Edgar Filing: United Financial Bancorp, Inc.

form10k-105946_ubnk.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2009

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______________ to _______________

Commission File No. 000-52947

United Financial Bancorp, Inc.

(Exact name of registrant as specified in its charter)

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

95 Elm Street, West Springfield, Massachusetts	01089
(Address of Principal Executive Offices)	Zip Code

(413) 787-1700

(Registrant’s telephone number)

Securities Registered Pursuant to Section 12(b) of the Act:

Common Stock, par value $0.01 per share	NASDAQ Global Select Market
(Title of each class)	Name of each exchange on which registered

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ¨ NO x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. YES ¨ NO x

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

Indicate by check mark whether the registrant has submitted electronically and posted on its website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. YES ¨ NO ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. x.

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 “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨

Accelerated filer x

Non-accelerated filer ¨

Smaller reporting company ¨

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

As of March 4, 2010, 16,738,260 shares of the Registrant’s Common Stock were outstanding.

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sale price on June 30, 2009, as reported by the NASDAQ Global Select Market, was approximately $198.5 million.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Stockholders dated March 12, 2010 (are incorporated by reference in Part III and this 10-K).

TABLE OF CONTENTS

ITEM	PART I	PAGE

1	BUSINESS	3
1A	RISK FACTORS	41
1B	UNRESOLVED STAFF COMMENTS	47
2	PROPERTIES	48
3	LEGAL PROCEEDINGS	50
4	[RESERVED]	50

	PART II

5	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	50
6	SELECTED FINANCIAL DATA	53
7	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	55
7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	74
8	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	74
9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	75
9A	CONTROLS AND PROCEDURES	75
9B	OTHER INFORMATION	77

	PART III

10	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	77
11	EXECUTIVE COMPENSATION	77
12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	77
13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	78
14	PRINCIPAL ACCOUNTING FEES AND SERVICES	78

	PART IV

15	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	79

	SIGNATURES

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PART I

ITEM 1.

BUSINESS

Terminology

As used in this Annual Report, unless we specify otherwise, terms such as “we,” “us,” and “our” refer to United Financial Bancorp, Inc., a Maryland corporation, or United Bank, a federal savings bank and the wholly owned subsidiary of United Financial Bancorp, Inc., as indicated by the context.

Forward Looking Statements

This Annual Report contains certain “forward-looking statements” that may be identified by the use of words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated” and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors that could cause actual results to differ materially from these estimates and most other statements that are not historical in nature. These factors include, but are not limited to, general and local economic conditions, changes in interest rates, deposit flows, demand for mortgage and other loans, real estate values, competition, changes in accounting principles, policies, or guidelines, changes in legislation or regulation, and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services. Additional factors are discussed in this Annual Report on Form 10-K under “Item 1A. Risk Factors”. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. 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.

United Financial Bancorp, Inc.

United Financial Bancorp, Inc., a Maryland corporation (the “Company”) incorporated in 2007 as the holding company for United Bank, sold 9,564,570 shares of its common stock in connection with the “second-step” conversion from mutual to stock form of United Financial Bancorp, MHC, a Federal mutual corporation. The shares were sold for $10.00 per share. In connection with the offering, each public stockholder of United Financial Bancorp, Inc., a Federal corporation, (“United Financial - Federal”) received 1.04079 shares of the common stock of the Company in exchange for his or her shares of United Financial – Federal. United Financial Bancorp, Inc. contributed $45.1 million of the net proceeds of the offering to United Bank.

On November 30, 2009, the Company completed its acquisition of CNB Financial Corp. (“CNB Financial”), the holding company for Commonwealth National Bank. The transaction qualified as a tax-free reorganization for federal income tax purposes. The final consideration paid in the transaction to stockholders of CNB Financial consisted of approximately 943,376 shares of United Financial common stock and $12,639,495 in cash. Based upon the Company’s $12.84 per share closing price on November 30, 2009, the transaction was valued at approximately $24.8 million in the aggregate. As a result of this transaction, the Company added six branches, $289.3 million in assets, $242.9 million in loans and $195.2 million in deposits to its franchise.

United Financial Bancorp, Inc. is authorized to pursue other business activities permitted by applicable laws and regulations for savings and loan holding companies which may include the acquisition of banking and financial services companies. See “—Supervision and Regulation—Holding Company Regulation” for a discussion of the activities that are permitted for savings and loan holding companies. We currently have no understandings or agreements to acquire other financial institutions. We also may borrow funds for reinvestment in United Bank.

United Financial Bancorp, Inc.’s cash flow depends on earnings from the investment of the net proceeds of the second-step conversion offering and any dividends received from United Bank. United Financial Bancorp, Inc. neither owns nor leases any property, but instead uses the premises, equipment and furniture of United Bank. At the

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present time, we employ as officers only certain persons who are also officers of United Bank. However, we use the support staff of United Bank from time to time. These persons are not separately compensated by the United Financial Bancorp, Inc. United Financial Bancorp, Inc. may hire additional employees, as appropriate, to the extent it expands its business in the future.

United Financial Bancorp, Inc.’s executive offices are located at 95 Elm Street, West Springfield, Massachusetts, and its telephone number is 413-787-1700.

United Bank

United Bank is a federally chartered savings bank headquartered in West Springfield, Massachusetts. United Bank was originally founded in 1882, as a Massachusetts-chartered cooperative bank. Over the years, United Bank has grown through internal growth as well as through a series of five mutual-to-mutual business combinations that occurred between 1960 and 1994. In February 2004, United Bank converted to a federal savings bank and, in April 2004, reorganized into the two-tier mutual holding company structure. In July 2005, United Bank completed a minority public stock offering through its holding company, United Financial-Federal. In that offering, 7.7 million shares of common stock were sold to the public at $10.00 per share, resulting in net proceeds of $74.8 million.

United Bank’s principal business consists of attracting retail deposits from the general public in the areas surrounding our main office in West Springfield, Massachusetts and our sixteen branch offices located in our Springfield Region (Agawam, Chicopee, East Longmeadow, Feeding Hills, Holyoke, Huntington, Indian Orchard, Longmeadow, Ludlow, Northampton, Springfield and Westfield, Massachusetts as well as our Express Drive-Up branch in Northampton, Massachusetts) and six newly acquired branches of Commonwealth National Bank in the Worcester Region (West Boylston, Whitinsville, Worcester and Shrewsbury, Massachusetts). We invest those deposits, together with funds generated from operations, in one- to four-family residential mortgage loans as well as in home equity loans and lines of credit, commercial real estate loans, construction loans, commercial and industrial loans, automobile loans, other consumer loans, and investment securities. We originate loans almost exclusively for investment. Occasionally, we will also enter into loan participations with other financial institutions. Our revenues are derived principally from interest on loans and securities. We also generate revenues from fees and service charges and other income. United Bank emphasizes exceptional personal service for its customers. Our primary sources of funds are deposits, borrowings and principal and interest payments on loans and securities.

United Bank’s executive offices are located at 95 Elm Street, West Springfield, Massachusetts, and our telephone number is 413-787-1700.

Available Information

United Financial Bancorp, Inc.’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are made available free of charge on our website, www.bankatunited.com, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission. The information on our website shall not be considered as incorporated by reference into this Form 10-K.

Market Area

We are headquartered in West Springfield, Massachusetts. Our primary market area for generating deposits is concentrated in the communities surrounding our main office and the communities surrounding the branches of Commonwealth National Bank in Worcester which we acquired in November, 2009. We also maintain two financial services facilities that offer insurance and investment products and financial planning services; these facilities are located in West Springfield and Northampton. Our primary lending area is significantly broader than our deposit market area and includes all of Hampden and Hampshire Counties in Western Massachusetts, Northern Connecticut and Worcester County. At December 31, 2009, 91.7% of our mortgage loan portfolio consisted of loans secured by real estate located in Hampden and Hampshire Counties, Massachusetts.

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Springfield Region. The city of West Springfield is largely suburban and is located in the Pioneer Valley near the intersection of U.S. Interstates 90 (the Massachusetts Turnpike) and 91. Interstate 90 is the major east-west highway that transverses Massachusetts. Interstate 91 is the major north-south highway that runs directly through the heart of New England. West Springfield is located approximately 90 miles west of Boston, Massachusetts, 70 miles southeast of Albany, New York and 30 miles north of Hartford, Connecticut. According to a recent census report, West Springfield’s estimated 2008 population was approximately 27,459 and the estimated 2008 population for Hampden and Hampshire Counties was 460,840 and 154,983, respectively. During the past eight years, the populations of Hampden and Hampshire Counties increased by 1.01% and 1.79%, respectively, while the population of the Commonwealth of Massachusetts increased by 2.3%. During the same period, the number of households in Hampden and Hampshire Counties changed by -0.56% and 2.81%, respectively.

The economy of our primary market area has benefited from the presence of large employers such as the University of Massachusetts, Baystate Health System, Mass Mutual Financial Group, Big Y Supermarkets, Hasbro Games, Peter Pan Bus Lines, Friendly Ice Cream Corporation, Westover Air Force Base, Smith & Wesson, Yankee Candle, Verizon and Top-Flite Golf Company. Other employment and economic activity is provided by financial institutions, eight other colleges and universities, five other hospitals and a variety of wholesale and retail trade businesses. Our market area also enjoys a strong tourism business with attractions such as Six Flags amusement park, the Eastern States Exposition, called “New England’s Great State Fair,” the Basketball Hall of Fame and several other notable cultural and recreational areas. According to recent census data, per capita and median household income for Hampden County was $24,813 and $48,039, respectively, in 2008, lower than the state of Massachusetts ($33,806 and $64,684) and the United States ($27,466 and $52,175). 2008 per capita and median household income for Hampshire County was $28,733 and $58,728 respectively.

