiums and discounts
|
|
|
192 |
|
|
|
103 |
|
|
|
308 |
|
Depreciation
and amortization
|
|
|
907 |
|
|
|
831 |
|
|
|
838 |
|
Amortization
of intangible assets
|
|
|
30 |
|
|
|
30 |
|
|
|
25 |
|
Provision
for other real estate owned
|
|
|
92 |
|
|
|
- |
|
|
|
- |
|
Net
loss (gain) on sales of loans
|
|
|
- |
|
|
|
5 |
|
|
|
(3 |
) |
Net
loss (gain) on sale of other real estate owned
|
|
|
45 |
|
|
|
(14 |
) |
|
|
- |
|
Net
(gain) loss on sale of property and equipment
|
|
|
- |
|
|
|
(4 |
) |
|
|
21 |
|
Net
(gain) loss on sale of available for sale securities
|
|
|
(23 |
) |
|
|
95 |
|
|
|
222 |
|
Impairment
charges on securities
|
|
|
1,377 |
|
|
|
180 |
|
|
|
- |
|
Deferred
income tax benefit
|
|
|
(3,577 |
) |
|
|
(2,348 |
) |
|
|
(1,679 |
) |
Increase
in cash surrender value of bank-owned life insurance
|
|
|
(521 |
) |
|
|
(348 |
) |
|
|
(273 |
) |
Increase
in accrued interest receivable
|
|
|
(229 |
) |
|
|
(157 |
) |
|
|
(392 |
) |
(Increase)
decrease in other assets
|
|
|
(1,380 |
) |
|
|
(789 |
) |
|
|
475 |
|
Increase
(decrease) in accrued expenses and other liabilities
|
|
|
1,842 |
|
|
|
3,697 |
|
|
|
(42 |
) |
Net
cash provided by operating activities
|
|
|
10,757 |
|
|
|
9,588 |
|
|
|
6,528 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of securities available for sale
|
|
|
(231,991 |
) |
|
|
(90,513 |
) |
|
|
(47,764 |
) |
Proceeds
from sales of securities available for sale
|
|
|
51,448 |
|
|
|
16,537 |
|
|
|
28,896 |
|
Proceeds
from calls, maturities and principal repayments of securities available
for sale
|
|
|
72,136 |
|
|
|
66,579 |
|
|
|
55,430 |
|
Purchases
of securities held to maturity
|
|
|
- |
|
|
|
(675 |
) |
|
|
- |
|
Proceeds
from maturities, calls and principal repayments of securities
held to maturity
|
|
|
435 |
|
|
|
274 |
|
|
|
75 |
|
Investment
in short-term time deposits
|
|
|
(41 |
) |
|
|
(1,030 |
) |
|
|
- |
|
Purchases
of Federal Home Loan Bank of Boston stock
|
|
|
(1,966 |
) |
|
|
(983 |
) |
|
|
(2,686 |
) |
Proceeds
from sales of other real estate owned
|
|
|
655 |
|
|
|
576 |
|
|
|
1,852 |
|
Net
loan originations, purchases and principal repayments
|
|
|
(48,060 |
) |
|
|
(67,288 |
) |
|
|
(127,570 |
) |
Proceeds
from sales of loans
|
|
|
- |
|
|
|
2,041 |
|
|
|
170 |
|
Purchases
of property and equipment
|
|
|
(1,113 |
) |
|
|
(685 |
) |
|
|
(1,372 |
) |
Cash
paid to acquire Levine Financial Group
|
|
|
(92 |
) |
|
|
(55 |
) |
|
|
(100 |
) |
Proceeds
from sale of property and equipment
|
|
|
- |
|
|
|
21 |
|
|
|
- |
|
Purchases
of bank-owned life insurance
|
|
|
(20,000 |
) |
|
|
- |
|
|
|
- |
|
Net
cash used in investing activities
|
|
|
(178,589 |
) |
|
|
(75,201 |
) |
|
|
(93,069 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in deposits
|
|
|
63,981 |
|
|
|
32,996 |
|
|
|
32,075 |
|
Net
increase (decrease) in short-term borrowings
|
|
|
38,145 |
|
|
|
(51,145 |
) |
|
|
53,201 |
|
Proceeds
from Federal Home Loan Bank of Boston long term advances
|
|
|
85,000 |
|
|
|
30,000 |
|
|
|
68,000 |
|
Repayments
of Federal Home Loan Bank of Boston long term advances
|
|
|
(22,578 |
) |
|
|
(40,664 |
) |
|
|
(53,275 |
) |
Net
increase in repurchase agreements
|
|
|
14,178 |
|
|
|
3,439 |
|
|
|
1,991 |
|
Net
increase (decrease) in escrow funds held for borrowers
|
|
|
311 |
|
|
|
235 |
|
|
|
(8 |
) |
Payments
on capitalized lease obligation
|
|
|
(225 |
) |
|
|
(158 |
) |
|
|
- |
|
Repurchases
of common stock to fund the 2008 Equity Incentive Plan
|
|
|
(4,240 |
) |
|
|
- |
|
|
|
- |
|
Treasury
stock purchases
|
|
|
(2,960 |
) |
|
|
(1,250 |
) |
|
|
(4,405 |
) |
Cash
dividends paid
|
|
|
(4,436 |
) |
|
|
(1,757 |
) |
|
|
(1,462 |
) |
Net
(costs) proceeds from stock offering subscriptions
|
|
|
(26 |
) |
|
|
90,290 |
|
|
|
- |
|
Acquisition
of common stock by ESOP
|
|
|
- |
|
|
|
(7,538 |
) |
|
|
- |
|
Net
cash provided by financing activities
|
|
|
167,150 |
|
|
|
54,448 |
|
|
|
96,117 |
|
(Decrease)
increase in cash and cash equivalents
|
|
|
(682 |
) |
|
|
(11,165 |
) |
|
|
9,576 |
|
Cash
and cash equivalents at beginning of year
|
|
|
14,254 |
|
|
|
25,419 |
|
|
|
15,843 |
|
Cash
and cash equivalents at end of year
|
|
$ |
13,572 |
|
|
$ |
14,254 |
|
|
$ |
25,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on deposits and other borrowings
|
|
$ |
24,793 |
|
|
$ |
30,361 |
|
|
$ |
24,353 |
|
Income
taxes – net
|
|
|
9,612 |
|
|
|
2,467 |
|
|
|
3,882 |
|
Non-cash
item:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized
lease asset and obligations
|
|
$ |
1,308 |
|
|
$ |
1,932 |
|
|
$ |
- |
|
Transfer
of loans to other real estate owned
|
|
|
910 |
|
|
|
880 |
|
|
|
562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2008, 2007 and 2006
(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.
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.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
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 other than temporary
impairment of securities.
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.
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, 2008 and 2007.
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.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
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
residential mortgage 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.
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.
A loan is
classified as a troubled debt restructuring if the Company, for economics or
legal reasons related to the borrower’s financial difficulties, grants a
concession to the borrower that it would not otherwise consider. This
usually includes a modification of loan terms, such as a reduction of the
interest rate to below market terms, capitalizing past due interest or extending
the maturity date and possibly a partial forgiveness of
debt. Interest income on structured loans is accrued after the
borrower demonstrates the ability to pay under the restructured terms through a
sustained period of repayment performance, which is generally six
months.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements – Continued
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
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.
Other Intangible
Assets
Intangible
assets are initially 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 maximum purchase price was $300 with
$100 paid in cash and $200 contingent upon customer retention. In
2008, the customer relationship intangible asset was reduced by $53 to $247 as
the customer retention target established in the contingency agreement was not
met. The Company recognized amortization totaling $30 for the years ended
December 31, 2008 and 2007.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
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
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.
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.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
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.
Bank Owned Life
Insurance
The cash
surrender value of Bank Owned Life Insurance (“BOLI”), net of any deferred
acquisition and surrender costs or loans, is recorded as an asset. As of
December 31, 2008 and 2007 there were no deferred acquisition costs,
surrender costs or loans. Changes to the cash surrender value are recorded in
non-interest income, net of premiums paid.
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.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
In 2007,
the Company established 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.
In 2006,
the FASB issued Statement of Financial Accounting Standards (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 (AOCI). SFAS 158 further requires the determination
of the fair values of plan assets at year-end and recognition of actuarial gains
and losses, prior service costs or credits, and transition assets or obligations
as a component of AOCI. This Statement was effective as of December 31,
2006 but 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.
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, 2008 or 2007 for deferred tax assets.
Under
FASB Interpretation No.48, “Accounting for Uncertainty in Income Taxes”, the
Company may recognize the tax benefit from an uncertain tax position only if it
is more likely than not the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax
benefit 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 Company reports interest and
penalties associated with tax obligations in other non-interest
expense.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
Stock Compensation
Plan
The
Company adopted SFAS No. 123R, “Share-Based Payment”, on January 1,
2006. SFAS 123R requires that the compensation cost associated with
share-based payment transactions, such as stock options and restricted stock
awards, be recognized in the financial statements over the requisite service
(vesting) period.
