Edgar Filing: United Financial Bancorp, Inc.

form10q-94878_ubnk.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X]	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 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 Number 000-52947

United Financial Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Maryland	74-3242562
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

95 Elm Street, West Springfield, Massachusetts 01089

(Address of principal executive offices)

Registrant's telephone number, including area code: (413) 787-1700

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨.

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨

Accelerated filer x

Non-accelerated filer ¨

Smaller reporting company ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x.

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

Common stock, $0.01 par value

17,707,580 shares outstanding as of November 7, 2008

United Financial Bancorp, Inc.

INDEX
		Page

PART I. FINANCIAL INFORMATION

Item 1	Consolidated Financial Statements (unaudited)

	Consolidated Statements of Condition September 30, 2008 and December 31, 2007	1

	Consolidated Statements of Earnings Three Months and Nine Months Ended September 30, 2008 and 2007	2

	Consolidated Statements of Stockholders’ Equity and Comprehensive Income Nine Months Ended September 30, 2008 and 2007	3

	Consolidated Statements of Cash Flows Nine Months Ended September 30, 2008 and 2007	4

	Notes to Unaudited Consolidated Financial Statements	5

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4	Controls and Procedures	31

PART II. OTHER INFORMATION

Item 1	Legal Proceedings	31

Item 1A	Risk Factors	31

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3	Defaults Upon Senior Securities	32

Item 4.	Submission of Matters to a Vote of Security Holders	32

Item 5.	Other Information	32

Item 6	Exhibits	33


SIGNATURES		34

Index


Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	35

Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	36

Exhibit 32.1	Statement of Chief Executive Officer Furnished Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	37

Exhibit 32.2	Statement of Chief Financial Officer Furnished Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	38

Index

PART I.

FINANCIAL INFORMATION

ITEM 1.

Consolidated Financial Statements

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CONDITION

(Dollars in thousands, except per share amounts)

	September 30,			December 31,
	2008			2007
	(unaudited)
ASSETS

Cash and due from banks	$	11,242		$	14,219
Interest-bearing deposits		1,802			35
Total cash and cash equivalents		13,044			14,254

Short-term investments		1,063			1,030
Securities available for sale, at fair value		312,422			201,257
Securities to be held to maturity, at amortized cost (fair value $3,236 at
September 30, 2008 and $3,631 at December 31, 2007)		3,242			3,632
Loans, net of allowance for loan losses of $8,385 at September 30, 2008
and $7,714 at December 31, 2007		857,196			819,117
Other real estate owned		330			880
Accrued interest receivable		4,865			4,477
Deferred tax asset, net		8,809			4,953
Stock in the Federal Home Loan Bank of Boston		12,223			10,257
Banking premises and equipment, net		12,323			10,600
Bank-owned life insurance		6,960			6,652
Other assets		2,613			2,172
TOTAL ASSETS	$	1,235,090		$	1,079,281

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Deposits:
Interest-bearing	$	653,858		$	616,672
Non-interest-bearing		107,029			102,010
Total deposits		760,887			718,682
Federal Home Loan Bank of Boston advances		226,130			107,997
Repurchase agreements		11,365			13,864
Escrow funds held for borrowers		1,809			1,356
Capitalized lease obligations		3,149			1,890
Accrued expenses and other liabilities		7,031			9,372
Total liabilities		1,010,371			853,161

Stockholders’ equity:
Preferred stock, par value $0.01 per share, authorized 50,000,000 shares;
none issued		-			-
Common stock, par value $0.01 per share, authorized 100,000,000 shares;
17,763,747 shares issued at September 30, 2008 and December 31, 2007		178			178
Paid-in capital		163,676			165,920
Retained earnings		76,070			73,026
Unearned compensation		(12,311	)		(12,835	)
Treasury stock, at cost (56,167 shares at September 30, 2008)		(668	)		-
Accumulated other comprehensive loss, net of taxes		(2,226	)		(169	)
Total stockholders’ equity		224,719			226,120
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,235,090		$	1,079,281

See notes to unaudited consolidated financial statements

Index

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(Dollars in thousands, except per share amounts)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2008		2007			2008		2007
Interest and dividend income:
Loans	$	12,835	$	12,712		$	37,676	$	37,017
Investments		3,886		2,017			10,064		5,849
Other interest-earning assets		90		247			450		935
Total interest and dividend income		16,811		14,976			48,190		43,801

Interest expense:
Deposits		4,217		5,672			13,549		16,330
Borrowings		2,058		2,051			5,166		6,127
Total interest expense		6,275		7,723			18,715		22,457

Net interest income before provision for loan losses		10,536		7,253			29,475		21,344

Provision for loan losses		644		436			1,479		1,040

Net interest income after provision for loan losses		9,892		6,817			27,996		20,304

Non-interest income:
Fee income on depositors’ accounts		1,219		1,105			3,452		3,240
Net (loss) gain on sale of securities		-		(141	)		8		(170	)
Wealth management income		313		200			599		491
Other income		201		248			767		684
Total non-interest income		1,733		1,412			4,826		4,245

Non-interest expense:
Salaries and benefits		4,523		3,546			12,763		11,119
Occupancy expenses		636		469			1,723		1,441
Marketing expenses		302		277			1,101		1,048
Data processing expenses		804		711			2,338		2,006
Professional fees		321		220			1,136		872
Other expenses		1,220		908			3,471		2,867
Total non-interest expense		7,806		6,131			22,532		19,353

Income before income taxes		3,819		2,098			10,290		5,196

Income tax expense		1,455		807			3,951		2,093

Net income	$	2,364	$	1,291		$	6,339	$	3,103

Earnings per share:
Basic	$	0.15	$	0.08		$	0.39	$	0.18
Diluted	$	0.15	$	0.08		$	0.39	$	0.18

Weighted average shares outstanding:
Basic		15,864,275		16,930,395			16,098,521		16,922,830
Diluted		15,955,570		16,989,353			16,141,326		16,986,250

See notes to unaudited consolidated financial statements.

Index

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND

COMPREHENSIVE INCOME (unaudited)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 and 2007

(Dollars in thousands, except per share amounts)

																		Accumulated
	Common																	Other
	Shares			Common		Paid-In			Retained			Unearned			Treasury			Comprehensive
	Outstanding			Stock		Capital			Earnings			Compensation			Stock			Income (Loss)			Total

Balances at December 31, 2006		17,154,550		$	172	$	75,520		$	70,406		$	(5,772	)	$	(664	)	$	(1,951	)	$	137,711

Net income		-			-		-			3,103			-			-			-			3,103
Other comprehensive income		-			-		-			-			-			-			1,063			1,063
Total comprehensive income																						4,166

Cash dividends paid ($0.18 per share)		-			-		-			(1,319	)		-			-			-			(1,319	)
Treasury stock purchases		(86,390	)		-		-			-			-			(1,250	)		-			(1,250	)
Stock-based compensation		-			-		1,476			-			-			-			-			1,476
ESOP shares committed to be released		-			-		131			-			333			-			-			464

Balances at September 30, 2007		17,068,160		$	172	$	77,127		$	72,190		$	(5,439	)	$	(1,914	)	$	(888	)	$	141,248

Balances at December 31, 2007		17,763,747		$	178	$	165,920		$	73,026		$	(12,835	)	$	-		$	(169	)	$	226,120

Net income		-			-		-			6,339			-			-			-			6,339
Other comprehensive loss		-			-		-			-			-			-			(2,057	)		(2,057	)
Total comprehensive income																						4,282

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		313,500			-		(3,697	)		-			-			3,697			-			-
Cash dividends paid ($0.20 per share)		-			-		-			(3,295	)		-			-			-			(3,295	)
Stock-based compensation		-			-		1,380			-			-			-			-			1,380
ESOP shares committed to be released		-			-		99			-			524			-			-			623

Balances at September 30, 2008		17,707,580		$	178	$	163,676		$	76,070		$	(12,311	)	$	(668	)	$	(2,226	)	$	224,719

The components of other comprehensive income (loss) and related tax effects are as follows:

	Nine Months Ended September 30,
	2008			2007

Change in unrealized holding (losses) gains on available-for-sale securities	$	(3,415	)	$	1,591
Reclassification adjustment for (gains) losses realized in income		(8	)		170
Net change in unrealized (losses) gains		(3,423	)		1,761

Tax effect		(1,366	)		698

Other comprehensive (loss) income	$	(2,057	)	$	1,063

See notes to unaudited consolidated financial statements.