Our local economy has been experiencing a slowdown during the past two years. The unemployment rate in Hampden County increased from 7.8% in December 2008 to 9.6% in November 2009, which is higher than the unemployment rates for Massachusetts as a whole (8.8%) but less than the United States (10.0%).

Worcester Region. Located one hour from our corporate headquarters in West Springfield, the city of Worcester is located 30 minutes from Boston’s MetroWest area and adjacent to the I-495 Corridor. Worcester is the second largest city in New England with an estimated population of 170,000 in 2008. Worcester County’s 2008 population was 783,806, a 4.37% increase from 2000. Households in Worcester County grew from 283,927 in 2000 to 290,745 in 2008, an increase of 2.40%. United Bank’s Worcester Region Headquarters is located at 33 Waldo Street in Worcester.

Worcester has a diversified economy. The City of Worcester is home to eight colleges and the University of Massachusetts Medical School, its largest employer. Biotechnology is a major enterprise within the city. Its biotech park is host to several innovative companies including Abbott Laboratories, a leading pharmaceutical research and manufacturing firm. Hanover Insurance maintains its national headquarters in Worcester and a subsidiary of Unum, the Paul Revere Life Insurance Company, is also headquartered in Worcester as is the Harleysville Worcester Insurance Company, the oldest life insurance company based in Massachusetts. In addition, Worcester is also home to several noteworthy libraries and museums including the American Antiquarian Society, (a national library), the Worcester Art Museum and The EcoTarium (science museum). Residents also enjoy access to several performing arts centers and variety of annual music festivals and events.

According to recent census data, per capita and median household income for Worcester County, 2008 per capital and median household income was $30,357 and $64,471. The unemployment rate in Worcester County increased from 7.0% in December 2008 to 9.8% in December, 2009.

Competition

We face intense competition within our market area both in making loans and attracting deposits. Our market area has a high concentration of financial institutions including large money center and regional banks, community banks and credit unions. Some of our competitors offer products and services that we currently do not offer, such as trust services and private banking. As of June 30, 2009, the latest date for which information is available, our market share of deposits represented 10.23% and 1.85% % and 1.68% of deposits in Hampden, Hampshire and Worcester Counties, Massachusetts, respectively.

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Our competition for loans and deposits comes principally from commercial banks, savings and co-operative institutions, mortgage banking firms and credit unions. We face additional competition for deposits from short-term money market funds, brokerage firms, mutual funds and insurance companies. Our primary focus is to build and develop profitable customer relationships across all lines of business while maintaining our role as a community bank.

Lending Activities

Our principal lending activities are the origination of first mortgage loans for the purchase or refinancing of one- to four-family residential real property, as well as the origination of home equity, commercial real estate and commercial and industrial loans. We generally originate loans for investment purposes. No loans were held for sale at December 31, 2009 or 2008. One- to four-family residential real estate mortgage loans totaled $343.3 million, or 30.6% of our total loan portfolio at December 31, 2009, and home equity loans and lines of credit totaled $137.4 million, or 12.2% of our loan portfolio. In addition to real estate mortgage loans and home equity loans, we also offer commercial real estate loans, construction loans, commercial and industrial loans, automobile loans and other consumer loans. At December 31, 2009, commercial real estate loans totaled $409.7 million, or 36.5% of our loan portfolio, construction mortgage loans totaled $48.8 million, or 4.4% of our loan portfolio, commercial and industrial loans totaled $159.4 million, or 14.2% of our loan portfolio, and automobile loans totaled $14.7 million, or 1.3% of our loan portfolio. We also originate other consumer loans, including secured and unsecured personal loans, manufactured home, motorcycle and motor home loans, boat loans and pool and spa loans. At December 31, 2009, such loans totaled $8.9 million, or 0.8% of our loan portfolio, of which $7.4 million were manufactured home loans.

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Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan as of the dates indicated.

	At December 31,
	2009						2008						2007						2006						2005
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
Types of loans:
Real estate loans:
One- to four-family	$	343,300			30.59	%	$	356,428			40.95	%	$	339,470			41.16	%	$	319,108			41.87	%	$	285,236			44.86	%
Commercial		409,680			36.51	%		248,457			28.55	%		214,776			26.04	%		175,564			23.04	%		150,099			23.61	%
Construction (1)		48,808			4.35	%		32,082			3.69	%		42,059			5.10	%		54,759			7.19	%		28,872			4.54	%
Home equity		137,371			12.24	%		120,724			13.87	%		116,241			14.10	%		112,739			14.79	%		86,045			13.53	%
Commercial and industrial		159,437			14.21	%		84,919			9.76	%		81,562			9.89	%		69,762			9.15	%		59,591			9.37	%
Automobile		14,729			1.31	%		17,332			1.99	%		22,461			2.72	%		24,456			3.21	%		22,054			3.47	%
Consumer		8,916			0.79	%		10,334			1.19	%		8,126			0.99	%		5,725			0.75	%		3,895			0.61	%
Total loans	$	1,122,241			100.00	%	$	870,276			100.00	%	$	824,695			100.00	%	$	762,113			100.00	%	$	635,792			100.00	%

Other items:
Net deferred loan costs and fees		2,355						2,395						2,136						1,285						1,148
Allowance for loan losses		(9,180	)					(8,250	)					(7,714	)					(7,218	)					(6,382	)
Total loans, net	$	1,115,416					$	864,421					$	819,117					$	756,180					$	630,558

(1)	Includes $45,615, $30,161, $33,603, $41,256 and $17,506 of commercial construction loans at December 31, 2009, 2008, 2007, 2006 and 2005, respectively.

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Loan Portfolio Maturities and Yields. The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2009. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.


						Commercial															Commercial
	Residential					Real Estate					Construction					Home Equity					and Industrial					Automobile					Other Consumer					Total (1)
			Weighted					Weighted					Weighted					Weighted					Weighted					Weighted					Weighted					Weighted
			Average					Average					Average					Average					Average					Average					Average					Average
	Amount		Rate			Amount		Rate			Amount		Rate			Amount		Rate			Amount		Rate			Amount		Rate			Amount		Rate			Amount		Rate
	(Dollars in thousands)
Due during the years ending
after December 31, 2009:

One year or less	$	11,856		5.33	%	$	20,496		6.15	%	$	21,965		4.96	%	$	8,073		5.73	%	$	16,079		5.63	%	$	5,817		5.20	%	$	741		5.83	%	$	85,027		5.52	%
More than one to three years		26,687		5.32	%		35,162		6.27	%		3,534		6.10	%		13,174		5.66	%		24,160		6.26	%		6,761		5.27	%		1,161		6.51	%		110,639		5.90	%
More than three to five years		27,221		5.32	%		48,616		6.10	%		4,603		6.89	%		9,125		6.25	%		17,392		6.26	%		2,059		4.92	%		890		7.35	%		109,906		5.97	%
More than five to ten years		65,577		5.34	%		125,157		6.33	%		8,320		6.56	%		16,396		6.32	%		12,484		6.45	%		-		0.00	%		2,190		8.05	%		230,124		6.08	%
More than ten to fifteen years		54,393		5.47	%		82,502		6.19	%		4,809		4.49	%		21,764		4.53	%		1,812		7.19	%		-		0.00	%		2,505		7.98	%		167,785		5.73	%
More than fifteen years		155,158		5.60	%		105,639		6.14	%		8,812		4.93	%		69,534		3.35	%		84,628		4.32	%		-		0.00	%		1,532		9.51	%		425,303		5.11	%
Total	$	340,892		5.48	%	$	417,572		6.21	%	$	52,043		5.42	%	$	138,066		4.44	%	$	156,555		5.17	%	$	14,637		5.19	%	$	9,019		7.83	%	$	1,128,784		5.59	%
(1) Excludes the fair value adjustment balance of $6.5 million recorded in connection with the acquisition of CNB Financial.

The following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at December 31, 2009 that are contractually due after December 31, 2010.

	Due After December 31, 2010
	Fixed		Adjustable		Total
	(In thousands)

Residential real estate	$	299,233	$	29,803	$	329,036
Commercial real estate		165,697		231,379		397,076
Construction		17,501		12,577		30,078
Home equity		46,236		83,757		129,993
Commercial and industrial		50,160		90,316		140,476
Automobile		8,820		-		8,820
Consumer		8,254		24		8,278
Total loans	$	595,901	$	447,856	$	1,043,757

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One- to Four-Family Residential Mortgage Loans. Our primary lending activity consists of the origination of one- to four-family residential mortgage loans, substantially all of which are secured by properties located in our primary market area. At December 31, 2009, $343.3 million, or 30.6% of our loan portfolio, consisted of one- to four-family residential mortgage loans. We retain in our portfolio substantially all loans that we originate. One- to four-family mortgage loan originations are generally obtained from our in-house loan representatives, from existing or past customers, through advertising, and through referrals from local builders, real estate brokers and attorneys, and are underwritten pursuant to United Bank’s policies and standards. Generally, one- to four-family residential mortgage loans are originated in amounts up to 80% of the lesser of the appraised value or purchase price of the property, with private mortgage insurance required on loans with a loan-to-value ratio in excess of 80%. We generally will not make loans with a loan-to-value ratio in excess of 95%. Further, we generally limit the loan-to-value ratio to 70% on a cash-out refinance transaction based on updated appraisal information.