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:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Change
in unrealized holding gains on available for sale
|
|
|
|
|
|
|
|
securities
|
|
$ |
4,028 |
|
|
$ |
4,562 |
|
|
$ |
633 |
|
Reclassification
adjustment for losses realized in
|
|
|
|
|
|
|
|
|
|
|
|
|
income
|
|
|
1,354 |
|
|
|
275 |
|
|
|
222 |
|
Net
change in unrealized gains
|
|
|
5,382 |
|
|
|
4,837 |
|
|
|
855 |
|
Tax
effect
|
|
|
(2,051 |
) |
|
|
(2,374 |
) |
|
|
(341 |
) |
|
|
|
3,331 |
|
|
|
2,463 |
|
|
|
514 |
|
Pension
liability for retirement plans
|
|
|
(514 |
) |
|
|
(1,152 |
) |
|
|
- |
|
Pension
liability adjustment
|
|
|
136 |
|
|
|
- |
|
|
|
- |
|
|
|
|
(378 |
) |
|
|
(1,152 |
) |
|
|
- |
|
Tax
effect
|
|
|
147 |
|
|
|
471 |
|
|
|
- |
|
|
|
|
(231 |
) |
|
|
(681 |
) |
|
|
- |
|
Other
comprehensive income
|
|
$ |
3,100 |
|
|
$ |
1,782 |
|
|
$ |
514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued
The
components of accumulated other comprehensive income are as
follows:
|
|
December
31, 2008
|
|
|
|
Gross
|
|
|
Tax
|
|
|
Net
of
|
|
|
|
Amount
|
|
|
Effect
|
|
|
Tax
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on securities available for sale
|
|
$ |
6,173 |
|
|
$ |
2,331 |
|
|
$ |
3,842 |
|
Pension
liability
|
|
|
(1,530 |
) |
|
|
619 |
|
|
|
(911 |
) |
|
|
December
31, 2007
|
|
|
|
Gross
|
|
|
Tax
|
|
|
Net
of
|
|
|
|
Amount
|
|
|
Effect
|
|
|
Tax
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on securities available for sale
|
|
$ |
791 |
|
|
$ |
279 |
|
|
$ |
512 |
|
Pension
liability
|
|
|
(1,152 |
) |
|
|
471 |
|
|
|
(681 |
) |
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.
Reclassifications
Amounts
reported for prior periods are reclassified as necessary to be consistent with
the current-period presentation.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Concluded
Recent Accounting
Developments
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. 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
February 2008, the FASB issued FASB Staff Position (“FSP”) 157-2, “Effective
Date of FASB Statement No. 157,” which permits 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. The Company is currently evaluating the impact, if any,
that the adoption of FSP 157-2 will have on its financial
statements.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(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, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored
enterprises
|
|
$ |
467 |
|
|
$ |
- |
|
|
$ |
(2 |
) |
|
$ |
465 |
|
Mortgage-backed
securities
|
|
|
294,824 |
|
|
|
6,601 |
|
|
|
(314 |
) |
|
|
301,111 |
|
Municipal
bonds
|
|
|
10,504 |
|
|
|
83 |
|
|
|
(195 |
) |
|
|
10,392 |
|
Corporate
bonds
|
|
|
1,538 |
|
|
|
- |
|
|
|
- |
|
|
|
1,538 |
|
Total
|
|
$ |
307,333 |
|
|
$ |
6,684 |
|
|
$ |
(511 |
) |
|
$ |
313,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Total
debt securities
|
|
|
200,326 |
|
|
|
1,334 |
|
|
|
(543 |
) |
|
|
201,117 |
|
Marketable
equity securities
|
|
|
140 |
|
|
|
- |
|
|
|
- |
|
|
|
140 |
|
Total
|
|
$ |
200,466 |
|
|
$ |
1,334 |
|
|
$ |
(543 |
) |
|
$ |
201,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Losses
|
|
|
Fair
Value
|
|
Securities Held to
Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRB
|
|
$ |
1,122 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,122 |
|
Municipal
bonds
|
|
|
2,069 |
|
|
|
49 |
|
|
|
(2 |
) |
|
|
2,116 |
|
Total
|
|
$ |
3,191 |
|
|
$ |
49 |
|
|
$ |
(2 |
) |
|
$ |
3,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRB
|
|
$ |
1,197 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,197 |
|
Municipal
bonds
|
|
|
2,435 |
|
|
|
11 |
|
|
|
(12 |
) |
|
|
2,434 |
|
Total
|
|
$ |
3,632 |
|
|
$ |
11 |
|
|
$ |
(12 |
) |
|
$ |
3,631 |
|
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, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
C – INVESTMENT SECURITIES - Continued
As of
December 31, 2008, the Bank has pledged securities with an amortized cost of
$19,169 and a fair value of $19,310 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, 2008 and 2007 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
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available
for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored
enterprises
|
|
$ |
465 |
|
|
$ |
(2 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
|
1 |
|
|
$ |
465 |
|
|
$ |
(2 |
) |
Mortgage-backed
securities
|
|
|
17,654 |
|
|
|
(216 |
) |
|
|
4,256 |
|
|
|
(98 |
) |
|
|
28 |
|
|
|
21,910 |
|
|
|
(314 |
) |
Municipal
bonds
|
|
|
5,652 |
|
|
|
(195 |
) |
|
|
- |
|
|
|
- |
|
|
|
17 |
|
|
|
5,652 |
|
|
|
(195 |
) |
Corporate
bonds
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
23,771 |
|
|
$ |
(413 |
) |
|
$ |
4,256 |
|
|
$ |
(98 |
) |
|
|
46 |
|
|
$ |
28,027 |
|
|
$ |
(511 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held to
Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
bonds
|
|
$ |
385 |
|
|
$ |
(2 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
|
1 |
|
|
$ |
385 |
|
|
$ |
(2 |
) |
Total
|
|
$ |
385 |
|
|
$ |
(2 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
|
1 |
|
|
$ |
385 |
|
|
$ |
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available
for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
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 |
) |
Management
has evaluated the securities in the preceding tables and has recognized a
pre-tax, non-cash charge of $1.3 million in 2008 for other-than-temporary
impairment (“OTTI”) of the Company’s $2.8 million trust preferred securities
portfolio. Management also recognized an OTTI charge of $94 in 2008 for a $388
municipal security. Management based its assessment on the issuers’ credit
ratings, credit outlook, payment status and financial condition, the length of
time the bonds have been in a loss position, the size of the loss position and
other meaningful information.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
C – INVESTMENT SECURITIES – Concluded
Management
has concluded that none of the other 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, the credit rating on the securities, credit outlook, payment
status and financial condition, the length of time the bond has been in a loss
position, the size of the loss position and other meaningful information.
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.
Realized
gains and losses and the proceeds from sales of securities available for sale
are as follows for the years ended December 31:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales
|
|
$ |
51,448 |
|
|
$ |
16,537 |
|
|
$ |
28,896 |
|
Gross
gains
|
|
|
72 |
|
|
|
40 |
|
|
|
56 |
|
Gross
losses
|
|
|
(49 |
) |
|
|
(135 |
) |
|
|
(278 |
) |
The
scheduled maturities of debt securities held to maturity and available for sale
at December 31, 2008, 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, 2008
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
Available
for Sale
|
|
|
Held
to Maturity
|
|
|
|
Amortized
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
Cost
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
in one year or less
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
372 |
|
|
$ |
372 |
|
Due
from one year to five years
|
|
|
12,657 |
|
|
|
12,817 |
|
|
|
918 |
|
|
|
938 |
|
Due
from five years to ten years
|
|
|
17,473 |
|
|
|
18,017 |
|
|
|
764 |
|
|
|
793 |
|
Due
after ten years
|
|
|
277,203 |
|
|
|
282,672 |
|
|
|
1,137 |
|
|
|
1,135 |
|
|
|
$ |
307,333 |
|
|
$ |
313,506 |
|
|
$ |
3,191 |
|
|
$ |
3,238 |
|
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, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
D – LOANS, NET
The
components of loans are as follows at December 31:
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
One-
to four-family residential real estate
|
|
$ |
356,428 |
|
|
$ |
339,470 |
|
Commercial
real estate
|
|
|
248,457 |
|
|
|
214,776 |
|
Construction
|
|
|
32,082 |
|
|
|
42,059 |
|
Home
equity loans
|
|
|
120,724 |
|
|
|
116,241 |
|
Commercial
and industrial
|
|
|
84,919 |
|
|
|
81,562 |
|
Automobile
|
|
|
17,332 |
|
|
|
22,461 |
|
Consumer
|
|
|
10,334 |
|
|
|
8,126 |
|
Total
loans
|
|
|
870,276 |
|
|
|
824,695 |
|
|
|
|
|
|
|
|
|
|
Net
deferred loan costs and fees
|
|
|
2,395 |
|
|
|
2,136 |
|
Allowance
for loan losses
|
|
|
(8,250 |
) |
|
|
(7,714 |
) |
Loans,
net
|
|
$ |
864,421 |
|
|
$ |
819,117 |
|
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 Company also from time-to-time purchases
commercial loans secured 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.
Nonaccrual
loans amounted to approximately $4,797 and $1,785 at December 31, 2008 and 2007,
respectively. Additional interest income of approximately $132, $69
and $71 would have been recorded during the years ended December 31, 2008, 2007
and 2006, respectively, if the loans had performed in accordance with their
original terms.