Index

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 and 2007

(Dollars in thousands)

	2008			2007
Cash flows from operating activities:
Net income	$	6,339		$	3,103
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,479			1,040
ESOP expense		623			464
Stock-based compensation		1,380			1,476
Amortization of premiums and discounts		138			83
Depreciation and amortization		652			638
Amortization of intangible assets		23			23
Net loss (gain) on sale of other real estate owned		45			(14	)
Net (gain) loss on sale of securities		(8	)		170
Net loss on sale of loans		-			5
Increase in cash surrender value of bank-owned life insurance		(308	)		(291	)
Increase in accrued interest receivable		(388	)		(332	)
Increase in other assets		(2,954	)		(1,023	)
Decrease in accrued expenses and other liabilities		(2,237	)		(475	)
Net cash provided by operating activities		4,784			4,867
Cash flows from investing activities:
Purchases of securities available for sale		(203,411	)		(65,230	)
Proceeds from sales of securities available for sale		30,274			14,449
Proceeds from maturities, calls and principal repayments of securities available for sale		58,425			58,671
Purchases of securities held to maturity		-			(675	)
Proceeds from maturities, calls and principal repayments of securities held to maturity		385			225
Investment in short term time deposits		(33	)		(1,017	)
Purchases of Federal Home Loan Bank of Boston stock		(1,966	)		(611	)
Proceeds from sales of other real estate owned		655			576
Net loan originations and principal repayments		(39,708	)		(55,755	)
Proceeds from sales of loans		-			1,898
Purchases of property and equipment		(1,059	)		(441	)
Cash paid to acquire Levine Financial Group		-			(55	)
Net cash used in investing activities		(156,438	)		(47,965	)
Cash flows from financing activities:
Net increase in deposits		42,205			37,432
Increase in short-term borrowings from Federal Home Loan Bank of Boston		52,145			32,000
Proceeds of Federal Home Loan Bank of Boston long-term advances		85,000			20,000
Repayments of Federal Home Loan Bank of Boston long-term advances		(19,012	)		(37,954	)
Net decrease in repurchase agreements		(2,499	)		(2,906	)
Net increase in escrow funds held for borrowers		453			289
Repurchases of common stock to fund the 2008 Equity Incentive Plan		(3,697	)		-
Treasury stock purchases		(668	)		(1,250	)
Cash dividends paid		(3,295	)		(1,319	)
Costs from issuance of common stock pursuant to second-step conversion		(26	)		-
Payments on capitalized lease obligations		(162	)		(122	)
Net cash provided by financing activities		150,444			46,170
(Decrease) increase in cash and cash equivalents		(1,210	)		3,072
Cash and cash equivalents at beginning of period		14,254			25,419
Cash and cash equivalents at end of period	$	13,044		$	28,491


Supplemental Disclosure of Cash Flow Information:
Cash paid during the period:
Interest on deposits, borrowings and other interest bearing liabilities	$	18,531		$	22,418
Income taxes – net		9,676			2,463
Non-cash items:
Capitalized lease asset and obligations	$	1,308		$	1,932
Transfer of loans to other real estate owned		150			880

See notes to unaudited consolidated financial statements.

Index

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008

Dollars in Thousands (except per share amounts)

NOTE A – BASIS OF PRESENTATION

The consolidated financial statements include the accounts of United Financial Bancorp, Inc. and its wholly owned subsidiary, United Bank. The consolidated financial statements also include the accounts of United Bank’s wholly owned subsidiary, UCB Securities, Inc., which is engaged in buying, selling and holding investment securities. These entities are collectively referred to herein as “the Company.” All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with general practices within the banking industry. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which are necessary for the fair presentation of the Company’s financial condition as of September 30, 2008 and the results of operations for the three and nine months ended September 30, 2008 and 2007. The interim results of operations presented herein are not necessarily indicative of the results to be expected for the entire year. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2007 included in the Company’s Annual Report on Form 10-K, which was filed by the Company with the Securities and Exchange Commission on March 17, 2008 and amended on April 29, 2008.

Amounts reported for prior periods are reclassified as necessary to conform to the current period presentation.

NOTE B – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2006, the 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 L). The adoption of this Standard had no material effect on the Company’s results of operations or financial condition.

Index

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.

NOTE C – CRITICAL ACCOUNTING POLICIES

In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the balance sheet as well as revenues and expenses for the reporting period. Actual results could differ from these estimates.

The allowance for loan losses is a critical accounting estimate because it is highly susceptible to change from period to period. Arriving at an appropriate level for the allowance for loan losses necessarily involves a high degree of judgment. While management uses available information to recognize losses on loans, future additions to the allowance for loans may be necessary based on changes in the factors considered in evaluating the adequacy of the allowance, including prior loss experience, current economic conditions and their effect on borrowers, the character and size of the portfolio, trends in nonperforming loans and delinquency rates and the performance of individual loans in relation to contractual terms.

The assessment of whether a valuation allowance for the Company’s deferred tax assets is required is also a critical accounting estimate. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of such assets will not be realized. This assessment is made each reporting period based upon an estimate of future taxable income during the periods in which existing temporary differences become deductible.

Index

NOTE D – EARNINGS PER SHARE

Earnings per share have been computed in accordance with SFAS No. 128, “Earnings Per Share.” Basic earnings per share have been calculated by dividing net income by weighted average shares outstanding before any dilution and are adjusted to exclude the weighted average number of unallocated shares held by the ESOP and unvested restricted stock awards. Diluted earnings per share have been calculated by dividing net income by weighted average shares outstanding after giving effect to the potential dilution that could occur if potential common shares were converted into common stock using the treasury stock method.

The calculation of basic and diluted earnings per common share for the periods indicated is presented below.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Net income	$	2,364	$	1,291	$	6,339	$	3,103
Weighted average common shares applicable to
basic EPS (1, 4)		15,864,275		16,930,395		16,098,521		16,922,830
Effect of dilutive potential common shares (2, 3)		91,295		58,958		42,805		63,420
Weighted average common shares applicable to
diluted EPS		15,955,570		16,989,353		16,141,326		16,986,250

Earnings per share:
Basic	$	0.15	$	0.08	$	0.39	$	0.18
Diluted	$	0.15	$	0.08	$	0.39	$	0.18


(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 nine months ended September 30, 2008 and September 30, 2007, options to purchase 1,557,698 and 778,510 shares,
respectively, were outstanding but not included in the computation of earnings per share because they were antidilutive.
(3) Includes incremental shares related to stock options and restricted stock.
(4) Excludes shares repurchased in June 2008 through September 2008 to fund the 2008 Equity Incentive Plan.

Index

NOTE E – INVESTMENT SECURITIES

The amortized cost and fair values of securities classified as available for sale and held to maturity are as follows:

	Amortized		Unrealized
	Cost		Gain		Losses			Fair Value
Securities Available for Sale
September 30, 2008:
Debt Securities:
Government-sponsored enterprises	$	5,479	$	-	$	(159	)	$	5,320
Mortgage-backed securities		296,154		1,033		(1,960	)		295,227
Municipal bonds		10,599		-		(536	)		10,063
Corporate bonds		2,822		-		(1,010	)		1,812
Total securities available for sale	$	315,054	$	1,033	$	(3,665	)	$	312,422

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 securities available for sale	$	200,466	$	1,334	$	(543	)	$	201,257

	Amortized		Unrealized
	Cost		Gain		Losses			Fair Value
Securities Held to Maturity
September 30, 2008:
IRB	$	1,172	$	-	$	-		$	1,172
Municipal bonds		2,070		20		(26	)		2,064
Total	$	3,242	$	20	$	(26	)	$	3,236

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 enterprises.