Fixed-rate mortgage loans are originated for terms of up to 30 years. Generally, fixed-rate residential mortgage loans are underwritten according to Fannie Mae guidelines, policies and procedures. We also offer adjustable-rate mortgage loans for one- to four-family properties, with an interest rate based on the weekly average yield on U.S. Treasuries adjusted to a constant maturity of one-year, which adjust either annually or every three years from the outset of the loan or which adjust annually after a five-, seven- or ten-year initial fixed-rate period. For the year ended December 31, 2009, we originated $64.4 million of fixed rate one- to four-family residential loans. We did not originate adjustable-rate one- to four-family residential loans during 2009. Our adjustable-rate mortgage loans generally provide for maximum rate adjustments of 2% per adjustment, with a lifetime maximum adjustment up to 6%, regardless of the initial rate. Our adjustable-rate mortgage loans amortize over terms of up to 30 years.

Adjustable rate mortgage loans decrease the risk associated with changes in market interest rates by periodically repricing, but involve other risks because as interest rates increase the underlying payments by the borrower increase, thus increasing the potential for default by the borrower. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustment of the contractual interest rate also is limited by the maximum periodic and lifetime interest rate adjustments permitted by our loan documents and, therefore, the effectiveness of adjustable-rate mortgage loans may be limited during periods of rapidly rising interest rates. At December 31, 2009, $30.8 million, or 9.0%, of our one- to four-family residential mortgage loans had adjustable rates of interest.

In an effort to provide financing for low- and moderate-income home buyers, we offer a variety of programs to qualified borrowers. These programs include Veterans Administration (VA), Federal Housing Administration (FHA), Massachusetts Housing Financing Agency (MHFA) and several other programs that we have developed in-house. These loans are offered with fixed rates of interest, terms of up to 30 years and are secured by one-to four-family residential properties. All of these loans are originated using agency underwriting guidelines. These loans may be originated in amounts with loan-to-value ratios up to 100%. Private mortgage insurance is required for loans with loan-to-value ratios over 80%. We also offer our own first-time homebuyer loans to qualified individuals. These loans are offered with terms of up to 30 years and fixed or adjustable rates of interest, which may be discounted, and the applicant may not be required to pay certain loan origination fees.

We also offer our employees who satisfy certain criteria and our general underwriting standards fixed- or adjustable rate loan products with reduced interest rates, and reduced application and loan origination fees. Employee and insider loans adhere to all other terms and conditions contained in the loan policy.

All residential mortgage loans that we originate include “due-on-sale” clauses, which give us the right to declare a loan immediately due and payable in the event that, among other things, the borrower sells or otherwise disposes of the real property subject to the mortgage and the loan is not repaid. Regulations limit the amount that a savings bank may lend relative to the appraised value of the real estate securing the loan, as determined by an appraisal of the property at the time the loan is originated. All borrowers are required to obtain title insurance for the benefit of United Bank. We also require homeowner’s insurance and fire and casualty insurance and, where circumstances warrant, flood insurance on properties securing real estate loans.

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Commercial Real Estate Loans. We originate commercial real estate loans that are generally secured by five or more unit apartment buildings, industrial properties and properties used for business purposes such as small office buildings, hotels, motels, recreational and retail facilities mainly located in our primary market area. At December 31, 2009, commercial real estate mortgage loans totaled $409.7 million, or 36.5% of our total loans compared to $248.5 million, or 28.6% of our total loans at December 31, 2008. The increase in commercial real estate mortgage loans is mainly due to the acquisition of CNB Financial which represents 80.4% of the increase, or $129.6 million outstanding at the time of acquisition on November 30, 2009. Our acquisition of CNB Financial increased our commitment to commercial lending and strengthened our commercial lending team with the retention of five commercial lenders, three commercial credit analysts, a Chief Credit Officer and an Executive Vice President of Commercial Banking, all of whom will remain in the Worcester marketplace. Our real estate underwriting policies provide that such loans may be made in amounts up to 85% of the appraised value of the property, though such loans are generally limited to 80% of the appraised value. In addition, these loans must comply with our loan policy guidelines and with our current loans-to-one borrower limit for these types of loans which is generally 15% of our unimpaired capital and surplus which, at December 31, 2009, was $29.2 million. Our commercial real estate loans may be made with terms of up to 25 years though generally loan terms do not exceed 10 years and loan amortization periods do not exceed 20 years. Commercial real estate loans and are offered with interest rates that are fixed or adjust periodically and are generally indexed to the prime rate as reported in The Wall Street Journal or to rates published by the Federal Home Loan Bank of Boston. In reaching a decision on whether to make a commercial real estate loan, we consider the net operating income of the property, the borrower’s expertise and credit history, and the profitability of the underlying business and the value of the underlying property. In addition, with respect to real estate rental properties, we will also consider the term of the lease and the credit quality of the tenants. We generally require that the properties securing these real estate loans have stabilized debt service coverage ratios (the ratio of earnings before debt service to debt service) of at least 1.2 times. Environmental surveys are generally required for commercial real estate loans. Generally, commercial real estate loans made to corporations, partnerships and other business entities require personal guarantees by the principals.

A commercial borrower’s financial information is monitored on an ongoing basis by requiring periodic financial statement updates, payment history reviews and periodic face-to-face meetings with the borrower. We generally require commercial borrowers to provide annually updated financial statements and federal tax returns. These requirements also apply to the individual principals of our commercial borrowers when they are providing personal guarantees. We also require borrowers with rental investment property to provide us with an annual report of income and expenses for the property, including a tenant list and copies of leases, as applicable. The largest commercial real estate loan in our portfolio at December 31, 2009 was a combination of loans totaling $14.2 million secured by two adjacent office buildings in greater Worcester; these properties are under a long term lease to a Fortune 500 company. The second largest commercial real estate loan is a loan of $9.9 million secured by a retail plaza anchored by a regional supermarket chain and by a Fortune 500 provider of office supplies. All of the loans were performing in accordance with their terms at December 31, 2009. The largest developer relationship at December 31, 2009 was a series of loans on four real estate projects totaling $15.9 million. All of these loans were also performing in accordance with terms.

Loans secured by commercial real estate, including multi-family properties, generally involve larger principal amounts and a greater degree of risk than one- to four-family residential mortgage loans. Because payments on loans secured by commercial real estate often depend on the successful operation or management of the properties, repayment of such loans may be affected by adverse conditions in the real estate market or the economy.

Construction Loans. We originate construction loans for the development of one- to four-family residential properties located in our primary market area. Residential construction loans are generally offered to individuals for the construction of their personal residences. At December 31, 2009, residential construction loans totaled $3.2 million, or 0.3% of total loans, compared to $1.9 million, or 0.2% at December 31, 2008. At December 31, 2009, the unadvanced portion of these construction loans totaled $1.7 million.

Our residential construction loans generally provide for the payment of interest only during the construction phase, which is usually 12 months. In the case of construction loans to individuals for the construction of their primary residences, our policies require that the loan convert to a permanent mortgage loan at the end of the construction phase. Residential construction loans can be made up to a maximum loan-to-value ratio of 90%, provided that the borrower obtains private mortgage insurance if the loan balance exceeds 80% of the appraised

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value or sales price, whichever is less, of the secured property. Residential construction loans are generally made on the same terms as our one- to four-family mortgage loans.

We also make commercial construction loans for residential and commercial development projects. The projects include single family, multi-family, apartment, industrial, retail and office buildings, and condominium developments. These loans generally have an interest-only phase during construction and then convert to permanent financing. We generally require that a commitment for permanent financing be in place prior to closing the construction loan. The maximum loan-to-value ratio limit applicable to these loans is generally 80%. Before making a commitment to fund a construction loan, we require an appraisal of the property by an independent licensed appraiser. We generally also review and inspect each property before disbursement of funds during the terms of the construction loan. Loan proceeds are disbursed after inspection based on the percentage-of-completion method. Management has become more cautious in evaluating and approving funding for construction loans. At December 31, 2009, commercial construction loans totaled $45.6 million, or 4.1% of total loans, compared to $30.2 million, or 3.5% of total loans, at December 31, 2008. The increase in commercial construction loans is due to the acquisition of CNB Financial which had $18.7 million outstanding at the time of acquisition on November 30, 2009. At December 31, 2009 the combined commercial construction loan balances of the Bank and the former Commonwealth National Bank were approximately half of the levels outstanding at December 31, 2006. At December 31, 2009, the largest outstanding commercial construction loan balance was for $4.0 million, secured by a residential condominium development located in Hampden County, Massachusetts. This loan was performing according to its terms at December 31, 2009. At December 31, 2009, the unadvanced portion of all commercial construction loans totaled $26.6 million.

We also originate land loans to local individuals, contractors and developers for the purpose of making improvements thereon, or for the purpose of developing the land for sale. Loans to individuals are secured by a lien on the property, have loan-to-value ratios that generally are limited to a maximum of 70% of the value of the land (based on the lower of the acquisition price or the appraised value of the land) and are written with a fixed or floating interest rate. These loans are offered with a term of up to three years in which only interest is required to be paid each month. A balloon payment for the principal plus any accrued interest is due at the end of the three-year period. Land loans to developers are limited to a 65% loan-to-value ratio. The interest rate can be fixed or floating and the term can be for up to three years. Our land loans are generally secured by property in our primary market area. We require title insurance and, if applicable, a hazardous waste survey reporting that the land is free of hazardous or toxic waste. At December 31, 2009, land loans totaled $10.3 million, or 0.9% of total loans.