At
December 31, 2008 and 2007, the recorded investment in impaired loans was $4,797
and $1,785, respectively. An allowance for loan losses was established on $4,797
and $1,785 of the impaired loans at December 31, 2008 and 2007,
respectively, which allowances amounted to $343 and $223 at the respective
year-ends. The average balance of impaired loans was $3,961, $2,154 and $2,076
for the years ended December 31, 2008, 2007 and 2006, respectively. Interest
income recognized on impaired loans during 2008, 2007 and 2006 was not
significant.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
D – LOANS, NET – Concluded
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
1,127 |
|
|
$ |
1,150 |
|
New
loans
|
|
|
829 |
|
|
|
460 |
|
Repayments
|
|
|
(257 |
) |
|
|
(483 |
) |
Ending
balance
|
|
$ |
1,699 |
|
|
$ |
1,127 |
|
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). Loans serviced by the Company for others totaled
$30,249 and $33,758 at December 31, 2008 and 2007, respectively. The
balances of mortgage servicing rights related to such loans were insignificant
at December 31, 2008 and 2007.
A summary
of changes in the allowance for loan losses for the years ended December 31
follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$ |
7,714 |
|
|
$ |
7,218 |
|
|
$ |
6,382 |
|
Provision
for loan losses
|
|
|
1,846 |
|
|
|
1,425 |
|
|
|
969 |
|
Charge-offs
|
|
|
(1,336 |
) |
|
|
(983 |
) |
|
|
(186 |
) |
Recoveries
|
|
|
26 |
|
|
|
54 |
|
|
|
53 |
|
Balance
at end of year
|
|
$ |
8,250 |
|
|
$ |
7,714 |
|
|
$ |
7,218 |
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
E – BANKING PREMISES AND EQUIPMENT
The
composition of banking premises and equipment is as follows at December
31:
|
|
2008
|
|
|
2007
|
|
Estimated
Useful Lives
|
|
|
|
|
|
|
|
|
Land
and improvements
|
|
$ |
2,387 |
|
|
$ |
2,387 |
|
|
Buildings
and improvements
|
|
|
8,076 |
|
|
|
7,625 |
|
25
- 40 Years
|
Leasehold
improvements
|
|
|
471 |
|
|
|
471 |
|
Lesser
of useful life or term of lease
|
Furniture
and equipment
|
|
|
2,104 |
|
|
|
1,802 |
|
5 Years
|
Assets
under capitalized lease
|
|
|
3,240 |
|
|
|
1,932 |
|
Lesser
of lease term or useful life
|
|
|
|
16,278 |
|
|
|
14,217 |
|
|
Less
accumulated depreciation
|
|
|
|
|
|
|
|
|
|
and
amortization
|
|
|
(4,153 |
) |
|
|
(3,617 |
) |
|
|
|
$ |
12,125 |
|
|
$ |
10,600 |
|
|
Depreciation
and amortization expense, including amortization for capitalized leases, totaled
$907, $831 and $838 for the years ended December 31, 2008, 2007 and 2006,
respectively.
The
Company leases eight of its branches, two ATM facilities and two financial
services offices. Rent expense for the years ended December 31, 2008, 2007 and
2006 amounted to approximately $645, $408 and $363, respectively. The leases,
which are noncancelable, expire at various dates through 2031. The Company also
entered into a capital lease obligation for two of its branches. Future minimum
rental commitments under the terms of these leases are as follows:
|
|
Operating
|
|
|
Capital
|
|
|
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Total
|
|
Years ending December
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$ |
595 |
|
|
$ |
252 |
|
|
$ |
847 |
|
2010
|
|
|
555 |
|
|
|
252 |
|
|
|
807 |
|
2011
|
|
|
437 |
|
|
|
252 |
|
|
|
689 |
|
2012
|
|
|
374 |
|
|
|
252 |
|
|
|
626 |
|
2013
|
|
|
347 |
|
|
|
251 |
|
|
|
598 |
|
Thereafter
|
|
|
2,917 |
|
|
|
4,011 |
|
|
|
6,928 |
|
Total
minimum lease payments
|
|
$ |
5,225 |
|
|
$ |
5,270 |
|
|
$ |
10,495 |
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
E – BANKING PREMISES AND EQUIPMENT - Concluded
At
December 31, 2008 the Company had $3,129 in capital lease obligations consisting
of $5,270 in commitments for future payments reduced by capitalized interest
totaling $2,141. For the years ended December 31, 2008 and 2007 the Company
recognized interest expense on the capital lease obligations of $156 and $116,
respectively.
NOTE
F – DEPOSITS
Deposit
accounts by type are summarized as follows at December 31:
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Demand
|
|
$ |
114,178 |
|
|
$ |
102,010 |
|
NOW
|
|
|
32,390 |
|
|
|
35,207 |
|
Savings
|
|
|
99,492 |
|
|
|
65,711 |
|
Money
market
|
|
|
160,736 |
|
|
|
168,107 |
|
Certificates
of deposit
|
|
|
375,867 |
|
|
|
347,647 |
|
|
|
$ |
782,663 |
|
|
$ |
718,682 |
|
Certificates
of deposit with balances greater than or equal to $100 totaled $150,356 and
$126,880 at December 31, 2008 and 2007, respectively. The maturity of
certificates of deposit with balances greater than or equal to $100 as of
December 31, 2008 is as follows:
Three
months or less
|
|
$ |
55,336 |
|
Over
three months through six months
|
|
|
26,088 |
|
Over
six months through one year
|
|
|
33,713 |
|
Over
one year to three years
|
|
|
28,057 |
|
Over
three years
|
|
|
7,162 |
|
Total
|
|
$ |
150,356 |
|
The
scheduled maturities of time deposits at December 31, 2008, are as
follows:
Less
than one year
|
|
$ |
281,068 |
|
Over
one year to two years
|
|
|
41,173 |
|
Over
two years to three years
|
|
|
35,967 |
|
Over
three years to four years
|
|
|
5,830 |
|
Over
four years to five years
|
|
|
11,829 |
|
Total
time deposits
|
|
$ |
375,867 |
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
F – DEPOSITS - Concluded
Interest
expense on deposits, classified by type, is as follows:
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
NOW
|
|
$ |
171 |
|
|
$ |
178 |
|
|
$ |
103 |
|
Regular
savings
|
|
|
1,015 |
|
|
|
593 |
|
|
|
638 |
|
Money
market
|
|
|
3,336 |
|
|
|
5,631 |
|
|
|
5,125 |
|
Certificates
of deposit
|
|
|
13,309 |
|
|
|
15,540 |
|
|
|
12,829 |
|
Total
|
|
$ |
17,831 |
|
|
$ |
21,942 |
|
|
$ |
18,695 |
|
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 ability to redeem FHLBB shares is
dependent on the redemption policies of the FHLBB. 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 $282,051 at December 31, 2008. At December 31,
2008 and 2007, the Bank had no borrowing against the line of
credit.
Advances
outstanding at December 31, 2008, 2007 and 2006 consisted of the
following:
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
Amount
|
|
|
Average
Rate
|
|
Amount
|
|
|
Average
Rate
|
|
Amount
|
|
|
Average
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
1 year
|
|
$ |
55,000 |
|
|
|
1.26 |
% |
|
$ |
17,152 |
|
|
|
5.00 |
% |
|
$ |
65,000 |
|
|
|
5.16 |
% |
Over
1 year to 2 years
|
|
|
22,279 |
|
|
|
4.35 |
% |
|
|
13,000 |
|
|
|
5.13 |
% |
|
|
16,411 |
|
|
|
5.06 |
% |
Over
2 years to 3 years
|
|
|
52,321 |
|
|
|
4.03 |
% |
|
|
26,767 |
|
|
|
4.15 |
% |
|
|
13,000 |
|
|
|
5.13 |
% |
Over
3 years to 4 years
|
|
|
8,033 |
|
|
|
4.34 |
% |
|
|
23,267 |
|
|
|
4.60 |
% |
|
|
16,111 |
|
|
|
3.20 |
% |
Over
4 years to 5 years
|
|
|
41,894 |
|
|
|
4.02 |
% |
|
|
9,968 |
|
|
|
4.34 |
% |
|
|
39,184 |
|
|
|
4.60 |
% |
Over
5 years
|
|
|
29,037 |
|
|
|
3.84 |
% |
|
|
17,843 |
|
|
|
4.36 |
% |
|
|
20,100 |
|
|
|
4.32 |
% |
|
|
$ |
208,564 |
|
|
|
3.32 |
% |
|
$ |
107,997 |
|
|
|
4.55 |
% |
|
$ |
169,806 |
|
|
|
4.73 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
G – BORROWINGS – Concluded
Included
in the balance of advances due within one year at December 31, 2008 are $42,000
in short-term borrowings which matured on January 2, 2009 and which bore
interest at 0.0625%.
At
December 31, 2008, advances in the amount of $25,000 are callable at the option
of the FHLBB during 2009, 2012 and 2013.
Repurchase
Agreements
Securities
sold under agreements to repurchase include funds borrowed from customers on an
overnight basis. At December 31, 2008 the balances of these customer repurchase
agreements totaled $18,042 and had a weighted average rate of 1.60%. The
following table summarizes repurchase agreement activity for the years
indicated:
|
|
At
or For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at year-end
|
|
$ |
18,042 |
|
|
$ |
13,864 |
|
|
$ |
10,425 |
|
Average
amount outstanding during the year
|
|
|
8,534 |
|
|
|
7,788 |
|
|
|
5,546 |
|
Interest
expense incurred during the year
|
|
|
158 |
|
|
|
259 |
|
|
|
167 |
|
Maximum
amount outstanding at any month-end
|
|
|
18,042 |
|
|
|
13,864 |
|
|
|
10,425 |
|
Average
interest rate during the year
|
|
|
1.85 |
% |
|
|
3.33 |
% |
|
|
3.01 |
% |
Weighted
average interest rate at year-end
|
|
|
1.60 |
% |
|
|
3.12 |
% |
|
|
3.38 |
% |
In
addition the Company has a $10,000 structured term reverse repurchase agreement
secured through another financial institution. The $10,000 reverse repurchase
agreement matures in 2018, is callable in 2011 and has a rate of 2.73%. All of
the repurchase agreements are secured by mortgage-backed securities issued by
government sponsored enterprises.