Management has evaluated the securities in the preceding tables and concluded that none of these securities have experienced impairments that are other-than temporary. In its evaluation, management considered the type of security, the length of time the security was in a continuous loss position, the size of the security’s loss position relative to its amortized cost, the issuer’s and underlying entities credit rating and outlook, the bond’s payment status, the issuer’s financial condition and the Company’s ability and intent to hold the security until forecasted maturity or recovery date.

Index

The Company’s mortgage-backed securities portfolio had a net unrealized loss of $927,000, or 0.3% of amortized cost, at September 30, 2008. Management believes that the unrealized losses on these bonds are due to a significant widening in spreads in connection with current market conditions. All of the Company’s mortgage-backed securities are issued by government-owned or sponsored enterprises. Management anticipates that these conditions will not affect the expected cash flows of the underlying issuer and expects to collect all amounts due according to the contractual terms. The Company has the ability and intent to hold these securities until forecasted maturity or recovery date given its strong liquidity and capital positions and, accordingly, no declines are deemed to be other than temporary.

At September 30, 2008, the Company’s municipal bond portfolio had a net unrealized loss of $536,000, or 5.1% of amortized cost. Management believes that these unrealized losses are primarily due to the current credit and liquidity crises, which have led to a significant widening in spreads. Management believes that these market conditions will not affect the expected cash flows of the issuer. All of the Company’s municipal bonds are rated upper medium grade or higher by one of the rating agencies, with the exception of two securities, and continue to perform in accordance with contractual terms. Although conditions in the insurance market have deteriorated, management also considers the underlying guarantee of its municipal bonds based upon the insurer’s rating and current financial condition. Because the Company has the ability and intent to hold these securities to the forecasted maturity or recovery date and expects to collect all amounts due according to the contractual terms, no declines are deemed to be other than temporary.

The Company’s variable rate trust preferred securities portfolio has an unrealized loss of $1.0 million, equal to 35.8% of amortized cost, at September 30, 2008. The Company holds two securities issued by large national banks, both of which have high-grade credit ratings and strong financial positions. The Company also holds a pooled trust preferred security with a stable credit rating of Aa2. The pool is well diversified geographically and the largest single issuer within the pool represents less than 4% of total holdings. The Company owns the AA tranche, which maintains significant coverage for principal defaults and temporary interest shortfalls. All of the Company’s trust preferred securities continue to perform according to contractual terms. Management believes that these unrealized losses are primarily due to current market conditions which have led to distressed-sale pricing and a significant widening in spreads to LIBOR. Management believes that these market conditions will not affect the expected cash flows of the underlying issuers and expects to collect all amounts due according to the contractual terms. Because the Company has the ability and intent to hold these securities to the forecasted maturity or recovery date due to its strong liquidity and capital positions and expects to collect all amounts due according to the contractual terms, no declines are deemed to be other than temporary.

Index

NOTE F – LOANS

The components of loans were as follows at September 30, 2008 and December 31, 2007:

	September 30,			December 31,
	2008			2007

Residential mortgages	$	357,967		$	339,470
Commercial real estate		236,010			214,776
Construction		34,499			42,059
Home equity		121,166			116,241
Commercial and industrial		84,612			81,562
Automobile		18,809			22,461
Consumer		10,136			8,126
Total loans		863,199			824,695

Net deferred loan costs and fees		2,382			2,136
Allowance for loan losses		(8,385	)		(7,714	)
Loans, net	$	857,196		$	819,117

NOTE G – NON-PERFORMING ASSETS

The table below sets forth the amounts and categories of non-performing assets at September 30, 2008 and December 31, 2007:

	September 30,			December 31,
	2008			2007

Non-accrual loans:
Residential mortgages	$	1,231		$	328
Commercial mortgages		872			553
Construction		586			577
Home equity		75			52
Commercial and industrial		531			275
Automobile		-			-
Other consumer		-			-
Total non-accrual loans		3,295			1,785

Accruing loans 90 days or more past due		-			-

Total non-performing loans		3,295			1,785

Other real estate owned		330			880
Total non-performing assets	$	3,625		$	2,665

Ratios:
Total non-performing loans to total loans		0.38	%		0.22	%
Total non-performing assets to total assets		0.29	%		0.25	%

Index

NOTE H – ALLOWANCE FOR LOAN LOSSES

A summary of the activity in the allowance for loan losses is as follows:

	For the Nine Months Ended September 30,
	2008			2007


Balance at beginning of period	$	7,714		$	7,218
Provision for loan losses		1,479			1,040
Charge-offs		(832	)		(654	)
Recoveries		24			8
Balance at end of period	$	8,385		$	7,612

Ratios:
Net charge-offs to average loans
outstanding (annualized)		0.13	%		0.11	%
Allowance for loan losses to non-performing
loans at end of period		254.48	%		755.16	%
Allowance for loan losses to total
loans at end of period		0.97	%		0.93	%

NOTE I – COMMITMENTS

Financial instruments with off-balance sheet risk at September 30, 2008 and December 31, 2007 were as follows:


	September 30,		December 31,
	2008		2007

Unused lines of credit	$	150,716	$	146,579
Amounts due mortgagors		19,065		31,168
Standby letters of credit		932		1,627
Commitments to originate loans		15,883		15,890

NOTE J – DEPOSITS

Deposit accounts, by type, are summarized as follows at September 30, 2008 and December 31, 2007:

	September 30,		December 31,
	2008		2007

Demand	$	107,029	$	102,010
NOW		34,965		35,207
Savings		96,884		65,711
Money market		159,663		168,107
Certificates of deposit		362,346		347,647
	$	760,887	$	718,682

Index

NOTE K – CONTINGENCIES

The Company is a defendant in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

NOTE L - FAIR VALUES OF ASSETS AND LIABILITIES

Effective January 1, 2008, the Company adopted SFAS No. 157, which provides a framework for measuring fair value under generally accepted accounting principles.

The Company also adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115”. SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. The Company did not elect fair value treatment for any financial assets or liabilities upon adoption.

In accordance with SFAS 157, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value, as follows:

Level 1 – Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 1 also includes U.S. Treasury, other U.S. government and government-sponsored enterprises and agency mortgage-backed securities that are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities.

Level 3 – Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities.

Assets measured at fair value on a recurring basis, are summarized below:

	At September 30, 2008

	Level 1		Level 2		Level 3		Total Fair Value

Securities available for sale	$	5,320	$	305,290	$	1,812	$	312,422
Mortgage servicing rights		-		-		126		126
Total	$	5,320	$	305,290	$	1,938	$	312,548

The Company has no liabilities measured at fair value on a recurring basis at September 30, 2008.

Index

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
Total realized/unrealized losses included in net income		(10	)
Change in unrealized loss		(966	)
Purchases, sales, issuances and settlements		-
Transfers in and out of Level 3		2,778
Balance as of September 30, 2008	$	1,938

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 individual asset for the three and nine months ended September 30, 2008.

							Three Months Ended			Nine Months Ended
							September 30,			September 30,
							2008			2008
	At September 30, 2008						Total			Total
	Level 1		Level 2		Level 3		Gains/(Losses)			Gains/(Losses)
Assets:
Loans	$	-	$	3,533	$	-	$	(62	)	$	(112	)

Total assets	$	-	$	3,533	$	-	$	(62	)	$	(112	)

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.