Construction and development financing is generally considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost proves to be inaccurate, we may be required to advance funds beyond the amount originally committed in order to protect the value of the property. Additionally, if the estimate of value proves to be inaccurate, the value of the project, when completed, may be insufficient to assure full repayment of the loan.

Home Equity Loans and Home Equity Lines of Credit. We also offer home equity loans and home equity lines of credit, both of which are secured by one- to four-family residences, substantially all of which are located in our primary market area. At December 31, 2009, home equity loans and equity lines of credit totaled $137.4 million, or 12.2% of total loans. Additionally, at December 31, 2009, the unadvanced amounts of home equity lines of credit totaled $122.2 million. The underwriting standards utilized for home equity loans and equity lines of credit include a determination of the applicant’s credit history, an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan and the value of the collateral securing the loan. The combined (first and second mortgage liens) loan-to-value ratio for home equity loans and equity lines of credit is limited to 80%. Home equity loans are offered with fixed and adjustable rates of interest and with terms of up to 20 years. Our home equity lines of credit have adjustable rates of interest, which are indexed to the prime rate, as reported in The Wall Street Journal, interest only draw periods under the lines are limited to 10 years. We originated $46.7 million under home equity lines of credit and other home equity loans during the year ended December 31, 2009, as compared to total originations of $58.9 million during the year ended December 31, 2008.

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Commercial and Industrial Loans. Commercial and industrial loans have been a substantial part of our lending operations for a number of years. At December 31, 2009, we had $159.4 million of commercial and industrial loans, which amounted to 14.2% of total loans compared to $84.9 million, or 9.8% of total loans outstanding at December 31, 2008. The increase in commercial and industrial loans is mainly due to the acquisition of CNB Financial which represents 77.7% of the increase, or $57.9 million outstanding at the time of acquisition on November 30, 2009. Our acquisition of CNB Financial increased our commitment to commercial lending and strengthened our commercial lending team with the retention of five commercial lenders, three commercial credit analysts, a Chief Credit Officer and an Executive Vice President of Commercial Banking, all of whom will remain in the Worcester marketplace. We make commercial and industrial loans primarily in our market area to a variety of professionals, sole proprietorships and small and mid-sized businesses. Commercial and industrial loan products include term loans and revolving lines of credit. The maximum amount of a commercial and industrial loan is limited by our loans-to-one-borrower limit which is generally 15% of our unimpaired capital and surplus and which, at December 31, 2009, was $29.2 million. Such loans are generally used for working capital and purchasing equipment or furniture. Commercial and industrial loans are made with either adjustable or fixed rates of interest with a maximum term of twenty years. The interest rates for commercial loans are based on the prime rate, as published in The Wall Street Journal.

When making commercial and industrial loans, we consider the financial strength and debt service capabilities of the borrower, our lending history with the borrower, the projected cash flows of the business and the value and type of the collateral. Commercial and industrial loans are generally secured by a variety of collateral, primarily accounts receivable, inventory, equipment, savings instruments and readily marketable securities. In addition, we usually require the business principals to execute personal guarantees.

Commercial and industrial loans generally have greater credit risk than residential mortgage loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial and industrial loans generally are made on the basis of the borrower’s ability to repay the loan from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial and industrial loans may depend substantially on the success of the business itself. Further, any collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value. We seek to minimize these risks through our underwriting standards. At December 31, 2009, our largest commercial and industrial loan outstanding was $4.4 million, which is secured by marketable securities. Our largest committed commercial and industrial relationship was $14.5 million to a manufacturer located in our primary market area. Including an additional $4.2 million participated out to another bank, the total relationship of $18.7 million is comprised of $4.5 million of commercial and industrial loan availability, a $10 million industrial development bond for the construction of a new facility ($4.2 million of which is participated out) and a $4.2 million commercial real estate loan on the borrower’s existing facility, which will be sold once the new facility is complete and occupied, scheduled for the second quarter of 2010. The total amount outstanding at December 31, 2009 was $11.9 million, with no amounts outstanding on the commercial and industrial loan. All loans to these customers were performing in accordance with loan terms at December 31, 2009.

Automobile and Other Consumer Loans. We offer direct automobile loans with terms of up to 60 months. For new cars, our lending policy provides that the amount financed should not exceed 100% of the gross selling price of the vehicle. For used cars, our lending policy provides that the amount of the loan should not exceed the “loan value” of the vehicle, as established by industry guides. The interest rates offered are the same for new and used automobile loans. Full insurance coverage must be maintained on the financed vehicle and United Bank must be named loss payee on the policy. At December 31, 2009, we had $14.7 million in automobile loans, which amounted to 1.3% of total loans.

We offer a variety of other consumer loans, principally to existing United Bank customers residing in our primary market area with acceptable credit ratings. Our other consumer loans generally consist of secured and unsecured personal loans, motorcycle and motor home loans, manufactured housing, boat loans and pool and spa loans. Other consumer loans totaled $8.9 million, or 0.8% of our total loan portfolio at December 31, 2009. At December 31, 2009, $312,000 of such consumer loans were unsecured.

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Consumer loans have greater credit risk than residential mortgage loans, particularly in the case of loans that are unsecured or secured by rapidly depreciating assets such as automobiles, motorcycles, motor homes and boats. In these cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. In addition, consumer loan collections depend on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

Loan Originations, Purchases, Sales, Participations and Servicing of Loans. Lending activities are conducted primarily by our loan personnel operating at our main and branch office locations. All loans that we originate are underwritten pursuant to our policies and procedures. We originate both fixed-rate and adjustable-rate loans. Our ability to originate fixed or adjustable rate loans is dependent upon relative customer demand for such loans, which is affected by current and expected future levels of market interest rates.

Generally, we retain in our portfolio virtually all loans that we originate, although we have sold longer-term, fixed rate one- to four-family residential mortgage loans in the secondary market during the second quarter of 2009. No loans were held for sale at December 31, 2009 or 2008. Historically, we have retained the servicing rights on the mortgage loans sold to Fannie Mae and the Massachusetts Housing Financing Authority.

From time to time, we will also purchase loans. During the second quarter of 2009, we purchased $10.3 million in commercial real estate loans from a major financial organization. These loans consisted of five loans secured by real estate located within 50 miles of our main office. Each of the loans were underwritten to our criteria and procedures and have maturities ranging from four years to 23 years.

From time to time, we will also participate in loans, sometimes as the “lead lender.” Whether we are the lead lender or not, we underwrite our participation portion of the loans according to our own underwriting criteria and procedures. At December 31, 2009, we had $33.3 million in loan participation interests in which we were the lead bank and $51.3 million in loan participations in which we were not the lead bank.

At December 31, 2009, we were servicing loans sold in the amount of $51.0 million. Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults, making certain insurance and tax payments on behalf of the borrowers and generally administering the loans.

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The following table shows our loan originations, purchases, sales and repayment activities for the years indicated.

	Years Ended December 31,
	2009			2008		2007
	(In thousands)
Total loans at beginning of period	$	870,488		$	824,695	$	762,113
Loan originations:
Residential mortgages		61,374			46,946		46,191
Commercial mortgages		71,087			57,096		45,449
Construction (1)		15,805			28,799		50,089
Home equity		46,706			58,928		58,634
Commercial and industrial		61,923			97,274		87,869
Automobile		6,603			5,367		9,364
Other consumer		649			5,368		6,106
Total loans originated		264,147			299,778		303,702
Loans purchased		10,262			15,024		-
Loans acquired from CNB Financial at fair value		236,387			-		-
Deductions:
Principal loan repayments		230,976			269,009		239,074
Loan sales		29,530			-		2,046
(Increase) decrease due to other items (2)		(1,463	)		4,399		11
Total deductions		259,043			269,009		241,120
Net loan activity		251,753			45,793		62,582
Total loans at end of period	$	1,122,241		$	870,488	$	824,695

(1)	Includes $7,847, $25,799 and $41,708 of commercial construction loans for the years ended December 31, 2009, 2008 and 2007, respectively.

(2)	Includes additional disbursements on home equity and lines of credit, participation loans serviced for others, minor changes and other activity on loans previously originated.

Loan Approval Procedures and Authority. United Bank’s lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by United Bank’s Board of Directors. The loan approval process is intended to assess the borrower’s ability to repay the loan, the viability of the loan, and the adequacy of the value of the property that will secure the loan. To assess the borrower’s ability to repay, we review the employment and credit history and information on the historical and projected income and expenses of borrowers.

United Bank’s policies and loan approval limits are established by the Board of Directors. The Board of Directors has delegated authority to United Bank’s Chief Lending Officer to review and assign lending authorities to certain individuals of United Bank (ranging from senior management to senior loan underwriter) (the “Designated Individuals”) to consider and approve loans within their designated authority. In addition the Board has delegated authority at the request of the Chief Lending Officer to an Officers’ Loan Committee comprising the Chief Executive Officer, Chief Lending Officer, EVP of Commercial Banking, Chief Credit Officer and SVP of Risk Management. Loans in amounts above the authorized limits of the Officers’ Loan Committee and loans outside of the designated authority of the Officers’ Loan Committee require the approval of United Bank’s Directors’ Loan Committee. The Directors’ Loan Committee consists of five of our directors, including our Chief Executive Officer. All loans that are approved by the Designated Individuals or the Officers’ Loan Committee are still reviewed and ratified by the Directors’ Loan Committee and the Board of Directors on a monthly basis.