NOTE
H – INCOME TAXES
The
provision for federal and state income taxes is as follows:
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Current
tax provision:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
6,942 |
|
|
$ |
4,240 |
|
|
$ |
3,618 |
|
State
|
|
|
1,832 |
|
|
|
1,161 |
|
|
|
1,079 |
|
|
|
|
8,774 |
|
|
|
5,401 |
|
|
|
4,697 |
|
Deferred
tax benefit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,890 |
) |
|
|
(1,719 |
) |
|
|
(1,289 |
) |
State
|
|
|
(687 |
) |
|
|
(621 |
) |
|
|
(390 |
) |
|
|
|
(3,577 |
) |
|
|
(2,340 |
) |
|
|
(1,679 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
provision
|
|
$ |
5,197 |
|
|
$ |
3,061 |
|
|
$ |
3,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
H – INCOME TAXES – Continued
The
following table summarizes the difference between the Company’s statutory
federal income tax rate and its effective rate:
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Statutory
federal income tax rate
|
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
Increase
(decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State
taxes, net of federal tax benefit
|
|
|
6.0 |
|
|
|
4.8 |
|
|
|
5.7 |
|
Stock-based
compensation
|
|
|
1.6 |
|
|
|
2.6 |
|
|
|
- |
|
Tax-exempt
obligations
|
|
|
(1.3 |
) |
|
|
(0.9 |
) |
|
|
- |
|
Bank
owned life insurance
|
|
|
(1.0 |
) |
|
|
(0.7 |
) |
|
|
- |
|
Other,
net
|
|
|
2.3 |
|
|
|
1.4 |
|
|
|
(1.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
tax rate
|
|
|
41.6 |
% |
|
|
41.2 |
% |
|
|
38.0 |
% |
The
components of the net deferred tax asset are as follows:
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Deferred
tax asset:
|
|
|
|
|
|
|
Federal
|
|
$ |
7,694 |
|
|
$ |
4,868 |
|
State
|
|
|
2,322 |
|
|
|
1,729 |
|
|
|
|
10,016 |
|
|
|
6,597 |
|
Deferred
tax liability:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,771 |
) |
|
|
(1,280 |
) |
State
|
|
|
(276 |
) |
|
|
(364 |
) |
|
|
|
(2,047 |
) |
|
|
(1,644 |
) |
|
|
|
|
|
|
|
|
|
Net
deferred tax asset:
|
|
$ |
7,969 |
|
|
$ |
4,953 |
|
The tax
effects of each type of income and expense item that give rise to deferred taxes
are as follows:
|
|
At
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Cash
basis of accounting
|
|
$ |
41 |
|
|
$ |
28 |
|
Investments:
|
|
|
|
|
|
|
|
|
Net
unrealized gain on securities
|
|
|
|
|
|
|
|
|
available
for sale
|
|
|
(992 |
) |
|
|
(283 |
) |
Impairment
loss on preferred stock
|
|
|
- |
|
|
|
22 |
|
Retirement
benefits
|
|
|
619 |
|
|
|
471 |
|
Depreciation
|
|
|
699 |
|
|
|
704 |
|
Deferred
expense
|
|
|
(1,027 |
) |
|
|
(1,077 |
) |
Allowance
for loan losses
|
|
|
3,295 |
|
|
|
3,158 |
|
Employee
benefit plans
|
|
|
2,178 |
|
|
|
1,739 |
|
Market
value adjustment on loans
|
|
|
3,156 |
|
|
|
(275 |
) |
Contribution
carryover
|
|
|
- |
|
|
|
454 |
|
Other
|
|
|
- |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
Net
deferred tax asset
|
|
$ |
7,969 |
|
|
$ |
4,953 |
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$ |
4,953 |
|
|
$ |
2,851 |
|
Deferred
tax benefit
|
|
|
3,577 |
|
|
|
2,340 |
|
Change
in unrealized gain on securities
|
|
|
|
|
|
|
|
|
available
for sale
|
|
|
(561 |
) |
|
|
(238 |
) |
Balance
at end of year
|
|
$ |
7,969 |
|
|
$ |
4,953 |
|
The
Internal Revenue Service (“IRS”) commenced an examination of the Company’s 2005
and 2006 federal income tax returns in the second quarter of
2007. 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 change in fair value calculated
under IRC Sec. 475 is considered a temporary difference in the Company’s FAS109
deferred income tax calculations. In June 2008, the Company agreed to a
settlement of the proposed adjustments with the IRS. As a result, for
tax years 2005 and 2006 the Company had a tax deficiency of $994,000 and related
interest due of $76,000. In conjunction with the
settlement, the Company has amended its calculation of the fair market value of
its residential mortgage portfolio beginning with the 2007 tax
year.
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 related to loans generated
prior to December 31, 1995.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
I – EARNINGS PER SHARE
The
calculation of basic earnings per common share and diluted earnings per common
share for the years ended December 31, 2008, 2007 and 2006 is presented
below.
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
7,298 |
|
|
$ |
4,377 |
|
|
$ |
4,924 |
|
Weighted
average common shares applicable to
|
|
|
|
|
|
|
|
|
|
|
|
|
basic EPS (1,
4)
|
|
|
16,043,727 |
|
|
|
16,852,566 |
|
|
|
17,139,599 |
|
Effect of dilutive potential
common shares (2, 3)
|
|
|
82,834 |
|
|
|
53,147 |
|
|
|
9,428 |
|
Weighted
average common shares applicable to
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted
EPS
|
|
|
16,126,561 |
|
|
|
16,905,713 |
|
|
|
17,149,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.45 |
|
|
$ |
0.26 |
|
|
$ |
0.29 |
|
Diluted
|
|
$ |
0.45 |
|
|
$ |
0.26 |
|
|
$ |
0.29 |
|
|
|
|
|
|
|
|
(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 syndicated
|
offering.
All share data in prior periods have been adjusted by the exhange
ratio.
|
|
|
(2) For
the years ended December 31, 2008, 2007 and 2006, options to purchase
1,175,964, 785,275 and 778,510 shares,
|
respectively,
were not included in the computation of diluted earnings per share because
they were antidilutive.
|
(3) Includes
incremental shares related to stock options and restricted
stock.
|
|
|
(4) Excludes
shares repurchased in June 2008 through September 2008 to fund the 2008
Equity Incentive Plan.
|
|
|
|
|
|
|
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
J – STOCK-BASED INCENTIVE PLANS
The
Company’s 2008 Equity Incentive Plan (the “2008 Incentive Plan”) was approved by
the shareholders at its Annual Meeting held in June 2008. The 2008 Incentive
Plan will remain in effect for a period of ten years and authorizes the issuance
of up to 1,258,534 shares of Company common stock pursuant to grants of
restricted stock awards, restricted stock unit awards, incentive stock options,
non-statutory stock options and stock appreciation rights; provided, however,
that no more than 898,953 shares may be issued or delivered in the aggregate
pursuant to the exercise of stock options or stock appreciation rights, and no
more than 359,581 shares may be issued or delivered pursuant to restricted stock
awards or restricted stock unit awards. Employees and outside directors of the
Company are eligible to receive awards under the 2008 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 2008 Incentive Plan, all outstanding stock
options will become fully vested, and all stock awards then outstanding will
vest free of restrictions.
The
Company’s 2006 Stock-Based Incentive Plan (the “2006 Incentive Plan”) was
approved by shareholders at the Company’s Annual Meeting held in July 2006. The
2006 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 completed in December 2007 and in accordance
with provisions in the 2006 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 2006 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 2006 Incentive Plan, all outstanding stock options
will become fully vested, and all stock awards then outstanding will vest free
of restrictions.
Under the
incentive plans, 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. 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.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
J – STOCK-BASED INCENTIVE PLANS – Continued
The
compensation cost related to restricted stock awards is based upon the Company’s
stock price at the grant date. Restricted stock awards generally vest
based upon continuous service with the Company over the five year period
following the grant date. During the vesting period, participants are
entitled to dividends for all awards.