NOTE M - INCOME TAXES

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 accordance with FASB Interpretation (FIN) No. 48 “Accounting for Uncertainty in Income Taxes”, the Company determined in the first quarter of 2008 that a portion of the deferred tax liability related to the mark-to-market temporary difference for residential mortgage loans should be reclassified as an uncertain tax position. This reclassification from the Company’s previously recorded deferred tax liability account amounted to $2.2 million and was required as, in management’s judgment, it was no longer more likely than not that the related tax deduction would be treated as currently deductible by the IRS upon resolution of the examination. This reclassification had no impact on the reported results of operations for the quarter ended March 31, 2008. At December 31, 2007 the Company determined that it had no uncertain tax positions.

Index

In connection with the IRS examination, the Company remitted a $1.6 million tax payment in the first quarter of 2008 to suspend the potential accrual of additional interest that may result upon ultimate resolution of the fair market value measurement issue under examination. The Company also recorded an interest accrual of $168,000 associated with the proposed adjustments. The Company reports interest and penalties associated with tax obligations in other non-interest expense.

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 has a tax deficiency of $994,000 and related interest due of $76,000. During the second quarter of 2008, the Company reversed $92,000 of the interest accrual amount established in the first quarter of 2008. In conjunction with the settlement, the Company amended its calculation of the fair market value of its residential mortgage portfolio beginning with the 2007 tax year.

Index

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

From time to time, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements provided that the Company notes that a variety of factors could cause the Company’s actual results to differ materially from the anticipated results expressed in the Company’s forward-looking statements. Factors that may cause actual results to differ materially from those projected in the forward-looking statements include, but are not limited to, general economic conditions that are less favorable than expected, changes in market interest rates that result in reduced interest margins, risks in the loan portfolio, including prepayments that are greater than expected, the enactment of legislation or regulatory changes that have a less than favorable impact on the business of the Company, and significant increases in competitive pressures. Forward-looking statements speak only as of the date they are made and the Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date of the forward-looking statements or to reflect the occurrence of unanticipated events. Accordingly, past results and trends should not be used by investors to anticipate future results or trends.

Comparison of Financial Condition at September 30, 2008 and December 31, 2007

Total assets increased $155.8 million, or 14.4%, to $1.2 billion at September 30, 2008 from $1.1 billion at December 31, 2007 reflecting growth in securities available for sale and loans, funded by increases in both deposits ($42.2 million) and Federal Home Loan Bank advances ($118.1 million). Securities available for sale increased $111.2 million, or 55.2%, to $312.4 million at September 30, 2008 from $201.3 million at December 31, 2007, due to purchases of debt securities available for sale totaling $203.4 million, partially offset by sales, calls and maturities of certain debt securities and repayments of mortgage-backed securities. The significant increase in securities available for sale was due to the implementation of a strategy to deploy excess capital. During the first nine months of 2008, management purchased agency mortgage-backed securities with predictable cash flows and attractive spreads to U.S. Treasury securities. Total loans increased $38.5 million, or 4.7%, to $863.2 million at September 30, 2008 from $824.7 million at December 31, 2007 reflecting growth in the commercial real estate (9.9%), residential real estate (5.5%), home equity (4.2%) and commercial (3.7%) portfolios as a result of business development efforts and competitive products and pricing. Construction loan balances declined $7.6 million, or 18.0%, to $34.5 million at September 30, 2008 as a result of pay-downs and a slow-down in the underlying market.

Total deposits increased $42.2 million, or 5.9%, to $760.9 million at September 30, 2008 compared to $718.7 million at December 31, 2007 mainly due to competitive products and pricing, excellent customer service, targeted promotional activities and the opening of two new branches in 2008. Core deposit balances grew $27.5 million, or 7.4%, to $398.5 million at September 30, 2008 from $371.0 million at December 31, 2007.

Index

Total stockholders’ equity decreased $1.4 million, or 0.6%, to $224.7 million at September 30, 2008 from $226.1 million at December 31, 2007 as a result of repurchases of our common stock totaling $4.2 million to fund restricted stock awards granted under the 2008 Equity Incentive Plan, cash dividend payments amounting to $3.3 million and an increase of $2.1 million in net unrealized losses on securities available for sale. These decreases were partially offset by net income of $6.3 million for the nine months ended September 30, 2008, stock-based compensation totaling $1.4 million and ESOP compensation expense of $623,000.

Credit Quality

The Company actively manages credit quality through its underwriting practices and collection operations and it does not offer nor has it historically offered residential mortgage loans to subprime or Alt-A borrowers. Non-performing assets totaled $3.6 million, or 0.29% of total assets, at September 30, 2008 compared to $2.7 million, or 0.25% of total assets, at December 31, 2007. Net loan charge-offs increased $162,000, or 25.1%, to $808,000 for the nine months ended September 30, 2008 compared to $646,000 in the same period of 2007. Commercial and industrial loan net charge-offs represented $424,000 or 52.5%, of the overall net charge-offs, primarily related to three relationships.

Delinquent Loans. The following table sets forth our loan delinquencies by type and by 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 September 30, 2008
Residential mortgages		13	$	1,494		6	$	1,231		19	$	2,725
Commercial mortgage		7		1,333		12		872		19		2,205
Construction		-		-		4		586		4		586
Home equity		-		-		1		75		1		75
Commercial and industrial		8		494		14		531		22		1,025
Automobile		1		7		-		-		1		7
Other consumer		3		215		-		-		3		215
Total		32	$	3,543		37	$	3,295		69	$	6,838

At December 31, 2007
Residential mortgages		1	$	558		4	$	328		5	$	886
Commercial mortgage		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

Index

Classified Assets. The following table shows the aggregate amount of our classified assets at the date indicated for both loans and foreclosed assets. The amount of residential real estate loans classified as “substandard” in the table includes two owner-occupied mortgage loans classified due to the commercial lending relationships. These loans are current in their payments. All other loans include $8.9 million in condominium construction loans, all of which are current in payments.

	At September 30,			At December 31,
	2008			2007
	(In thousands)
Residential Real Estate (1):
Special mention	$	382		$	-
Substandard		1,931	(2)		1,278
All Other Loans (3):
Special mention		16,956			13,800
Substandard		20,169			19,377
Doubtful		858			244
Loss		-			-

Foreclosed Assets:
Other real estate owned		330			880
Total classified assets	$	40,626		$	35,579


(1) Includes one-to-four family loans and home equity loans and lines of credit.
(2) Includes eight residential relationships, five of which are in foreclosure or liquidation proceedings.
(3) Includes $11.2 million of construction loans for single family or condominium contruction.

Comparison of Operating Results for the Three Months Ended September 30, 2008 and 2007

Overview

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income earned on interest-earning assets, consisting primarily of loans, investment securities and other interest-earning assets, and the interest paid on interest-bearing liabilities, consisting primarily of deposits and Federal Home Loan Bank advances.

Our results of operations also are affected by provisions for loan losses, non-interest income and non-interest expense. Non-interest income consists primarily of deposit account fees, wealth management fees, increases in the cash surrender value of bank-owned life insurance and miscellaneous other income. Non-interest expense consists primarily of compensation and employee benefits, data processing, occupancy, marketing and public relations, professional services, postage, printing, office supplies, and other operating expenses. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

Net Income. The Company’s net income was $2.4 million, or $0.15 per diluted share, for the third quarter of 2008 compared to net income of $1.3 million, or $0.08 per diluted share, for the same period in 2007. The Company’s improved results were largely due to a significant increase in net interest income, driven by an increase in net interest margin of 65 basis points and growth in average earning assets largely funded by net cash proceeds of $82.7 million from the Company’s December 2007 second-step stock offering. The quarterly operating performance was also favorably affected by an increase in fee income from deposit and wealth management accounts, partially offset by higher provision for loan losses and an increase in non-interest expenses.

Index

Average balances and yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield.