All residential mortgage loans (one- to four-family loans, home equity loans, home equity lines of credit and residential construction loans) may be approved by certain of the Designated Individuals in amounts up to the

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annually adjusted Fannie Mae and Freddie Mac secondary market conforming loan limits (“Conforming Loans”). Residential mortgage loans in excess of the Conforming Loan limit and up to $1.0 million may be approved by any two of either United Bank’s Chief Executive Officer, Chief Financial Officer or Senior Vice President of Residential Lending. Residential loans in excess of $1.0 million must be approved by any two of the senior executive officers listed above and United Bank’s Loan Committee.

All commercial real estate, commercial construction loans and commercial and industrial loans in amounts up to $1,000,000 may be approved by certain of the Designated Individuals. All such loans in excess of $1,000,000, or additional extensions of credit to existing commercial borrowers that result in liability in excess of $1,000,000, must be approved by United Bank’s Officers’ Loan Committee. All home equity loans and home equity lines of credit up to $350,000 may be approved by certain of the Designated Individuals. All home equity loans and home equity lines of credit in excess of $350,000 must be approved by the Officers’ Loan Committee. All loans in excess of $2,000,000, or additional extensions of credit to existing commercial borrowers that result in liability in excess of $2,000,000, must be approved by United Bank’s Directors’ Loan Committee; in addition there are certain instances which may trigger the need for approval of the Directors’ Loan Committee at a $1,000,000 threshold, for example if the collateral is located outside of our primary market area or if the loan is adversely rated.

All consumer loans in amounts up to $100,000 may be approved by certain of the Designated Individuals. All consumer loans in excess of $100,000 must be approved by the Loan Committee.

We generally require appraisals of all real property securing loans, except for home equity loans and equity lines of credit, in which case we may use the assessed tax value of the property securing such loans. Appraisals are performed by independent licensed appraisers. All appraisers are approved by the Loan Committee annually. We require fire and extended coverage insurance in amounts at least equal to the principal amount of the loan.

Non-performing and Problem Assets

Asset Quality Process We have an independent loan review process and our loan review consultants provided two on-site reviews of our Springfield based commercial portfolio and three on-site reviews of the Worcester based commercial portfolio during 2009; all loan relationships in excess of $1 million and all classified loans were reviewed by the third party consultants. In addition, the Springfield and Worcester portfolios were reviewed by the respective bank regulators during the year, and the Worcester portfolios were reviewed during the due diligence process leading up to the acquisition of CNB.

We initiate collection efforts when a loan becomes ten days past due with system-generated reminder notices. Subsequent late charge and delinquent notices are issued and the account is monitored on a regular basis thereafter. Personal, direct contact with the borrower is attempted early in the collection process as a courtesy reminder and later to determine the reason for the delinquency and to safeguard our collateral. When a loan is more than 60 days past due, the credit file is reviewed and, if deemed necessary, information is updated or confirmed and collateral re-evaluated. We make every effort to contact the borrower and develop a plan of repayment to cure the delinquency. A summary report of all loans 30 days or more past due is reported to the Board of Directors. If no repayment plan is in process, the file is referred to counsel for the commencement of foreclosure or other collection efforts.

Loans are generally placed on non-accrual status when they are more than 90 days delinquent. When loans are placed on a non-accrual status, unpaid accrued interest is fully reversed.

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Non-Performing Assets. The table below sets forth the amounts and categories of our non-performing assets at the dates indicated. At each date presented, we had no troubled debt restructurings (loans for which a portion of interest or principal has been forgiven and loans modified at interest rates less than current market rates).

	At December 31,
	2009			2008			2007			2006			2005
	(Dollars in thousands)
Non-accrual loans:
Residential mortgages	$	1,190		$	1,244		$	328		$	-		$	1,016
Commercial mortgages		10,717			2,544			553			1,144			141
Construction		3,280			444			577			-			113
Home equity		492			-			52			20			-
Commercial and industrial		571			425			275			123			447
Automobile		4			-			-			-			-
Other consumer		33			140			-			1			-
Total non-accrual loans		16,287			4,797			1,785			1,288			1,717
Accruing loans 90 days or more past due		-			-			-			-			-

Total non-performing loans		16,287			4,797			1,785			1,288			1,717

Other real estate owned		1,545			998			880			562			1,602
Total non-performing assets	$	17,832		$	5,795		$	2,665		$	1,850		$	3,319

Ratios:
Total non-performing loans to total loans		1.45	%		0.55	%		0.22	%		0.17	%		0.27	%
Total non-performing assets to total assets		1.16	%		0.46	%		0.25	%		0.18	%		0.37	%
Allowance for loan losses to non-performing loans		56.36	%(1)		171.98	%		432.16	%		560.40	%		371.69	%

(1)	Exclusive of the $3.3 million in non-performing acquired loans, allowance for loan losses as a percent of non-performing loans would have been 70.44%.

As noted in the above table, non-accrual loans amounted to approximately $16.3 million and $4.8 million at December 31, 2009 and 2008, respectively. The increase of $11.5 million reflects $3.3 million of impaired loans acquired from CNB Financial and the addition of five commercial real estate relationships totaling $8.2 million. Two of the five loans are scheduled to be paid off or substantially paid down during the first quarter of 2010. The remaining three loans have active workout plans in place and are expected to be resolved in the first half of 2010. The acquired loans represent two construction loans ($2.7 million) that are considered collateral dependent. The sale of the underlying collateral will ultimately repay the loans. Additional interest income of approximately $281,000, $132,000, $69,000, $71,000 and $158,000, respectively, would have been recorded during the years ended December 31, 2009, 2008, 2007, 2006 and 2005, respectively, if the loans had performed in accordance with their original terms.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

At December 31, 2009 and 2008, the recorded investment in impaired loans was $16.3 million and $4.8 million, respectively. An allowance for loan losses was established on $11.9 million and $4.8 million of the impaired loans at December 31, 2009 and 2008, respectively, which allowances totaled $599,000 and $343,000 at the respective year-ends. In accordance with the “Loans and Debt Securities Acquired with Deteriorating Credit Quality” section of FASB ASC 310 “Receivables,” the Company recorded a non accretable credit discount of $2.1 million related to impaired loans of $5.2 million acquired from CNB Financial. The average balance of impaired loans was $9.3 million, $4.0 million and $2.2 million for the years ended December 31, 2009, 2008 and 2007, respectively. Interest income recognized on impaired loans during 2009, 2008 and 2007 was not significant.

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Delinquent Loans. The following table sets forth our loan delinquencies greater than 60 days by type and amount at the dates indicated. The increase in total delinquent loans at December 31, 2009 is primarily the result of two large commercial real estate loans which total $8.8 million.

	Loans Delinquent For
	60 - 89 Days				90 Days and Over				Total
	Number		Amount		Number		Amount		Number		Amount
	(Dollars in thousands)
At December 31, 2009
Residential mortgages		13	$	1,355		5	$	1,190		18	$	2,545
Commercial mortgage		8		2,298		13		10,717		21		13,015
Construction		3		424		5		3,280		8		3,704
Home equity		3		157		4		492		7		649
Commercial and industrial		3		54		15		571		18		625
Automobile		-		-		3		4		3		4
Other consumer		3		11		1		33		4		44
Total		33	$	4,299		46	$	16,287		79	$	20,586

At December 31, 2008
Residential mortgages		7	$	939		7	$	1,244		14	$	2,183
Commercial mortgages		3		772		8		2,544		11		3,316
Construction		1		140		3		444		4		584
Home equity		2		126		-		-		2		126
Commercial and industrial		5		242		15		425		20		667
Automobile		1		8		-		-		1		8
Other consumer		1		2		2		140		3		142
Total		20	$	2,229		35	$	4,797		55	$	7,026

At December 31, 2007
Residential mortgages		1	$	558		4	$	328		5	$	886
Commercial mortgages		3		671		5		553		8		1,224
Construction		-		-		5		577		5		577
Home equity		2		200		2		52		4		252
Commercial and industrial		7		454		8		275		15		729
Automobile		-		-		-		-		-		-
Other consumer		2		50		-		-		2		50
Total		15	$	1,933		24	$	1,785		39	$	3,718

At December 31, 2006
Residential mortgages		3	$	203		-	$	-		3	$	203
Commercial mortgages		1		149		7		1,144		8		1,293
Construction		-		-		-		-		-		-
Home equity		-		-		1		20		1		20
Commercial and industrial		2		47		4		123		6		170
Automobile		2		1		-		-		2		1
Other consumer		-		-		1		1		1		1
Total		8	$	400		13	$	1,288		21	$	1,688

At December 31, 2005
Residential mortgages		8	$	755		5	$	998		13	$	1,753
Commercial mortgages		4		546		2		141		6		687
Construction		-		-		1		113		1		113
Home equity		1		100		1		18		2		118
Commercial and industrial		1		2		6		447		7		449
Automobile		1		1		-		-		1		1
Other consumer		-		-		-		-		-		-
Total		15	$	1,404		15	$	1,717		30	$	3,121

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Other Real Estate Owned. Other real estate acquired by us as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until sold. When property is acquired it is recorded at the lower of cost or fair market value at the date of foreclosure, establishing a new cost basis. Holding costs and declines in fair value after acquisition are expensed. At December 31, 2009, we had $1.5 million of real estate owned.