A
combined summary of activity in the Company’s incentive plans for the years
ended December 31, 2007 and 2008 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, 2006
|
|
|
140,534 |
|
|
|
302,354 |
|
|
$ |
12.35 |
|
|
|
778,510 |
|
|
$ |
12.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(6,765 |
) |
|
|
- |
|
|
|
- |
|
|
|
6,765 |
|
|
|
11.36 |
|
Stock
options exercised
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Shares
vested
|
|
|
- |
|
|
|
(68,375 |
) |
|
|
12.35 |
|
|
|
- |
|
|
|
- |
|
Forfeited
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cancelled
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
133,769 |
|
|
|
233,979 |
|
|
$ |
12.35 |
|
|
|
785,275 |
|
|
$ |
12.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
Incentive Plan
|
|
|
1,258,534 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Granted
|
|
|
(1,093,000 |
) |
|
|
313,500 |
|
|
|
11.66 |
|
|
|
779,500 |
|
|
|
11.66 |
|
Stock
options exercised
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,538 |
) |
|
|
12.35 |
|
Shares
vested
|
|
|
- |
|
|
|
(58,487 |
) |
|
|
12.36 |
|
|
|
- |
|
|
|
- |
|
Forfeited
|
|
|
12,387 |
|
|
|
- |
|
|
|
- |
|
|
|
(12,387 |
) |
|
|
12.35 |
|
Cancelled
|
|
|
23,105 |
|
|
|
- |
|
|
|
- |
|
|
|
(23,105 |
) |
|
|
12.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
334,795 |
|
|
|
488,992 |
|
|
$ |
11.91 |
|
|
|
1,525,745 |
|
|
$ |
12.00 |
|
(1) In
conjunction with the Company's second-step conversion in December 2007,
the numbers of shares and
|
weighted
average prices for 2006 and 2007 have been adjusted by the conversion
ratio of 1.04079.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On June
19, 2008, the Company granted 755,000 stock options and 313,500 restricted
shares to certain directors and employees under the 2008 Incentive
Plan. The stock options had a weighted average value of $2.57 per
share, with a total grant date fair value of $1,940. The restricted
shares had a weighted average value of $11.66 per share, with a total grant date
fair value of $3,655. In 2008, the Company also granted 24,500 stock options to
certain employees under the 2006 Incentive plan. The stock options
had a weighted average fair value of $2.39 per share and a grant date fair value
of $59,000. In 2007, the Company granted 6,765 stock options with a
weighted average value of $3.08 per share and a total grant date fair value of
$21. No new restricted shares were granted in 2007. At December 31,
2008 the Company has 94,718 restricted shares and 240,077 stock options
available for grant under the incentive plans.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
J – STOCK-BASED INCENTIVE PLANS - Concluded
The
Company’s total compensation cost for shared-based payment arrangements was
$1,992 in 2008 and $1,864 in 2007. The Company recorded tax benefits of $204 in
2008 and $191 in 2007 related to the recognition of the shared-based
compensation expense. As of December 31, 2008, compensation costs related to
non-vested stock awards totaling $7,578 have not been recognized. These costs
will be recognized over an estimated weighted average period of 3.2
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 2008 and 2007.
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Weighted
average fair value
|
|
$ |
2.57 |
|
$ |
3.08 |
Expected
term (short-cut method)
|
|
6.50
years
|
|
6.50
years
|
Volatility
|
|
|
19.30 |
% |
|
|
25.00 |
% |
Expected
dividend yield
|
|
|
1.88 |
% |
|
|
2.00 |
% |
Weighted
average risk-free interest rate
|
|
|
3.89 |
% |
|
|
4.36 |
% |
|
|
|
|
|
|
|
|
|
A summary
of stock options outstanding and exercisable at December 31, 2008 is as
follows:
|
|
Stock
Options
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
Total
number of shares
|
|
|
1,525,745 |
|
|
|
302,439 |
|
Weighted
average exercise price
|
|
$ |
12.00 |
|
|
$ |
12.33 |
|
Aggregate
intrinsic value
|
|
$ |
4,789 |
|
|
$ |
850 |
|
Weighted
average remaining contractual term
|
|
8.6
years
|
|
|
7.4
years
|
|
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
has been or will be recognized in future periods. The Company recognized pension
expense based upon assessments by CBERA. The Company’s contributions to the plan
were $227 and $397 for the years ended December 31, 2007 and 2006, respectively.
Under the plan, retirement benefits were based on years of service and the
highest average compensation. The Company also sponsors a defined contribution
plan. Employees make voluntary contributions which are matched by the Company up
to a maximum of 5% of the employee’s qualified salary. The contributions matched
by the Company were $389, $367 and $307 for the years ended December 31, 2008,
2007 and 2006, respectively.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
K – EMPLOYEE BENEFIT PLANS – Continued
Incentive
Plan
The
Company maintains an incentive plan in which employees are eligible to
participate. The incentive plan provides for awards based on the
achievement of both individual and Company performance goals, subject to
approval by the Board of Directors. Related expense amounted to $838,
$409 and $547 for the years ended December 31, 2008, 2007 and 2006,
respectively.
Senior Executive Retirement
Plan
The
Company has 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, 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 $822
and $863 at December 31, 2008 and 2007, respectively, and is included in accrued
expenses and other liabilities in the consolidated balance sheets. The expense
for the Agreements, excluding interest, was $18, $114 and $162 for the years
ended December 31, 2008, 2007 and 2006, respectively.
The SERP
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 accumulated 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 accumulated other comprehensive
income.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
K – EMPLOYEE BENEFIT PLANS - Continued
Directors Fee Continuation
Plan
The
Company sponsors a Directors Fee Continuation Plan under which a Director will
annually receive $15 ($24 for former chairpersons) for ten years beginning upon
attaining the normal retirement date. The benefit is reduced for directors
serving fewer than 15 years. In the event of the participant’s death prior to
receiving the full benefits of the plan, any unpaid benefits will be paid to the
beneficiary. The Company recognizes expense under this plan on a ratable basis
such that the present value of the liability is fully accrued at each director’s
normal retirement date. Effective October 1, 2007, 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, 2008 and 2007,
the Company’s recorded liability for this plan amounted to $517 and $594,
respectively, and is included in accrued expenses and other liabilities in the
consolidated balance sheets. The Company did not record an expense for the year
ended December 31, 2008. The expense associated with this plan, excluding
interest, was $10 and $59 for the years ended December 31, 2007 and 2006,
respectively.
Director Retirement
Plan
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%. The supplemental benefit will commence on the
director’s normal benefit date and will be payable in a lump sum, unless the
director has elected, at the time of execution of the participation agreement,
to receive an annuity or other form of benefit. 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, 2008, 2007 and 2006
(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, 2008 and 2007. These plans had no assets at
December 31, 2008 and 2007. Amounts recognized at December 31,
2008 and 2007 are reflected in the net deferred tax asset and accrued expenses
and other liabilities on the consolidated balance sheets.
|
|
At
or For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
Retirement
|
|
|
|
|
|
Retirement
|
|
|
|
SERP
|
|
|
Plan
|
|
|
SERP
|
|
|
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of period
|
|
$ |
1,796 |
|
|
$ |
588 |
|
|
$ |
1,707 |
|
|
$ |
567 |
|
Service
cost
|
|
|
306 |
|
|
|
57 |
|
|
|
63 |
|
|
|
13 |
|
Interest
cost
|
|
|
137 |
|
|
|
31 |
|
|
|
26 |
|
|
|
8 |
|
Actuarial
loss
|
|
|
482 |
|
|
|
32 |
|
|
|
- |
|
|
|
- |
|
Benefits
paid
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
End
of period
|
|
$ |
2,721 |
|
|
$ |
708 |
|
|
$ |
1,796 |
|
|
$ |
588 |
|
Funded
status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
benefit cost
|
|
$ |
2,721 |
|
|
$ |
708 |
|
|
$ |
1,796 |
|
|
$ |
588 |
|
Amounts
recognized in accumulated other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive
income consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition
obligation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Prior
service cost
|
|
|
(746 |
) |
|
|
(292 |
) |
|
|
(823 |
) |
|
|
(329 |
) |
Net
losses
|
|
|
(459 |
) |
|
|
(32 |
) |
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
(1,205 |
) |
|
$ |
(324 |
) |
|
$ |
(823 |
) |
|
$ |
(329 |
) |
Weighted-average
assumptions used to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
determine
benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
6.00 |
% |
|
|
5.00 |
% |
|
|
6.00 |
% |
|
|
5.00 |
% |
Rate
of compensation increase
|
|
|
5.00 |
% |
|
|
2.00 |
% |
|
|
5.00 |
% |
|
|
2.00 |
% |
Components
of the net periodic benefit cost are as follows:
|
|
For
the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
Retirement
|
|
|
|
|
|
Retirement
|
|
|
|
SERP
|
|
|
Plan
|
|
|
SERP
|
|
|
Plan
|
|
Periodic
benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
306 |
|
|
$ |
57 |
|
|
$ |
63 |
|
|
$ |
13 |
|
Interest
cost
|
|
|
137 |
|
|
|
31 |
|
|
|
26 |
|
|
|
8 |
|
Total
pension cost
|
|
|
443 |
|
|
|
88 |
|
|
|
89 |
|
|
|
21 |
|
Prior
service cost amortization
|
|
|
76 |
|
|
|
36 |
|
|
|
19 |
|
|
|
9 |
|
Net
loss amortization
|
|
|
24 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
periodic benefit cost
|
|
$ |
543 |
|
|
$ |
124 |
|
|
$ |
108 |
|
|
$ |
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
assumptions used to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
determine
net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
6.00 |
% |
|
|
6.00 |
% |
|
|
6.00 |
% |
|
|
6.00 |
% |
Rate
of compensation increase
|
|
|
5.00 |
% |
|
|
2.00 |
% |
|
|
5.00 |
% |
|
|
2.00 |
% |
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
K – EMPLOYEE BENEFIT PLANS - Continued
The
unrecognized prior service cost is being amortized over a period of ten years.
In 2009, approximately $96 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 benefit cost.