	Three Months Ended September 30,
	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	$	361,428	$	5,151		5.70	%	$	346,357	$	4,910		5.67	%
Commercial real estate		268,026		4,235		6.32	%		238,013		3,963		6.66	%
Home equity		120,793		1,704		5.64	%		118,604		1,966		6.63	%
Commercial and industrial		84,595		1,312		6.20	%		78,659		1,460		7.42	%
Consumer and other		30,211		433		5.73	%		31,123		413		5.31	%
Total loans		865,053		12,835		5.93	%		812,756		12,712		6.26	%
Investment securities		306,499		3,886		5.07	%		168,498		2,017		4.79	%
Other interest-earning assets		13,692		90		2.63	%		17,082		247		5.78	%
Total interest-earning assets		1,185,244		16,811		5.67	%		998,336		14,976		6.00	%
Noninterest-earning assets		40,006							33,889
Total assets	$	1,225,250						$	1,032,225

Interest-bearing liabilities:
Savings accounts	$	92,919		300		1.29	%	$	62,005		139		0.90	%
Money market accounts		166,772		773		1.85	%		180,563		1,462		3.24	%
NOW accounts		33,208		45		0.54	%		34,070		46		0.54	%
Certificates of deposit		363,886		3,099		3.41	%		342,573		4,025		4.70	%
Total interest-bearing deposits		656,785		4,217		2.57	%		619,211		5,672		3.66	%
FHLB advances		214,005		1,959		3.66	%		156,150		1,914		4.90	%
Other interest-bearing liabilities		12,461		99		3.18	%		12,434		137		4.41	%
Total interest-bearing liabilities		883,251		6,275		2.84	%		787,795		7,723		3.92	%
Demand deposits		109,013							101,119
Other noninterest-bearing liabilities		8,971							3,491
Total liabilities		1,001,235							892,405
Stockholders' equity		224,015							139,820
Total liabilities and stockholders' equity	$	1,225,250						$	1,032,225

Net interest income			$	10,536						$	7,253
Interest rate spread(1)						2.83	%						2.08	%
Net interest-earning assets(2)	$	301,993						$	210,541
Net interest margin(3)						3.56	%						2.91	%
Average interest-earning assets to
average interest-bearing liabilities						134.19	%						126.73	%

(1)

Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(2)

Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(3)

Net interest margin represents annualized net interest income divided by average total interest-earning assets.

Index

Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.

	Three Months Ended September 30,
	2008 vs. 2007
	Increase (Decrease) Due to
	Volume			Rate			Net
	(In thousands)

Interest-earning assets:
Loans:
Residential real estate	$	215		$	26		$	241
Commercial real estate		481			(209	)		272
Home equity		35			(297	)		(262	)
Commercial and industrial		104			(252	)		(148	)
Consumer and other		(12	)		32			20
Total loans		823			(700	)		123
Investment securities		1,743			126			1,869
Other interest-earning assets		(42	)		(115	)		(157	)
Total interest-earning assets		2,524			(689	)		1,835

Interest-bearing liabilities:
Savings accounts		85			76			161
Money market accounts		(105	)		(584	)		(689	)
NOW accounts		(1	)		-			(1	)
Certificates of deposit		237			(1,163	)		(926	)
Total interest-bearing deposits		216			(1,671	)		(1,455	)
FHLB advances		602			(557	)		45
Other interest-bearing liabilities		-			(38	)		(38	)
Total interest-bearing liabilities		818			(2,266	)		(1,448	)

Change in net interest income	$	1,706		$	1,577		$	3,283

Net Interest Income Before Provision for Loan Losses. Net interest income before provision for loan losses increased $3.3 million, or 45.3%, to $10.5 million for the three months ended September 30, 2008 from the same period in 2007 as a result of net interest margin expansion and growth in average earning assets. Net interest margin increased 65 basis points to 3.56% for the three-month period ended September 30, 2008 compared to 2.91% for the same period in 2007 due to the use of net proceeds from the Company’s second-step offering completed in December 2007 to fund asset growth as well as a significant decrease in the cost of deposits as a result of the 3.25% reduction in the federal funds rate from 5.25% at September 1, 2007 to 2.00% at September 30, 2008.

Index

Interest Income. Interest income increased $1.8 million, or 12.3%, to $16.8 million for the three months ended September 30, 2008 from $15.0 million for the prior year period, reflecting an increase in total average interest-earning asset balances, partially offset by a lower yield on average interest-earning assets. Total average interest-earning asset balances increased $186.9 million, or 18.7%, to $1.2 billion for the three months ended September 30, 2008 mainly due to loan growth and purchases of mortgage-backed securities. Total average loans increased $52.3 million, or 6.4%, to $865.1 million for the third quarter of 2008 as a result of solid origination activity, partially offset by scheduled amortization and prepayments of existing loans. Total average investment securities increased by $138.0 million, or 81.9%, to $306.5 million due to the purchases of bonds, partially offset by maturities, calls, sales and principal repayments of existing securities. The yield on average interest-earning assets decreased by 33 basis points to 5.67% for the third quarter of 2008 in connection with the lower interest rate environment. The decrease in market rates contributed to the downward repricing of a portion of the Company’s existing assets and to lower rates for new assets. Since a significant amount of the Company’s average interest-earning assets are fixed rate and the impact of Federal Reserve Board actions was less pronounced on the long end of the yield curve, the effect of the decrease in market rates was limited. The impact of the decrease in market rates was partially offset by the purchases of higher yielding mortgage backed securities.

Interest Expense. Interest expense decreased $1.4 million, or 18.8%, to $6.3 million for the three months ended September 30, 2008 from $7.7 million for the prior year period reflecting a decrease in the average rate paid on interest-bearing liabilities, partially offset by an increase in average interest-bearing liabilities. The average rate paid on interest-bearing liabilities declined 108 basis points to 2.84% for the three months ended September 30, 2008 reflecting the impact of lower market rates related to the interest rate decreases initiated by the Federal Reserve Board beginning in December 2007. Since a large portion of the Company’s interest-bearing liabilities are short-term, the impact of the decrease in market rates was significant. Average interest-bearing liabilities increased $95.5 million, or 12.1%, to $883.3 million for the three months ended September 30, 2008 from $787.8 million for the prior year period reflecting growth in interest-bearing deposits and FHLB advances. Total average interest-bearing deposits increased $37.6 million, or 6.1%, to $656.8 million for the third quarter of 2008 as compared to $619.2 million for the three months ended September 30, 2007, mainly attributable to an increase in savings account and certificate of deposit balances. Total average FHLB advances increased $57.9 million, or 37.1%, to $214.0 million to fund asset growth and to take advantage of the lower interest rates.

Provision for Loan Losses. The provision for loan losses increased $208,000 to $644,000 for the three months ended September 30, 2008 as compared to $436,000 for the same period in 2007 mainly resulting from an increase of $188,000 in the reserve for classified loans. The allowance for loan losses is based on management’s estimate of the probable losses inherent in the portfolio, considering the impact of certain factors. Among the factors management may consider are prior loss experience, current economic conditions and their effect on borrowers, the character and size of the portfolio, trends in nonperforming loans and delinquency rates and the performance of individual loans in relation to contractual terms. The provision for loan losses reflects adjustments to the allowance based on management’s review of the loan portfolio in light of those conditions. The allowance for loan losses was $8.4 million, or 0.97%, of loans outstanding at September 30, 2008.

Index

Non-interest Income. Non-interest income increased $321,000, or 22.7%, to $1.7 million for the three months ended September 30, 2008 from $1.4 million for the comparable period in 2007 due in large part to growth of $114,000, or 10.3%, in deposit account fees and $113,000, or 56.5%, from wealth management income, as well as a $141,000 loss on the sale of securities in the third quarter of 2007.

Non-interest Expense. Non-interest expense increased $1.7 million, or 27.3%, to $7.8 million for the three months ended September 30, 2008 from $6.1 million for the prior year period. Total salaries and benefits increased $977,000, or 27.6%, 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 cash incentive accrual associated with improved financial performance and annual wage increases. Occupancy costs expanded $167,000, or 35.6%, mainly due to new branches opened in 2008. Data processing expenses increased $93,000, or 13.1%, as a result of growth in the total number of loan and deposit accounts serviced, new branches opened in 2008 and costs for the branch imaging process introduced in all branches beginning in 2008. Professional services increased $101,000, or 45.9%, principally due to higher legal and consulting costs. Other expenses rose $312,000, or 34.4%, mainly in connection with higher quarterly Federal Deposit Insurance Corporation insurance premiums as a result of the expiration of the credit used to reduce the premium each quarter. Since June 2007, the Company’s insurance premiums have been substantially reduced by the special one-time credit, which was exhausted in June, 2008. Accordingly, the Company’s insurance premiums were substantially higher for the three months ended September 30, 2008.