Classified Assets. Office of Thrift Supervision regulations provide that loans and other assets of lesser quality should be classified as “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that we will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. We classify an asset as “special mention” if the asset has a potential weakness that warrants management’s close attention. While such assets are not impaired, management has concluded that if the potential weakness in the asset is not addressed, the value of the asset may deteriorate, adversely affecting the repayment of the asset.

We establish general allowances for loan losses in an amount deemed prudent by management for loans classified substandard or doubtful, as well as for other potential problem loans. General allowances represent loss allowances which have been established to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When we classify problem assets as “loss,” we are required either to establish a specific allowance for losses equal to 100% of the amount of the asset so classified or to charge off such amount. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the Office of Thrift Supervision, which can order the establishment of additional general or specific loss allowances.

The following table shows the aggregate amounts of our classified assets at the dates indicated for both loans and foreclosed assets. The total amount of loans in the table below at December 31, 2009 includes twenty relationships which represent 60% of the classified asset total. The acquisition of CNB Financial resulted in a $21.9 million increase in classified assets. The remaining $13.9 million was primarily due to downgrades in the commercial real estate portfolio. Construction loans for single family homes, subdivisions and condominium developments represent 24% of the classified asset total.

	At December 31,		At December 31,
	2009		2008
	(In thousands)
Classified Loans:
Special mention	$	33,507	$	18,363
Substandard		45,354		24,527
Doubtful		136		894
Loss		-		-

Total classified loans	$	78,997	$	43,784

Foreclosed Assets:
Other real estate owned		1,545		998

Total classified assets	$	80,542	$	44,782

The loan portfolio is reviewed on a regular basis to determine whether any loans require classification in accordance with applicable regulations. Not all classified assets constitute non-performing assets.

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A loan is classified as a troubled debt restructuring if the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. This usually includes a modification of loan terms, such as a reduction of the interest rate to below market terms, capitalizing past due interest or extending the maturity date and possibly a partial forgiveness of debt. Interest income on restructured loans is accrued after the borrower demonstrates the ability to pay under the restructured terms through a sustained period of repayment performance, which is generally six months.

Allowance for Loan Losses

Our allowance for loan losses is maintained at a level necessary to absorb loan losses that are both probable and reasonably estimable. Management, in determining the allowance for loan losses, considers the losses inherent in our loan portfolio and changes in the nature and volume of loan activities, along with the general economic and real estate market conditions. A description of our methodology in establishing our allowance for loan losses is set forth in under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Critical Accounting Policies—Allowance for Loan Losses.” The allowance for loan losses as of December 31, 2009 was maintained at a level that represents management’s best estimate of losses inherent in the loan portfolio. However, this analysis process is inherently subjective, as it requires us to make estimates that are susceptible to revisions as more information becomes available. Although we believe that we have established the allowance at levels to absorb probable and estimable losses, future additions or deductions may be necessary if economic or other conditions in the future differ from the current environment.

In addition, as an integral part of their examination process, the Office of Thrift Supervision has authority to periodically review our allowance for loan losses. Such agencies may require that we recognize additions to the allowance based on their judgments of information available to them at the time of their examination.

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Allowance for Loan Losses. The following table sets forth activity in our allowance for loan losses for the years indicated.

	At or For the Year Ended December 31,
	2009			2008			2007			2006			2005
	(Dollars in thousands)
Balance at beginning of period	$	8,250		$	7,714		$	7,218		$	6,382		$	5,750
Charge-offs:
Residential mortgages		69			-			-			-			-
Commercial mortgages		1,399			6			39			-			60
Construction		135			444			326			-			-
Home equity		-			42			-			10			-
Commercial and industrial		545			827			593			164			377
Automobile		5			8			21			1			15
Other consumer		10			9			4			11			3
Total charge-offs		2,163			1,336			983			186			455
Recoveries:
Residential mortgages		1			-			-			-			-
Commercial mortgages		5			-			-			1			-
Construction		2			-			-			-			-
Home equity		-			5			4			-			-
Commercial and industrial		85			17			47			47			157
Automobile		2			3			1			2			6
Other consumer		-			1			2			3			7
Total recoveries		95			26			54			53			170
Net charge-offs		(2,068	)		(1,310	)		(929	)		(133	)		(285	)
Provision for loan losses		2,998			1,846			1,425			969			917
Balance at end of period	$	9,180		$	8,250		$	7,714		$	7,218		$	6,382
Ratios:
Net charge-offs to average loans outstanding		0.23	%		0.15	%		0.12	%		0.02	%		0.05	%
Allowance for loan losses to non-performing loans at end of period		56.36	%(1)		171.98	%		432.16	%		560.40	%		371.69	%
Allowance for loan losses to total loans at end of period		0.82	%(2)		0.95	%		0.94	%		0.95	%		1.00	%

______________________________

(1)	Exclusive of the $3.3 million in non-performing acquired loans, allowance for loan losses as a percent of non-performing loans would have been 70.44%.

(2)	Exclusive of the $242.9 million in acquired loans and $22.7 million in loans purchased from other financial institutions, allowance for loan losses as a percent of total loans would have been 1.07%.

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Allocation of Allowance for Loan Losses. The following table sets forth the allowance for loan losses allocated by loan category, the total loan balances by category, and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

	At December 31,
	2009								2008								2007
	Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category to Total Loans			Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category to Total Loans			Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category to Total Loans
	(Dollars in thousands)
At end of period allocated to:
Residential mortgages	$	802		8.74	%		30.59	%	$	891		10.80	%		40.95	%	$	849		11.00	%		41.16	%
Commercial mortgages		4,300		46.84	%		36.51	%		3,506		42.50	%		28.55	%		3,164		41.02	%		26.04	%
Construction		1,194		13.01	%		4.35	%		1,089		13.20	%		3.69	%		1,229		15.93	%		5.10	%
Home equity		621		6.76	%		12.24	%		604		7.32	%		13.87	%		523		6.78	%		14.10	%
Commercial and industrial		2,051		22.34	%		14.21	%		1,911		23.16	%		9.76	%		1,667		21.61	%		9.89	%
Automobile		110		1.20	%		1.31	%		156		1.89	%		1.99	%		202		2.62	%		2.72	%
Other consumer		102		1.11	%		0.79	%		93		1.13	%		1.19	%		80		1.04	%		0.99	%
Total allowance	$	9,180		100.00	%		100.00	%	$	8,250		100.00	%		100.00	%	$	7,714		100.00	%		100.00	%

	At December 31,
	2006								2005
	Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category to Total Loans			Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category to Total Loans
	(Dollars in thousands)
At end of period allocated to:
Residential mortgages	$	957		13.26	%		41.87	%	$	297		4.65	%		44.86	%
Commercial mortgages		2,588		35.85	%		23.04	%		2,944		46.13	%		23.61	%
Construction		1,255		17.39	%		7.19	%		316		4.95	%		4.54	%
Home equity		512		7.09	%		14.79	%		257		4.03	%		13.54	%
Commercial and industrial		1,633		22.62	%		9.15	%		2,487		38.97	%		9.37	%
Automobile		220		3.05	%		3.21	%		78		1.22	%		3.47	%
Other consumer		53		0.73	%		0.75	%		3		0.05	%		0.61	%
Total allowance	$	7,218		100.00	%		100.00	%	$	6,382		100.00	%		100.00	%

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Investments

The investment policy is reviewed annually by management and any changes to the policy are recommended to and subject to the approval of the Board of Directors. Authority to make investments under the approved investment policy guidelines is delegated to appropriate officers. While general investment strategies are developed and authorized by the Board of Directors, the execution of specific actions primarily rests with United Bank’s Chief Financial Officer. He is both responsible for ensuring that the guidelines and requirements included in the investment policy are followed and that all securities are considered prudent for investment. He and United Bank’s Treasurer or his/her designee, under his/her direction is authorized to execute investment transactions (purchases and sales) up to $10 million per transaction without prior approval and within the scope of the established investment policy. All investment transactions are reviewed and ratified or approved (as the case may be) at regularly scheduled meetings of the Board of Directors. Any investment that, subsequent to its purchase, fails to meet the guidelines of the policy is reported to the Board of Directors at its next meeting where the Board decides whether to hold or sell the investment.

The Company’s Board of Directors has adopted an investment policy that is substantially identical to the Bank’s policy. Any references herein to “the Bank” also apply to the Company.

Federally chartered savings banks have authority to invest in various types of assets, including U.S. Treasury obligations, securities of various federal agencies, mortgage-backed securities, certain certificates of deposit of insured financial institutions, overnight and short-term loans to other banks, corporate debt instruments, and Fannie Mae and Freddie Mac equity securities. United Financial Bancorp, Inc., as a savings and loan holding company, may invest in equity securities subject to certain limitations.

The investment policy requires that all securities transactions be conducted in a safe and sound manner. Investment decisions must be based upon a thorough analysis of each security instrument to determine its quality and inherent risks, fit within United Bank’s overall asset/liability management objectives, effect on its risk-based capital measurement and prospects for yield and/or appreciation. The investment policy provides that United Bank may invest in U.S. Treasury obligations, U.S. and state agency securities, mortgage-backed securities, corporate debt securities, commercial paper and other conservative investment opportunities.

At December 31, 2009 our investment portfolio consisted of $353,000 in federal agency obligations, $1.7 million of corporate debt instruments, $18.5 million of municipal bonds and $1.0 million of industrial revenue bonds. We also invest in mortgage-backed securities, substantially all of which are guaranteed by the United States Government or agencies or government sponsored enterprises. The Company also owns an insignificant amount of private label, residential mortgage-backed securities as a result of its acquisition of CNB Financial. At December 31, 2009, our mortgage-backed securities portfolio totaled $284.4 million. Securities can be classified as held-to-maturity or available-for-sale at the date of purchase. We generally classify our investment securities as available-for-sale.