At
December 31, 2008, 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,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$ |
- |
|
|
$ |
198 |
|
2010
|
|
|
- |
|
|
|
- |
|
2011
|
|
|
3,064 |
|
|
|
- |
|
2012
|
|
|
856 |
|
|
|
181 |
|
2013
|
|
|
- |
|
|
|
- |
|
2014
through 2018
|
|
|
- |
|
|
|
760 |
|
Total
expected benefit payments
|
|
$ |
3,920 |
|
|
$ |
1,139 |
|
The
Company does not expect to contribute assets to these plans in
2009.
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 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
related ESOP benefit beginning in 2008.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
K – EMPLOYEE BENEFIT PLANS – Concluded
The Bank
has committed to make contributions to the ESOP sufficient to support the debt
service of the loan. The loan is secured by the shares held by the plan trustee
in a suspense account for allocation among the participants as the loan is
repaid. The Company reports compensation expense equal to the average
daily market price of the shares as they are committed to be released from the
suspense account. Total compensation expense applicable to the ESOP
amounted to $866, $625 and $406 for the years ended December 31, 2008, 2007 and
2006, respectively.
Shares
held by the ESOP, adjusted by the exchange ratio of 1.04079, include the
following:
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Allocated
|
|
|
109,880 |
|
|
|
64,738 |
|
|
|
33,372 |
|
Committed
to be released
|
|
|
71,707 |
|
|
|
46,208 |
|
|
|
33,372 |
|
Unallocated
|
|
|
1,236,631 |
|
|
|
1,308,339 |
|
|
|
600,714 |
|
|
|
|
1,418,218 |
|
|
|
1,419,285 |
|
|
|
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, 2008,
2007 and 2006 was $18,723, $14,281 and $7,965, respectively.
NOTE
L – COMMITMENTS AND CONTINGENCIES
Financial Instruments With
Off-Balance Sheet Risk
The
Company is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to
originate loans and standby letters of credit. The Company does not
record a liability for the fair value of the obligation undertaken in issuing
standby letters of credit unless it becomes probable that the Company would have
to perform under the guarantee. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated balance sheets. The contract or notional amounts
of those instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
The
Company’s exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for loan commitments and standby letters of
credit is represented by the contractual or notional amounts of those
instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
L – COMMITMENTS AND CONTINGENCIES - Continued
Financial
instruments with off-balance sheet risk at December 31, 2008 and 2007 are as
follows:
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Unused
lines of credit
|
|
$ |
155,448 |
|
|
$ |
146,579 |
|
Amounts
due mortgagors
|
|
|
14,479 |
|
|
|
31,168 |
|
Standby
letters of credit
|
|
|
1,156 |
|
|
|
1,627 |
|
Commitments
to originate loans
|
|
|
10,458 |
|
|
|
15,890 |
|
Included
in commitments to originate loans at December 31, 2008 and 2007 are fixed rate
commitments in the amount of $7,127 and $13,275, at interest ranges of 5.00% to
7.00% and 5.34% to 8.25%, respectively.
Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Company evaluates each customer’s creditworthiness on a
case-by-case basis.
The
amount of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management’s credit evaluation.
Standby
letters of credit are conditional commitments issued by the Company to guarantee
the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Company holds
residential or commercial real estate, accounts receivable, inventory and
equipment as collateral supporting those commitments for which collateral is
deemed necessary. The extent of collateral held for those commitments at
December 31, 2008 and 2007 exceeds 100%.
The
Company has a commitment to invest up to $1,000 in a venture capital fund. As of
December 31, 2008 the Company has contributed $100 to the fund.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
L – COMMITMENTS
AND CONTINGENCIES – Concluded
Employment and change in
control agreements
The Company has entered into a
three-year employment agreement with its President and Chief Executive Officer
expiring in 2011. 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, 2008, the Company was not involved in any
material legal proceedings.
NOTE
M - FAIR VALUES OF FINANCIAL INSTRUMENTS
Effective
January 1, 2008, the Company 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.
Effective
January 1, 2008, the Company adopted SFAS No. 157 (for financial assets and
liabilities), which provides a framework for measuring fair value under
generally accepted accounting principles. 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, as follows:
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
M - FAIR VALUES OF FINANCIAL INSTRUMENTS – Continued
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 and other U.S. government and government-sponsored enterprises 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. Level 2 includes mortgage-backed securities issued by
government-sponsored enterprises. 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
measured at fair value on a recurring basis, are summarized below:
|
|
At
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale
|
|
$ |
465 |
|
|
$ |
311,209 |
|
|
$ |
1,832 |
|
|
$ |
313,506 |
|
Mortgage
servicing rights
|
|
|
- |
|
|
|
- |
|
|
|
124 |
|
|
|
124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
465 |
|
|
$ |
311,209 |
|
|
$ |
1,956 |
|
|
$ |
313,630 |
|
The
Company has no liabilities measured at fair value on a recurring basis at
December 31, 2008.
The table
below presents the changes in Level 3 assets measured at fair value on a
recurring basis.
Balance
as of January 1, 2008
|
|
$ |
136 |
|
Transfers
in and out of Level 3, net
|
|
|
3,155 |
|
Total
realized/unrealized losses included in net income
|
|
|
(1,389 |
) |
Decrease
in unrealized loss
|
|
|
54 |
|
Purchases,
sales, issuances and settlements
|
|
|
- |
|
|
|
|
|
|
Balance
as of December 31, 2008
|
|
$ |
1,956 |
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
M - FAIR VALUES OF FINANCIAL INSTRUMENTS – Continued
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. The following table summarizes
the fair value hierarchy used to determine the adjustment and the carrying value
of the related assets for the year ended December 31, 2008.
|
|
At
or For the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Gains/(Losses)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
- |
|
|
$ |
5,362 |
|
|
$ |
- |
|
|
$ |
(120 |
) |
Other
real estate owned
|
|
|
- |
|
|
|
998 |
|
|
|
- |
|
|
|
(137 |
) |
Other
assets
|
|
|
- |
|
|
|
- |
|
|
|
1,320 |
|
|
|
- |
|
Total
assets
|
|
$ |
- |
|
|
$ |
6,360 |
|
|
$ |
1,320 |
|
|
$ |
(257 |
) |
The
amount of loans represents the carrying value and related write-down and
valuation allowance of impaired loans for which adjustments are based on the
estimated fair value of the underlying collateral. The other real estate owned
amount represents the carrying value for which adjustments are also based on the
estimated fair value of the property. Other assets consist of equity securities
accounted for at cost.
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.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
M - FAIR VALUES OF FINANCIAL INSTRUMENTS – Continued
Fair
value estimates are made at a specific point in time, based on relevant market
information and information about the financial instrument. These estimates do
not reflect any premium or discount that could result from offering for sale at
one time the Bank’s entire holdings of a particular financial instrument.
Because a market may not readily exist for a significant portion of the Bank’s
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
The
following methods and assumptions were used by the Company in estimating fair
values of its financial instruments:
Cash and Cash Equivalents
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, 2008 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.
Loans
For
valuation purposes, the loan portfolio was segregated into its significant
categories, which are residential mortgage, commercial real estate, commercial
and consumer. 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.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
M - FAIR VALUES OF FINANCIAL INSTRUMENTS – Continued
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
The
Company enters into overnight repurchase agreements with its customers. Since
these agreements are short-term instruments, the fair value of these agreements
approximates their recorded balance. The Company also secures term repurchase
agreements through other financial institutions. The fair value of these
agreements are determined by discounting the anticipated future cash payments
using rates currently available to the Bank for debt with similar terms and
remaining maturities.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
M - FAIR VALUES 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:
|
|
2008
|
|
|
2007
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Value
|
|
|
Fair
Value
|
|
|
Value
|
|
|
Fair
Value
|
|
Financial
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
13,572 |
|
|
$ |
13,572 |
|
|
$ |
14,254 |
|
|
$ |
14,254 |
|
Short-term
investments
|
|
|
1,071 |
|
|
|
1,071 |
|
|
|
1,030 |
|
|
|
1,030 |
|
Securities
available for sale
|
|
|
313,506 |
|
|
|
313,506 |
|
|
|
201,257 |
|
|
|
201,257 |
|
Securities
held to maturity
|
|
|
3,191 |
|
|
|
3,238 |
|
|
|
3,632 |
|
|
|
3,631 |
|
Stock
in Federal Home Loan Bank of Boston
|
|
|
12,223 |
|
|
|
12,223 |
|
|
|
10,257 |
|
|
|
10,257 |
|
Net
loans
|
|
|
864,421 |
|
|
|
870,731 |
|
|
|
819,117 |
|
|
|
822,309 |
|
Accrued
interest receivable
|
|
|
4,706 |
|
|
|
4,706 |
|
|
|
4,477 |
|
|
|
4,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
(with no stated maturity)
|
|
|
406,796 |
|
|
|
406,796 |
|
|
|
371,035 |
|
|
|
371,035 |
|
Time
deposits
|
|
|
375,867 |
|
|
|
378,424 |
|
|
|
347,647 |
|
|
|
347,828 |
|
Federal
Home Loan Bank of Boston advances
|
|
|
208,564 |
|
|
|
217,236 |
|
|
|
107,997 |
|
|
|
108,791 |
|
Repurchase
agreements
|
|
|
28,042 |
|
|
|
28,021 |
|
|
|
13,864 |
|
|
|
13,864 |
|
Accrued
interest payable
|
|
|
627 |
|
|
|
627 |
|
|
|
417 |
|
|
|
417 |
|
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, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
N – STOCKHOLDERS’ EQUITY – Continued
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 are defined as adjusted total
assets less intangible assets.