Income Tax Expense. Income tax expense increased $648,000 to $1.5 million for three months ended September 30, 2008 from $807,000 for the comparable 2007 period as a result of an increase in taxable income. The effective tax rate of 38.1% in the third quarter of 2008 was essentially flat compared to the same period in 2007.

Comparison of Operating Results for the Nine Months Ended September 30, 2008 and 2007

Net Income. The Company’s net income for the nine months ended September 30, 2008 amounted to $6.3 million, or $0.39 per diluted share, compared to $3.1 million, or $0.18 per diluted share, for the same period in 2007. The Company’s higher net income and earnings per share were due in large part to net interest margin expansion, growth in average earning assets and an increase in non-interest income, partially offset by increases in the provision for loan losses and non-interest expenses.

Index

	Nine Months Ended September 30,
	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	$	355,655	$	14,999		5.62	%	$	341,355	$	14,465		5.65	%
Commercial real estate		258,309		12,266		6.33	%		233,394		11,564		6.61	%
Home equity loans		118,394		5,140		5.79	%		117,498		5,777		6.56	%
Commercial and industrial		83,406		4,002		6.40	%		73,157		4,041		7.36	%
Consumer and other		30,525		1,269		5.54	%		30,332		1,170		5.14	%
Total loans		846,289		37,676		5.94	%		795,736		37,017		6.20	%
Investment securities		269,097		10,064		4.99	%		171,575		5,849		4.55	%
Other interest-earning assets		16,017		450		3.75	%		22,393		935		5.57	%
Total interest-earning assets		1,131,403		48,190		5.68	%		989,704		43,801		5.90	%
Noninterest-earning assets		37,053							32,722
Total assets	$	1,168,456						$	1,022,426

Interest-bearing liabilities:
Savings accounts	$	80,979		701		1.15	%	$	64,066		427		0.89	%
Money market accounts		171,825		2,566		1.99	%		178,590		4,262		3.18	%
NOW accounts		32,824		130		0.53	%		34,386		137		0.53	%
Certificates of deposit		360,656		10,152		3.75	%		334,129		11,504		4.59	%
Total interest-bearing deposits		646,284		13,549		2.80	%		611,171		16,330		3.56	%
FHLB advances		167,031		4,863		3.88	%		158,857		5,716		4.80	%
Other interest-bearing liabilities		12,213		303		3.31	%		12,020		411		4.56	%
Total interest-bearing liabilities		825,528		18,715		3.02	%		782,048		22,457		3.83	%
Demand deposits		106,391							97,946
Other noninterest-bearing liabilities		9,990							3,422
Total liabilities		941,909							883,416
Stockholders' equity		226,547							139,010
Total liabilities and stockholders' equity	$	1,168,456						$	1,022,426

Net interest income			$	29,475						$	21,344
Interest rate spread(1)						2.66	%						2.07	%
Net interest-earning assets(2)	$	305,875						$	207,656
Net interest margin(3)						3.47	%						2.88	%
Average interest-bearing assets to
average interest-bearing liabilities						137.05	%						126.55	%

(1)	Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(2)	Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(3)	Net interest margin represents annualized net interest income divided by average total interest-earning assets.

Index

	Nine Months Ended September 30,
	2008 vs. 2007
	Increase (Decrease) Due to
	Volume			Rate			Net
	(In thousands)

Interest-earning assets:
Loans:
Residential real estate	$	603		$	(69	)	$	534
Commercial real estate		1,197			(495	)		702
Home equity loans		44			(681	)		(637	)
Commercial and industrial		528			(567	)		(39	)
Consumer and other		7			92			99
Total loans		2,379			(1,720	)		659
Investment securities		3,601			614			4,215
Other interest-earning assets		(226	)		(259	)		(485	)
Total interest-earning assets		5,754			(1,365	)		4,389

Interest-bearing liabilities:
Savings accounts		129			145			274
Money market accounts		(155	)		(1,541	)		(1,696	)
NOW accounts		(6	)		(1	)		(7	)
Certificates of deposit		862			(2,214	)		(1,352	)
Total interest-bearing deposits		830			(3,611	)		(2,781	)
FHLB advances		282			(1,135	)		(853	)
Other interest-bearing liabilities		7			(115	)		(108	)
Total interest-bearing liabilities		1,119			(4,861	)		(3,742	)

Change in net interest income	$	4,635		$	3,496		$	8,131

Net Interest Income Before Provision for Loan Losses. Net interest income before provision for loan losses increased $8.1 million, or 38.1%, to $29.5 million for the nine months ended September 30, 2008 from $21.3 million for the comparable 2007 period reflecting growth in average earning assets and net interest margin expansion. Net interest margin increased 59 basis points to 3.47% for the nine months ended September 30, 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 3.25% reduction in the federal funds rate from 5.25% at September 1, 2007 to 2.00% at September 30, 2008.

Interest Income. Interest income increased $4.4 million, or 10.0%, to $48.2 million for the nine months ended September 30, 2008 from $43.8 million for the prior year period reflecting expansion in total average interest-earning asset balances, partially offset by a slight decrease in the yield on average interest-earning assets. Total average interest-earning asset balances increased $141.7 million, or 14.3%, to $1.1 billion for the nine months ended September 30, 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 loans increased $50.6 million, or 6.4%, to $846.3 million for the nine months ended September

Index

30, 2008 as a result of solid origination activity, partially offset by prepayments and normal amortization. Total average investment securities increased by $97.5 million, or 56.8%, to $269.1 million for the nine months ended September 30, 2008 primarily due to the implementation of a strategy to deploy excess capital and liquidity resulting from the Company’s 2007 second-step stock offering. The yield on average interest-earning assets decreased 22 basis points to 5.68% for the nine months ended September 30, 2008 in connection with 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 limited. The impact of the decrease in market rates was partially offset by the purchases of higher yielding mortgage backed securities.

Interest Expense. Interest expense decreased $3.8 million, or 16.7%, to $18.7 million for the nine months ended September 30, 2008 from $22.5 million for the prior year period 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 declined 81 basis points to 3.02% for the nine months ended September 30, 2008 reflecting 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 $43.5 million, or 5.6%, to $825.5 million for the nine months ended September 30, 2008 reflecting growth in interest-bearing deposits and FHLB advances. Total average interest-bearing deposits increased $35.1 million, or 5.8%, to $646.3 million for the nine months ended September 30, 2008 mainly attributable to an increase in savings accounts and certificate of deposit balances. Total average FHLB advances increased $8.2 million, or 5.2%, to $167.0 million reflecting the use of proceeds from the second-step offering to fund asset growth.

Provision for Loan Losses. The provision for loan losses was $1.5 million for the nine months ended September 30, 2008 as compared to $1.0 million for the same period in 2007 reflecting an increase in reserves for classified loans and a higher level of net charge-offs. The allowance for loan losses was $8.4 million, or 0.97%, of loans outstanding at September 30, 2008.

Non-interest Income. Non-interest income increased $581,000, or 13.7%, to $4.8 million for the nine months ended September 30, 2008 reflecting growth of $212,000, or 6.5%, in fee income on deposit and loan accounts, an increase of $108,000, or 22.0%, from wealth management income, 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 and a $170,000 loss on the sale of securities in the third quarter of 2007.