Mortgage-Backed Securities. We purchase mortgage-backed securities insured or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. We invest in mortgage-backed securities to achieve positive interest rate spreads with minimal administrative expense, and to lower our credit risk as a result of the guarantees provided by Freddie Mac, Fannie Mae or Ginnie Mae. Our investment policy also authorizes the investment in collateralized mortgage obligations (“CMOs”), also insured or issued by Freddie Mac, Fannie Mae and Ginnie Mae.

Mortgage-backed securities are created by the pooling of mortgages and the issuance of a security with an interest rate that is slightly less than the interest rate on the underlying mortgages. Mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages, although we focus our investments on mortgage-backed securities backed by one- to four-family mortgages. The issuers of such securities (generally U.S. government agencies and government sponsored enterprises, including Fannie Mae, Freddie Mac and Ginnie Mae) pool and resell the participation interests in the form of securities to investors such as us, and guarantee the payment of principal and interest to investors. Mortgage-backed securities generally yield less than the loans that underlie such securities because of the cost of payment guarantees and credit enhancements. However, mortgage-backed securities are usually more liquid than individual mortgage loans and may be used to collateralize our specific liabilities and obligations.

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At December 31, 2009, our mortgage-backed securities totaled $284.4 million, or 18.5% of total assets and 19.8% of interest earning assets. Our mortgage-backed securities at December 31, 2009 were classified as both available-for-sale and held-to-maturity. At December 31, 2009, 16.6% of the mortgage-backed securities were backed by adjustable-rate mortgage loans and 83.4% were backed by fixed-rate mortgage loans. The mortgage-backed securities portfolio had a weighted average yield of 4.75% at December 31, 2009. The estimated fair value of our mortgage-backed securities at December 31, 2009 was $284.2 million, which was $8.9 million more than the amortized cost of $275.3 million. Private issue CMO’s are included in our mortgage-backed securities portfolio as a result of the acquisition of CNB Financial. At December 31, 2009, private issue CMO’s had an estimated fair value and amortized cost of $5.0 million, represented 1.8% of total mortgage-backed securities and had a weighted average yield of 6.42%. Investments in mortgage-backed securities involve a risk that actual prepayments may differ from estimated prepayments over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments thereby changing the net yield on such securities. There is also reinvestment risk associated with the cash flows from such securities or if such securities are redeemed by the issuer. In addition, the market value of such securities may be adversely affected by changes in interest rates.

Government-Sponsored Enterprises. At December 31, 2009, our U.S. Government-Sponsored Enterprises securities portfolio totaled $353,000, all of which was classified as available-for-sale. While these securities generally provide lower yields than other investments in our securities investment portfolio, we maintain these investments, to the extent appropriate, for liquidity purposes, as collateral for borrowings and for prepayment protection.

Corporate Bonds. At December 31, 2009, our corporate bond portfolio totaled $1.7 million, all of which was classified as available-for-sale, consisting of trust preferred securities issued by financial services companies. Although corporate bonds may offer higher yields than U.S. Treasury or agency securities of comparable duration, corporate bonds also have a higher risk of default due to possible adverse changes in the credit-worthiness of the issuer. In order to mitigate this risk, our investment policy requires that at the time of purchase corporate debt obligations be rated in one of the four highest categories by a nationally recognized rating service. We may invest up to 5% of consolidated assets in corporate debt obligations and up to $1,000,000 in any one issuer.

Municipal Obligations and Industrial Revenue Bonds. Municipal obligations are securities issued by states, counties and municipalities or their agencies. The industrial revenue bonds in our portfolio are issued by the Massachusetts Health and Educational Facilities Authority, an independent public authority created by Massachusetts to assist nonprofit organizations to borrow funds through tax-exempt bond issuances. Our investment policy requires that the municipal obligations be rated at the time of purchase within the first four rating categories by Standard & Poor’s or Moody’s. At December 31, 2009, our municipal obligations portfolio consisted of both available-for-sale and held-to-maturity securities. At December 31, 2009, our municipal obligations that are classified as available-for-sale totaled $10.9 million and our industrial revenue and municipal obligations that are classified as held-to-maturity totaled $8.5 million.

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Investment Securities Portfolio. The following table sets forth the amortized cost and fair value of our securities portfolio at the dates indicated.

	At December 31,
	2009				2008				2007
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Investment securities	(In thousands)
Available-for-sale:
Government-sponsored enterprises	$	342	$	353	$	467	$	465	$	45,447	$	45,474
Government-sponsored and government-guaranteed mortgage-backed securities		215,819		224,836		294,824		301,111		146,764		147,581
Private label mortgage-backed securities		4,999		5,036		-		-		-		-
Corporate debt obligations		1,449		1,712		1,538		1,538		2,820		2,778
Municipal bonds		11,004		10,933		10,504		10,392		5,295		5,284
Marketable equity securities		97		434		-		-		140		140
Total available-for-sale	$	233,710	$	243,304	$	307,333	$	313,506	$	200,466	$	201,257
Held-to-maturity:
Government-sponsored and government-guaranteed mortgage-backed securities	$	54,506	$	54,281	$	-	$	-	$	-	$	-
IRB		1,039		1,039		1,122		1,122		1,197		1,197
State of Israel bonds		150		150		-		-		-		-
Municipal bonds		7,479		7,593		2,069		2,116		2,435		2,434
Total held-to-maturity	$	63,174	$	63,063	$	3,191	$	3,238	$	3,632	$	3,631

At December 31, 2009, the Company did not own any securities, other than government-sponsored and government-guaranteed mortgage-backed securities, that had an aggregate book value in excess of 10% of our total capital at that date.

The following table sets forth changes in our investment activity for the periods indicated.

	For the Years Ended December 31,
	2009			2008			2007
	(In thousands)

Investment securities, beginning of period	$	316,697		$	204,889		$	193,478
Investments acquired from CNB Financial at fair value		32,354			-			-
Purchases		60,449			231,991			91,188
Sales		(31,348	)		(51,448	)		(16,537	)
Calls, maturities and principal repayments		(74,694	)		(72,571	)		(66,853	)
Decrease in net premium		(402	)		(192	)		(103	)
Increase in net unrealized gain		3,422			4,028			3,716
Net (decrease) increase in investment securities		(10,219	)		111,808			11,411
Investment securities, end of period	$	306,478		$	316,697		$	204,889

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Portfolio Maturities and Yields. The composition and maturities of the investment securities portfolio at December 31, 2009 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. Equity securities do not have contractual maturities and are excluded from this table. Weighted average yields are presented on a tax-equivatent basis.

	One Year or Less					More than One Year through Five Years					More than Five Years through Ten Years					More than Ten Years					Total Securities
	Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Fair Value
	(Dollars in thousands)
Investment securities
Available-for-sale:
Government-sponsored enterprises	$	-		0.00	%	$	342		4.46	%	$	-		0.00	%	$	-		0.00	%	$	342		4.46	%	$	353
Government-sponsored and government-guaranteed mortgage- backed securities		3,557		3.38	%		4,946		4.06	%		19,067		4.00	%		188,249		5.15	%		215,819		4.99	%		224,836
Private label mortgage-backed
securities		-		0.00	%		-		0.00	%		2,638		7.37	%		2,361		5.36	%		4,999		6.42	%		5,036
Corporate debt obligations		-		0.00	%		-		0.00	%		-		0.00	%		1,449		4.80	%		1,449		4.80	%		1,712
Municipal bonds		-		0.00	%		-		0.00	%		2,259		3.55	%		8,745		4.23	%		11,004		4.09	%		10,933
Total available-for-sale	$	3,557		3.38	%	$	5,288		4.09	%	$	23,964		4.33	%	$	200,804		5.11	%	$	233,613		4.98	%	$	242,870

Held-to-maturity:
Government-sponsored and government-guaranteed mortgage- backed securities	$	-		0.00	%	$	-		0.00	%	$	17,713		3.45	%	$	36,793		3.74	%	$	54,506		3.65	%	$	54,281
IRB		-		0.00	%		-		0.00	%		-		0.00	%		1,039		4.16	%		1,039		4.16	%		1,039
State of Israel bonds		75		3.48	%		75		5.07	%		-		0.00	%		-		0.00	%		150		4.28	%		150
Municipal bonds		386		3.07	%		529		3.35	%		1,368		3.61	%		5,196		4.05	%		7,479		3.87	%		7,593
Total held-to-maturity	$	461		3.14	%	$	604		3.56	%	$	19,081		3.46	%	$	43,028		3.79	%	$	63,174		3.68	%	$	63,063

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Sources of Funds

General. Deposits have traditionally been our primary source of funds for lending and investment activities. We also use borrowings, primarily Federal Home Loan Bank advances, to supplement cash flow needs, to lengthen the maturities of liabilities for interest rate risk management purposes and to manage the cost of funds. Other sources of funds are scheduled loan payments, investment maturities, loan prepayments, retained earnings and income on other earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.

Deposits. Our deposits are generated primarily from residents and businesses within our primary market area. We offer a selection of deposit accounts, including demand accounts, NOW accounts, money market accounts, savings accounts, retirement accounts and certificates of deposit. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate. We currently do not accept brokered deposits, although we have the authority to do so.

Interest rates paid, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. We rely on personalized customer service, long-standing relationships with customers and an active marketing program to attract and retain deposits.