As of
December 31, 2008, 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, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Risk-based Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
Risk Weighted Assets)
|
|
$ |
162,782 |
|
|
|
18.7 |
% |
>
|
|
$ |
69,590 |
|
>
|
|
|
8.0 |
% |
>
|
|
$ |
86,988 |
|
>
|
|
|
10.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I Risk-based Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
Risk Weighted Assets)
|
|
|
154,532 |
|
|
|
17.8 |
% |
>
|
|
|
34,795 |
|
>
|
|
|
4.0 |
% |
>
|
|
|
52,193 |
|
>
|
|
|
6.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
I (Core) Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
Adjusted Total Assets)
|
|
|
154,532 |
|
|
|
12.3 |
% |
>
|
|
|
50,231 |
|
>
|
|
|
4.0 |
% |
>
|
|
|
62,789 |
|
>
|
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to
Tangible Assets)
|
|
|
154,532 |
|
|
|
12.3 |
% |
>
|
|
|
18,837 |
|
>
|
|
|
1.5 |
% |
>
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
% |
>
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
N – STOCKHOLDERS’ EQUITY – Continued
The
following table provides a reconciliation of total consolidated equity to
capital amounts for the Bank reflected in the above table:
|
|
December
31
|
|
|
|
2008
|
|
|
2007
|
|
Total
consolidated equity
|
|
$ |
227,714 |
|
|
$ |
226,120 |
|
Adjustments:
|
|
|
|
|
|
|
|
|
Additional
equity capital of United Financial Bancorp, Inc.
|
|
|
(70,076 |
) |
|
|
(77,802 |
) |
Accumulated
other comprehensive (income) loss
|
|
|
(2,931 |
) |
|
|
169 |
|
Disallowed
goodwill and intangible assets
|
|
|
(175 |
) |
|
|
(258 |
) |
Other
|
|
|
- |
|
|
|
30 |
|
Tangible,
Tier I and Core Capital
|
|
|
154,532 |
|
|
|
148,259 |
|
Allowance
for loan losses
|
|
|
8,250 |
|
|
|
7,714 |
|
Total
risk-based capital
|
|
$ |
162,782 |
|
|
$ |
155,973 |
|
Common Stock Repurchase
Plans
On
November 20, 2008, the Board of Directors approved a plan to repurchase up to
5%, or approximately 885,379 shares, of the Company’s common stock through open
market purchases or privately negotiated transactions. Stock
repurchases are accounted for as treasury stock, carried at cost, and reflected
as a reduction in stockholders’ equity. As of December 31, 2008, the Company
repurchased 206,200 shares at a cost of approximately $2,835 and an average
price of $13.75, under this plan.
On June
19, 2008, the Board of Directors approved a plan to repurchase up to 2%, or
359,581 shares, to fund awards of restricted stock under the Company's 2008
Incentive Plan, which was approved by stockholders at the Company's 2008 Annual
Meeting held on June 10, 2008. The Company completed its repurchase of
359,581 shares of its outstanding common stock, at a cost of approximately
$4,240 and at an average price of $11.79, on July 22, 2008.
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. As of December 31,
2007 and 2006, the Company repurchased 86,390 and 1,945 shares at a cost of
approximately $1,251 and $27 and at an average price of $14.48 and $13.76,
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, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
N – STOCKHOLDERS’ EQUITY – Concluded
On July
20, 2006, the Board of Directors approved a stock repurchase plan to fund the
restricted stock portion of its 2006 Incentive Plan, which was approved by
stockholders at the Company's 2006 Annual Meeting. Under the plan, which
was completed on August 3, 2006, the Company repurchased 340,000 shares or 2.0%
of its total outstanding common stock at a cost of approximately $4,378 and at
an average price of $12.86.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(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,
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
53,184 |
|
|
$ |
44,157 |
|
Short-term
investments
|
|
|
1,071 |
|
|
|
1,030 |
|
Investment
in Bank
|
|
|
157,638 |
|
|
|
148,318 |
|
Securities
available for sale, at fair value
|
|
|
- |
|
|
|
18,606 |
|
ESOP
loan receivable
|
|
|
12,829 |
|
|
|
13,160 |
|
Accrued
interest receivable
|
|
|
- |
|
|
|
247 |
|
Other
assets
|
|
|
3,174 |
|
|
|
1,145 |
|
TOTAL
ASSETS
|
|
$ |
227,896 |
|
|
$ |
226,663 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
$ |
182 |
|
|
$ |
543 |
|
Stockholders’
equity
|
|
|
227,714 |
|
|
|
226,120 |
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$ |
227,896 |
|
|
$ |
226,663 |
|
STATEMENTS OF
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Income:
|
|
|
|
|
|
|
|
|
|
Investment
interest
|
|
$ |
1,235 |
|
|
$ |
1,252 |
|
|
$ |
1,258 |
|
ESOP
loan interest
|
|
|
955 |
|
|
|
536 |
|
|
|
439 |
|
Gain
(loss) on sale of securities
|
|
|
15 |
|
|
|
- |
|
|
|
(9 |
) |
Other
income
|
|
|
3 |
|
|
|
- |
|
|
|
- |
|
Total
income
|
|
|
2,208 |
|
|
|
1,788 |
|
|
|
1,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
services
|
|
|
1,311 |
|
|
|
1,105 |
|
|
|
958 |
|
Other
expenses
|
|
|
47 |
|
|
|
43 |
|
|
|
31 |
|
Total
expense
|
|
|
1,358 |
|
|
|
1,148 |
|
|
|
989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes and equity in
|
|
|
|
|
|
|
|
|
|
|
|
|
undistributed
earnings in the Bank
|
|
|
850 |
|
|
|
640 |
|
|
|
699 |
|
Income
tax expense
|
|
|
348 |
|
|
|
261 |
|
|
|
235 |
|
Income
before equity in undistributed earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
of
the Bank
|
|
|
502 |
|
|
|
379 |
|
|
|
464 |
|
Equity
in undistributed earnings of the Bank
|
|
|
6,796 |
|
|
|
3,998 |
|
|
|
4,460 |
|
NET
INCOME
|
|
$ |
7,298 |
|
|
$ |
4,377 |
|
|
$ |
4,924 |
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
7,298 |
|
|
$ |
4,377 |
|
|
$ |
4,924 |
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in undistributed earnings of the bank
|
|
|
(6,796 |
) |
|
|
(3,998 |
) |
|
|
(4,460 |
) |
Net
amortization of discounts and premiums
|
|
|
2 |
|
|
|
(27 |
) |
|
|
(83 |
) |
Net
(gain) loss on sale of available for sale securities
|
|
|
(15 |
) |
|
|
- |
|
|
|
9 |
|
(Decrease)
increase in deferred income taxes
|
|
|
(3 |
) |
|
|
(525 |
) |
|
|
3 |
|
Decrease
in accrued interest receivable
|
|
|
247 |
|
|
|
17 |
|
|
|
57 |
|
Decrease
(increase) in other assets
|
|
|
618 |
|
|
|
(457 |
) |
|
|
(717 |
) |
(Decrease)
increase in intercompany payables and
|
|
|
|
|
|
|
|
|
|
|
|
|
other
liabilities
|
|
|
(359 |
) |
|
|
136 |
|
|
|
233 |
|
Net
cash provided by (used in) operating activities
|
|
|
992 |
|
|
|
(477 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of securities available for sale
|
|
|
- |
|
|
|
(12,059 |
) |
|
|
(2,094 |
) |
Proceeds
from sales of securities available for sale
|
|
|
9,352 |
|
|
|
- |
|
|
|
4,990 |
|
Proceeds
from maturities and principal repayments
|
|
|
|
|
|
|
|
|
|
|
|
|
of
securities available for sale
|
|
|
9,218 |
|
|
|
15,181 |
|
|
|
6,934 |
|
Investment
in short term time deposits
|
|
|
(41 |
) |
|
|
(1,030 |
) |
|
|
- |
|
Loan
to fund ESOP
|
|
|
- |
|
|
|
(7,538 |
) |
|
|
- |
|
Principal
payments on ESOP loan
|
|
|
331 |
|
|
|
270 |
|
|
|
158 |
|
Net
cash provided by (used in) investing activities
|
|
|
18,860 |
|
|
|
(5,176 |
) |
|
|
9,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
of capital from United Bank (investment in
|
|
|
|
|
|
|
|
|
|
|
|
|
United
Bank)
|
|
|
837 |
|
|
|
(45,152 |
) |
|
|
3,579 |
|
Repurchase
of stock to fund the 2008 Incentive Plan
|
|
|
(4,240 |
) |
|
|
- |
|
|
|
- |
|
Treasury
stock purchases
|
|
|
(2,960 |
) |
|
|
(1,250 |
) |
|
|
(4,405 |
) |
Cash
dividends paid
|
|
|
(4,436 |
) |
|
|
(1,757 |
) |
|
|
(1,462 |
) |
Net
(costs) proceeds from stock issuance
|
|
|
(26 |
) |
|
|
90,289 |
|
|
|
- |
|
Net
cash (used in) provided by financing activities
|
|
|
(10,825 |
) |
|
|
42,130 |
|
|
|
(2,288 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in cash and cash equivalents
|
|
|
9,027 |
|
|
|
36,477 |
|
|
|
7,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
44,157 |
|
|
|
7,680 |
|
|
|
14 |
|
Cash
and cash equivalents at end of period
|
|
$ |
53,184 |
|
|
$ |
44,157 |
|
|
$ |
7,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes – net
|
|
|
6,521 |
|
|
|
1,097 |
|
|
|
229 |
|
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(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, 2008 and 2007.