Non-interest Expense. Non-interest expense increased $3.1 million, or 16.4%, to $22.5 million for the nine months ended September 30, 2008 from $19.4 million for the prior year period. Total salaries and benefits increased $1.6 million, or 14.8%, 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 cash incentive accrual associated with improved financial performance and annual wage increases. Occupancy costs grew $282,000, or 19.6%, principally attributable to new branches opened in 2008. Data processing costs expanded $332,000, or 16.6%, reflecting a larger loan and deposit base, new branches opened in 2008 and costs for the new branch imaging process. Professional services increased $264,000, or 30.3%, 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 expanded $604,000, or 21.1%, primarily due to an increase of $320,000 in Federal Deposit Insurance Corporation insurance premiums as well as a $113,000 interest accrual related to an income tax payment deficiency.

Income Tax Expense. Income tax expense increased $1.9 million to $4.0 million for nine months ended September 30, 2008 from $2.1 million for the comparable 2007 period due to higher income before income taxes, partially offset by a reduction in the effective tax rate from 40.3% in 2007 to 38.4% in 2008. The reduction in the effective tax rate is attributable to the increased portion of income earned in the securities corporation at the lower state tax rate and a decrease in the relative impact (due to the projected increase in pre-tax income in 2008) of stock-based compensation.

Index

Market Risk, Liquidity and Capital Resources

Market Risk

The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk (“IRR”). Our assets, consisting primarily of mortgage loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage IRR and reduce the exposure of our net interest income (“NII”) to changes in market interest rates. Accordingly, our Board of Directors has established an Asset/Liability Management Committee which is responsible for evaluating the IRR inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors. With the assistance of an IRR management consultant, the committee monitors the level of IRR on a regular basis and meets at least on a quarterly basis to review our asset/liability policies and IRR position.

We have sought to manage our IRR in order to minimize the exposure of our earnings and capital to changes in interest rates. As part of our ongoing asset-liability management, we currently use the following strategies to manage our IRR: (i) using alternative funding sources, such as advances from the Federal Home Loan Bank of Boston, to “match fund” certain longer-term one- to four-family residential mortgage loans; (ii) continued emphasis on increasing core deposits; (iii) offering adjustable rate and shorter-term home equity loans, commercial real estate loans, construction loans and commercial and industrial loans; (iv) offering a variety of consumer loans, which typically have shorter-terms and (v ) investing in mortgage-backed securities with variable rates or fixed rates with shorter durations. 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 NII to changes in market interest rates.

Net interest income at-risk measures the risk of a decline in earnings due to potential short-term and long term changes in interest rates. The table below represents an analysis of our IRR as measured by the estimated changes in NII, resulting from an instantaneous and sustained parallel shift in the yield curve (+200 and -100 basis points) at September 30, 2008 and December 31, 2007.

Net Interest Income At-Risk

	Estimated Increase (Decrease)	Estimated Increase (Decrease)
Change in Interest Rates	in NII	in NII
(Basis Points)	(September 30, 2008)	(December 31, 2007)

-100	0.2%	1.7%
Stable	0.0%	0.0%
+200	(3.4)%	(4.2)%

The preceding income simulation analysis does not represent a forecast of NII and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions, which are subject to change, including: the nature and timing of interest rate levels including the yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and others. Also, as market conditions vary prepayment/refinancing levels likely deviating from those assumed, the varying impact of interest rate changes on caps and floors embedded in adjustable rate loans, early withdrawal of deposits, changes in product preferences, and other internal/external variables.

Index

Net Portfolio Value Simulation Analysis. The Office of Thrift Supervision requires the computation of amounts by which the net present value of an institution’s cash flow from assets, liabilities and off balance sheet items (the institution’s net portfolio value or “NPV”) would change in the event of a range of assumed changes in market interest rates. The Office of Thrift Supervision provides all institutions that file a Consolidated Maturity/Rate Schedule as a part of their quarterly Thrift Financial Report an interest rate sensitivity report of net portfolio value. The Office of Thrift Supervision simulation model uses a discounted cash flow analysis and an option-based pricing approach to measuring the interest rate sensitivity of net portfolio value. Historically, the Office of Thrift Supervision model estimated the economic value of each type of asset, liability and off-balance sheet contract under the assumption that the United States Treasury yield curve increases or decreases instantaneously by 100 to 300 basis points in 100 basis point increments. However, given the current low level of market interest rates, we did not prepare a net portfolio value calculation for an interest rate decrease of greater than 100 basis points. A basis point equals one-hundredth of one percent, and 200 basis points equals two percent. An increase in interest rates from 3% to 5% would mean, for example, a 200 basis point increase in the “Change in Interest Rates” column below. The Office of Thrift Supervision provides us the results of the interest rate sensitivity model, which is based on information we provide to the Office of Thrift Supervision to estimate the sensitivity of our net portfolio value.

The tables below set forth, at the dates indicated, the estimated changes in our net portfolio value that would result from the designated instantaneous changes in the United States Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. This data is for United Bank and its subsidiary only and does not include any yield curve changes in the assets of United Financial Bancorp, Inc.

		September 30, 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	$	105,833		$	(77,274	)		(42	)%		9.52	%		(537	)
	+200		131,399			(51,708	)		(28	)		11.44			(346	)
	+100		157,928			(25,179	)		(14	)		13.28			(161	)
	0		183,107									14.89
	-100		199,966			16,859			9			15.81			92



(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.

Index

		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



(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 September 30, 2008 and December 31, 2007, in the event of a 100 basis point decrease in interest rates, we would experience a 9% and 8%, respectively, increase in net portfolio value. In the event of a 300 basis point increase in interest rates, we would experience a 42% and 37%, respectively, decrease in net portfolio value.

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in net portfolio value require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net portfolio value table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the net portfolio value table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

Liquidity

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, advances from the Federal Home Loan Bank of Boston, loan and mortgage-backed securities repayments and maturities and sales of loans and other investment securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, economic conditions and competition. Our Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs of our customers as well as unanticipated contingencies. We seek to maintain a liquidity ratio of 10% or greater. At September 30, 2008 our liquidity ratio was 36.24%, compared to 26.13% at December 31, 2007.

We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of our asset/liability management program. Excess liquid assets are generally invested in interest-earning deposits and short- and intermediate-term securities.

Index

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 September 30, 2008, cash and cash equivalents totaled $13.0 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $312.4 million at September 30, 2008. In addition, at September 30, 2008, we had the ability to borrow a total of approximately $514.4 million from the Federal Home Loan Bank of Boston. On that date, we had $226.1 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 September 30, 2008, we had $15.9 million in loan commitments outstanding. In addition to commitments to originate loans, we had $150.7 million in unused lines of credit to borrowers and $19.1 million to be disbursed under existing construction loan commitments. Certificates of deposit due within one year of September 30, 2008 totaled $282.5 million, or 37.1% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and Federal Home Loan Bank advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before September 30, 2009. We believe however, based on past experience, that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Our primary investing activities are the origination of loans and the purchase of securities. For the nine months ended September 30, 2008, we originated $235.5 million of loans and purchased $203.4 million of securities. In the comparable 2007 period, we originated $235.1 million of loans and purchased $65.9 million of securities.

Financing activities consist primarily of activity in deposit accounts and Federal Home Loan Bank advances. We experienced a net increase in total deposits of $42.2 million and $37.4 million for the nine months ended September 30, 2008 and 2007, respectively. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors.

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank, which provides an additional source of funds. Federal Home Loan Bank advances increased by $118.1 million during the nine months ended September 30, 2008 to fund purchases of mortgage-backed securities. For the same period in 2007, Federal Home Loan Bank advances increased $14.0 million. Federal Home Loan Bank advances have primarily been used to fund loan demand and to purchase securities. We have also used Federal Home Loan Bank advances to “match-fund” certain longer-term one- to four-family residential mortgage loans and commercial real estate loans. The Bank’s unused borrowing capacity with the FHLBB, excluding its $12.4 million line of credit, was approximately $275.9 at September 30, 2008 and $293.2 at December 31, 2007. At September 30, 2008 and December 31, 2007, the Bank had no borrowing against the line of credit.