|
|
Three
Months Ended
|
|
|
|
March
31
|
|
|
June
30
|
|
|
September
30
|
|
|
December
31
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
15,406 |
|
|
$ |
15,973 |
|
|
$ |
16,811 |
|
|
$ |
16,624 |
|
Interest
expense
|
|
|
6,375 |
|
|
|
6,065 |
|
|
|
6,275 |
|
|
|
6,288 |
|
Net
interest income
|
|
|
9,031 |
|
|
|
9,908 |
|
|
|
10,536 |
|
|
|
10,336 |
|
Provision
for loan losses
|
|
|
184 |
|
|
|
651 |
|
|
|
644 |
|
|
|
367 |
|
Non-interest
income
|
|
|
1,519 |
|
|
|
1,574 |
|
|
|
1,733 |
|
|
|
394
|
(1) |
Non-interest
expense
|
|
|
7,176 |
|
|
|
7,550 |
|
|
|
7,806 |
|
|
|
8,158 |
|
Income
before income taxes
|
|
|
3,190 |
|
|
|
3,281 |
|
|
|
3,819 |
|
|
|
2,205 |
|
Income
tax expense
|
|
|
1,224 |
|
|
|
1,272 |
|
|
|
1,455 |
|
|
|
1,246 |
|
Net
income
|
|
$ |
1,966 |
|
|
$ |
2,009 |
|
|
$ |
2,364 |
|
|
$ |
959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.12 |
|
|
$ |
0.12 |
|
|
$ |
0.15 |
|
|
$ |
0.06 |
|
Diluted
earnings per share
|
|
$ |
0.12 |
|
|
$ |
0.12 |
|
|
$ |
0.15 |
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes
other-than-temporary investment impairment charges totaling
$1,377.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE
Q – SUBSEQUENT EVENTS
On
February 5, 2009, the Company announced the completion of its previously
announced stock repurchase program, which commenced on December 2,
2008. The Company repurchased 885,379 shares of its outstanding
common stock at a cost of approximately $12,376 and at an average price of
$13.98 per share.
UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
Notes to
Consolidated Financial Statements
December
31, 2008, 2007 and 2006
(Dollars
in thousands, except per share amounts)
NOTE
Q – SUBSEQUENT EVENTS – Concluded
On
February 19, 2009, the Board of Directors approved a plan to repurchase up to an
additional 5%, or approximately 841,138 shares, of the Company’s common stock.
As of March 6, 2009, the Company repurchased 102,300 shares at a cost of
approximately $1,303 and an average price of $12.73 per share, under this
plan.
On
February 27, 2009, the Federal Deposit Insurance Corporation published a final
rule raising the current deposit insurance assessment rates to a range from 12
to 45 basis points beginning April 1, 2009. Additionally, the Federal
Deposit Insurance Corporation issued an interim final rule that would impose a
special assessment on all insured deposits as of June 30, 2009, which would be
collected on September 30, 2009.
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, 2008, 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, 2008, the Company’s internal control over financial reporting
was effective based on the criteria established in Internal Control—Integrated
Framework.
Our
internal control over financial reporting as of December 31, 2008 has been
audited by Grant Thornton LLP, an independent registered public accounting firm,
as stated in their report which is included herein.
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, 2008, 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,
2008, 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 2008 consolidated financial statements of
United Financial Bancorp, Inc. and subsidiary and our report dated March 11,
2009 expressed an unqualified opinion thereon.
/s/ Grant
Thornton LLP
Boston,
Massachusetts
March 11,
2009
|
(d)
|
Changes
to internal controls
|
There
were no significant changes made in our internal controls over financial
reporting that occurred during the quarter ended December 31, 2008 that could
materially affect, or are reasonably likely to materially affect, our internal
control over financial reporting.
ITEM
9B.
OTHER INFORMATION
Not
Applicable.
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 2009 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 2009
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
2009 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 2009 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 2009 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 on Financial
Statements
|
|
(B)
|
Consolidated
Balance Sheets - at December 31, 2008 and
2007
|
|
(C)
|
Consolidated
Statements of Earnings - Years Ended December 31, 2008, 2007 and
2006
|
|
(D)
|
Consolidated
Statements of Stockholders’ Equity and Comprehensive Income - Years Ended
December 31, 2008, 2007 and 2006
|
|
(E)
|
Consolidated
Statements of Cash Flows - Years ended December 31, 2008, 2007 and
2006
|
|
(F)
|
Notes
to Consolidated Financial
Statements.
|
(a)(2) Financial Statement
Schedules
None.
(a)(3)
None.
(b) Exhibits
– set forth below
(c) Not
applicable
Exhibits
3.1
|
Articles
of Incorporation of United Financial Bancorp, Inc. (1)
|
3.2
|
Amended
and Restated Bylaws of United Financial Bancorp, Inc.
|
4
|
Form
of Common Stock Certificate of United Financial Bancorp, Inc.
(1)
|
10.1
|
Form
of Employee Stock Ownership Plan (2)
|
10.2
|
Employment
Agreement by and between United Bank and Richard B. Collins
(3)
|
10.3
|
Change
in Control Agreement by and between United Bank and Keith E. Harvey
(3)
|
10.4
|
Change
in Control Agreement by and between United Bank and J. Jeffrey Sullivan
(3)
|
10.5
|
Change
in Control Agreement by and between United Bank and Mark A. Roberts
(3)
|
10.6
|
United
Bank 2007 Supplemental Retirement Plan for Senior Executives
(3)
|
10.7
|
Split
Dollar Life Insurance Agreement by and between United Bank and Richard B.
Collins (4)
|
10.8
|
Split
Dollar Life Insurance Agreement by and between United Bank and Keith E.
Harvey (4)
|
10.9
|
Split
Dollar Life Insurance Agreement by and between United Bank and John J.
Patterson (4)
|
10.10
|
United
Bank 2006 Stock-Based Incentive Plan (5)
|
10.11
|
United
Bank 2008 Annual Incentive Plan
|
10.12
|
United
Bank 2007 Director Retirement Plan (6)
|
10.13
|
Directors
Fee Continuation Plan (2)
|
10.14
|
Deferred
Income Agreement by and between United Bank and Donald G. Helliwell
(2)
|
10.15
|
Deferred
Income Agreement by and between United Bank and Robert W. Bozenhard, Jr.
(2)
|
10.16
|
Deferred
Income Agreement by and between United Bank and George W. Jones
(2)
|
10.17
|
United
Financial Bancorp, Inc. 2008 Equity Incentive Plan (7)
|
11
|
Statement
Regarding Computation of Per Share Earnings (refer to Note I of Part
I,
|
|
Item
1- Consolidated Financial Statements)
|
21
|
Subsidiaries
of Registrant (1)
|
23
|
Consent
of Independent Registered Public Accounting Firm
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
32
|
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 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.
|
(3)
|
Incorporated
by reference to the Form 8-K of United Financial Bancorp, Inc. filed with
the Securities and Exchange Commission on November 29,
2007.
|
(4)
|
Incorporated
by reference to the Form 8-K of United Financial Bancorp, Inc. filed with
the Securities and Exchange Commission on January 2,
2008.
|
(5)
|
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.
|
(6)
|
Incorporated
by reference to the Form 8-K of United Financial Bancorp, Inc. filed with
the Securities and Exchange Commission on November 21,
2007.
|
(7)
|
Incorporated
by reference to Appendix A of the Company's Definitive Proxy Statement for
the 2008 Annual Meeting of Stockholders (File No. 000-52947), as filed
with the SEC on April 29, 2008).
|
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 13, 2009
|
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
13, 2009
|
Richard
B. Collins
|
|
President
and Chairman (Principal Executive Officer)
|
|
|
|
|
|
|
|
/s/
Mark A. Roberts
|
|
Executive
Vice President and
|
|
March
13, 2009
|
Mark
A. Roberts
|
|
Chief
Financial Officer (Principal Financial and Accounting
Officer)
|
|
|
|
|
|
|
|
/s/
Michael F. Crowley
|
|
Director
|
|
March
13, 2009
|
Michael
F. Crowley
|
|
|
|
|
|
|
|
|
|
/s/
Carol Moore Cutting
|
|
Director
|
|
March
13, 2009
|
Carol
Moore Cutting
|
|
|
|
|
|
|
|
|
|
/s/
Carol A. Leary
|
|
Director
|
|
March
13, 2009
|
Carol
A. Leary
|
|
|
|
|
|
|
|
|
|
/s/
G. Todd Marchant
|
|
Director
|
|
March
13, 2009
|
G.
Todd Marchant
|
|
|
|
|
|
|
|
|
|
/s/
Kevin E. Ross
|
|
Director
|
|
March
13, 2009
|
Kevin
E. Ross
|
|
|
|
|
|
|
|
|
|
/s/
Robert A. Stewart, Jr.
|
|
Director
|
|
March
13, 2009
|
Robert
A. Stewart, Jr.
|
|
|
|
|
|
|
|
|
|
/s/
Thomas H. Themistos
|
|
Director
|
|
March
13, 2009
|
Thomas
H. Themistos
|
|
|
|
|
|
|
|
|
|
/s/
Michael F. Werenski
|
|
Director
|
|
March
13, 2009
|
Michael
F. Werenski
|
|
|
|
|
74