Index

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Commitments

As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit, standby letters of credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans made by us. We consider commitments to extend credit in determining our allowance for loan losses.

Contractual Obligations

In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include operating leases for premises and equipment. The following table summarizes our significant fixed and determinable contractual obligations and other funding needs by payment date at September 30, 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 (in thousands)
	Less Than		One to Three		Three to Five		More than
	One Year		Years		Years		Five Years		Total
Contractual Obligations:
Certificates of deposit	$	282,535	$	69,258	$	10,553	$	-	$	362,346
Federal Home Loan Bank advances		69,869		70,975		50,763		34,523		226,130
Repurchase agreements		11,365		-		-		-		11,365
Standby letters of credit		932		-		-		-		932
Operating leases		547		979		703		2,877		5,106
Capitalized leases		252		504		503		4,074		5,333
Future benefits to be paid under
retirement plans		196		-		3,257		610		4,063
Total	$	365,696	$	141,716	$	65,779	$	42,084	$	615,275
Commitments to extend credit	$	186,596	$	-	$	-	$	-	$	186,596

Index

Capital Resources

United Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At September 30, 2008, the Bank exceeded all regulatory capital requirements. United Bank is considered “well capitalized” under regulatory requirements.

			To Be Well Capitalized
		For Capital	Under Regulatory
	Actual	Adequacy Purposes	Framework
As of September 30, 2008:

Total risk-based capital	19.17%	8.00%	10.00%

Tier 1 risk-based capital	18.17%	4.00%	6.00%

Tier 1 (core) capital	12.36%	4.00%	5.00%

Tangible equity	12.36%	1.50%	1.50%

As of December 31, 2007:
Total risk-based capital	20.25%	8.00%	10.00%

Tier 1 risk-based capital	19.25%	4.00%	6.00%

Tier 1 (core) capital	14.00%	4.00%	5.00%

Tangible equity	14.00%	1.50%	1.50%

Index

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

The information required by this item is included above in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the caption “Market Risk, Liquidity and Capital Resources.”

ITEM 4. Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and in a timely manner alerting them to material information relating to the Company (or its consolidated subsidiary) required to be filed in its periodic SEC filings.

No change in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In the ordinary course of business, we routinely enhance our internal controls and procedures for financial reporting by either upgrading our current systems or implementing new systems. Changes have been made and will be made to our internal controls and procedures for financial reporting as a result of these efforts.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

At September 30, 2008, the Company was not involved in any legal proceedings, the outcome of which would be material to the Company’s financial condition or results of operations.

ITEM 1A. Risk Factors

As of September 30, 2008, there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2007.

Index

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) No unregistered securities were sold by the Company during the quarter ended September 30, 2008.

(b) Not applicable

(c) On June 20, 2008, the Company announced that its Board of Directors had approved a stock repurchase plan to fund awards of restricted stock contemplated under the Company's 2008 Equity Incentive Plan, which was approved by stockholders at the Company's 2008 Annual Meeting held on June 10, 2008. Under the plan, the Company announced its intention to repurchase up to 359,581 shares from time to time depending on market conditions, at prevailing market prices in open market or privately negotiated transactions. On July 24, the Company completed the repurchase plan in accordance with a Rule 10b5-1 trading plan.

The following table provides certain information with regard to shares repurchased by the Company in the third quarter of 2008.

(c)

(d)

Total Number of

Maximum Number

(or Approximate

(a)

(b)

(or Units)

Dollar Value) of

Total Number

Average Price

Purchased as Part

Shares (or Units) that

of Shares

Paid Per

of Publicly

May Yet Be

(or Units)

Announced Plans

Purchased Under the

Period:

Purchased

(or Unit)

or Programs

Plans or Programs

July 1 - 31, 2008

311,647

11.88

311,647

August 1 - 31, 2008

10,086

(1)

12.37

September 1 - 30, 2008

Total

321,733

11.90

311,647

(1) The Company purchased these shares in connection with restricted stock forfeited for tax purposes.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Submission of Matters to a Vote of Security Holders

Not applicable.

ITEM 5. Other Information

Not applicable.

Index

ITEM 6. Exhibits.

3.1	Articles of Incorporation of United Financial Bancorp, Inc. (1)
3.2	Bylaws of United Financial Bancorp, Inc. (2)
4	Form of Common Stock Certificate of United Financial Bancorp, Inc. (1)
10.1	Form of Employee Stock Ownership Plan (3)
10.2	Employment Agreement by and between United Bank and Richard B. Collins (4)
10.3	Change in Control Agreement by and between United Bank and Keith E. Harvey (4)
10.4	Change in Control Agreement by and between United Bank and J. Jeffrey Sullivan (4)
10.5	Change in Control Agreement by and between United Bank and Mark A. Roberts (4)
10.6	United Bank 2007 Supplemental Retirement Plan for Senior Executives (4)
10.7	Split Dollar Life Insurance Agreement by and between United Bank and Richard B. Collins (5)
10.8	Split Dollar Life Insurance Agreement by and between United Bank and Keith E. Harvey (5)
10.9	Split Dollar Life Insurance Agreement by and between United Bank and John J. Patterson (5)
10.10	United Bank 2006 Stock-Based Incentive Plan (6)
10.11	United Bank 2008 Annual Incentive Plan (7)
10.12	United Bank 2007 Director Retirement Plan (8)
10.13	Directors Fee Continuation Plan (3)
10.14	Deferred Income Agreement by and between United Bank and Donald G. Helliwell (3)
10.15	Deferred Income Agreement by and between United Bank and Robert W. Bozenhard, Jr. (3)
10.16	Deferred Income Agreement by and between United Bank and George W. Jones (3)
10.17	United Financial Bancorp, Inc. 2008 Equity Incentive Plan (9)
11	Statement Regarding Computation of Per Share Earnings (refer to Note D of Part I,
	Item 1- Consolidated Financial Statements
21	Subsidiaries of Registrant (1)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


(1)	Incorporated by reference to the Registration Statement on Form S-1 of United Financial Bancorp, Inc. (File No. 333-144245), originally filed with the Securities and Exchange Commission on June 29, 2007.
(2)	Incorporated by reference to the Form 8-K of United Financial Bancorp, Inc. filed with the Securities and Exchange Commission on April 22, 2008.
(3)	Incorporated by reference to the Registration Statement on Form S-1 of United Financial Bancorp, Inc. (File No. 333-123371), originally filed with the Securities and Exchange Commission on March 16, 2005.
(4)	Incorporated by reference to the Form 8-K of United Financial Bancorp, Inc. filed with the Securities and Exchange Commission on November 29, 2007.
(5)	Incorporated by reference to the Form 8-K of United Financial Bancorp, Inc. filed with the Securities and Exchange Commission on January 2, 2008.
(6)	Incorporated by reference to Appendix B to the proxy statement for the 2006 Annual Meeting of Stockholders of United Financial Bancorp, Inc. (File No. 000-51369), filed by United Financial Bancorp, Inc. under the Securities Exchange Act of 1934, on June 12, 2006.
(7)	Incorporated by reference to the Form 10-K of United Financial Bancorp, Inc. filed with the Securities and Exchange Commission on March 17, 2008.
(8)	Incorporated by reference to the Form 8-K of United Financial Bancorp, Inc. filed with the Securities and Exchange Commission on November 21, 2007.
(9)	Incorporated by reference to Appendix A of the Company's Definitive Proxy Statement for the Annual Meeting of Stockholders (File No. 000-52947), as filed with the SEC on April 29, 2008).

Index

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned thereunto duly authorized.

	United Financial Bancorp, Inc.


Date: November 7, 2008	By:	/s/ Richard B. Collins
		Richard B. Collins
		Chairman, President and Chief Executive Officer


Date: November 7, 2008	By:	/s/ Mark A. Roberts
		Mark A. Roberts
		Executive Vice President and Chief Financial Officer