The flow of deposits is influenced significantly by general economic conditions, changes in money market and other prevailing interest rates, and competition. The variety of deposit accounts offered allows us to be competitive in obtaining funds and responding to changes in consumer demand. Based on experience, we believe that our deposits are relatively stable. However, the ability to attract and maintain deposits, and the rates paid on these deposits, have been and will continue to be significantly affected by market conditions. At December 31, 2009, $478.3 million, or 46.0% of our deposit accounts, were certificates of deposit, of which $325.2 million had maturities of one year or less.

The following table sets forth the distribution of total deposits by account type, at the dates indicated.

	At December 31,
	2009								2008								2007
	Balance (1)		Percent			Weighted Average Rate			Balance		Percent			Weighted Average Rate			Balance		Percent			Weighted Average Rate
	(Dollars in thousands)
Deposit type:
Demand	$	154,374		14.87	%		-	%	$	114,178		14.59	%		-	%	$	102,010		14.20	%		-	%
NOW		42,262		4.07	%		0.41	%		32,390		4.14	%		0.50	%		35,207		4.90	%		0.51	%
Regular savings		174,270		16.79	%		0.84	%		99,492		12.71	%		1.04	%		65,711		9.14	%		1.15	%
Money market		189,763		18.28	%		0.89	%		160,736		20.54	%		1.69	%		168,107		23.39	%		2.94	%
Certificates of deposit		477,534		46.00	%		2.28	%		375,867		48.02	%		3.34	%		347,647		48.37	%		4.58	%
Total deposits	$	1,038,203		100.00	%		1.37	%	$	782,663		100.00	%		2.10	%	$	718,682		100.00	%		3.03	%

(1)	Excludes the fair value adjustment balance of $724,000 recorded in connection with the acquisition of CNB Financial.

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The following table sets forth our time deposits classified by interest rate as of the dates indicated.

	At December 31,
	2009 (1)		2008		2007
	(In thousands)

Interest Rate
Less than 2.00%	$	201,381	$	10,119	$	3
2.00-2.99%		132,212		94,010		9,280
3.00-3.99%		106,105		215,796		37,040
4.00-4.99%		34,948		54,329		247,487
5.00-5.99%		2,888		1,613		53,837
Total time deposits	$	477,534	$	375,867	$	347,647

(1)	Excludes the fair value adjustment balance of $724,000 recorded in connection with the acquisition of CNB Financial.

The following table sets forth the amount and maturities of our time deposits at December 31, 2009.

	Less than one year		Over one year to two years		Over two years to three years		Over three years		Total (1)
	(In thousands)

Interest Rate
Less than 2.00%	$	183,526	$	17,802	$	53	$	-	$	201,381
2.00-2.99%		86,589		20,117		18,706		6,800		132,212
3.00-3.99%		36,034		45,053		5,506		19,512		106,105
4.00-4.99%		15,700		2,767		5,038		11,443		34,948
5.00-5.99%		2,588		-		201		99		2,888
Total	$	324,437	$	85,739	$	29,504	$	37,854	$	477,534

(1)	Excludes the fair value adjustment balance of $724,000 recorded in connection with the acquisition of CNB Financial.

The following table sets forth changes in our deposit activity for the periods indicated.

	For the Years Ended December 31,
	2009		2008		2007
	(In thousands)

Beginning balance	$	782,663	$	718,682	$	685,686
Net deposits		46,160		46,146		10,944
Deposits acquired from CNB Financial at fair value		196,021		-		-
Interest credited on deposit accounts (1)		14,083		17,835		22,052
Net increase in deposits		256,264		63,981		32,996
Ending balance	$	1,038,927	$	782,663	$	718,682

_______________

(1)	Includes amortization of fair value adjustment.

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As of December 31, 2009, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $222.4 million. The following table sets forth the maturity of those certificates as of December 31, 2009, in thousands.

Three months or less	$	57,626
Over three months through six months		55,007
Over six months through one year		47,349
Over one year to three years		51,825
Over three years		10,544
Total	$	222,351

Borrowings. Our borrowings consist of advances from the Federal Home Loan Bank of Boston, collateralized repurchase agreements with our customers and other financial institutions and subordinated debentures. As of December 31, 2009, we had Federal Home Loan Bank advances of $205.6 million, or 15.6% of total liabilities, with a weighted average maturity of 2.6 years and a weighted average rate of 3.47%. As a member of the Federal Home Loan Bank of Boston, we can currently borrow up to approximately $274.1 million from the Federal Home Loan Bank.

The following table summarizes information concerning balances and interest rates on our Federal Home Loan Bank advances at and for the periods indicated:

	For the Years Ended December 31,
	2009			2008			2007
	(In thousands)

Balance at end of period	$	205,552	(1)	$	208,564		$	107,997
Average amount outstanding during year		171,058	(1)		178,699			158,595
Interest expense incurred during year		6,662			6,739			7,617
Maximum amount outstanding at any month-end		205,552	(1)		228,214			187,941
Average interest rate during the year		3.89	%		3.77	%		4.80	%
Weighted average interest rate on end of period balances		3.47	%		3.32	%		4.55	%

____________________________________________

(1)	Excludes the fair value adjustment balance of $ 2,621 and average balance of $243,000, recorded in connection with the acquisition of CNB Financial.

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The following table sets forth the balances and interest rates by maturity on our Federal Home Loan Bank advances at and for the periods shown:

	For the Years Ended December 31,
	2009					2008					2007
	Amount (1)		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate
	(Dollars in thousands)

Within 1 year	$	47,644		1.85	%	$	55,000		1.26	%	$	17,152		5.00	%
Over 1 year to 2 years		51,346		4.05	%		22,279		4.35	%		13,000		5.13	%
Over 2 years to 3 years		14,013		4.27	%		52,321		4.03	%		26,767		4.15	%
Over 3 years to 4 years		44,489		4.04	%		8,033		4.34	%		23,267		4.60	%
Over 4 years to 5 years		13,000		2.90	%		41,894		4.02	%		9,968		4.34	%
Over 5 years		35,060		3.98	%		29,037		3.84	%		17,843		4.36	%
	$	205,552		3.47	%	$	208,564		3.32	%	$	107,997		4.55	%

(1)	Excludes the fair value adjustment balance of $2,621 recorded in connection with the acquisition of CNB Financial.

Included in the balance of advances due within one year at December 31, 2009 and 2008 are $30.0 million and $42.0 million, respectively, in short-term borrowings which had an interest rate of 0.20% and 0.0625% and matured on January 4, 2010 and January 2, 2009, respectively.

Securities sold under agreements to repurchase include funds borrowed from customers on an overnight basis. At December 31, 2009, the Company had $27.3 million of repurchase agreements outstanding with its customers at a weighted average rate of 1.12%. The following table summarizes our customer repurchase agreements at and for the periods shown:

	For the Years Ended December 31,
	2009			2008			2007
	(In thousands)

Balance at end of period	$	27,303		$	18,042		$	13,864
Average amount outstanding during year		10,559			8,534			7,788
Interest expense incurred during year		126			158			259
Maximum amount outstanding at any month-end		27,303			18,042			13,864
Average interest rate during the year		1.19	%		1.85	%		3.33	%
Weighted average interest rate on end of period balances		1.12	%		1.60	%		3.12	%

In addition the Company had a $20.0 million structured term repurchase agreement secured through another financial institution. The Company purchased a $10.0 million repurchase agreement in 2009 due to mature in 2019, is callable in 2014 and has a rate of 2.44%. The Company had previously purchased a $10.0 million repurchase agreement in 2008 due to mature in 2018, is callable in 2011 and has a rate of 2.73%. All of the repurchase agreements are secured by mortgage-backed securities issued by government sponsored enterprises.

The Company has outstanding subordinated debt in the form of trust preferred securities issued through a private placement offering in the amount of $7.7 million. The issue has a maturity date of March 15, 2036 and bears a floating rate of interest that reprices quarterly at the 3-month LIBOR rate plus 1.85%. The interest rate at December 31, 2009 was 2.10%. A special redemption provision allows the issue to be callable at 103.525% of par for the first year and thereafter on a sliding scale down to 100% of par upon the fifth year and thereafter.

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Subsidiary Activities

UCB Securities, Inc. is a wholly owned subsidiary of United Bank and was established in 1998 as a Massachusetts security corporation for the purpose of buying, selling and holding investment securities. The income earned on UCB Securities, Inc.’s investment securities is subject to a significantly lower rate of state tax than that assessed on income earned on investment securities maintained at United Bank. At December 31, 2009, UCB Securities, Inc. had total assets of $157.8 million, all of which were qualifying securities under the applicable regulations.

UB Properties, LLC is a subsidiary of the Bank formed to hold real estate assets acquired through foreclosure. At December 31, 2009, UB Properties, LLC had total assets of $1.7 million.

United Wealth Management

United Bank, through its division, United Wealth Management, has a partnership with a registered broker-dealer, NFP Securities, Inc. In 2006, United Bank acquired Levine Financial Group in an effort to expand its customer base with increased opportunities to grow our market share and expand the financial services portion of business in the Northampton market. Together they offer United Bank customers a complete range of non-deposit investment products and financial planning services, including mutual funds, debt, equity and government securities, insurance products, fixed and variable annuities, financial planning for individual and commercial customers and estate planning services. United Bank receives a portion of the commissions generated by United Wealth Management from sales to customers.

Expense and Tax Allocation

United Bank has entered into an agreement with United Financial Bancorp, Inc. to provide it with certain administrative support services for compensation not less than the fair value of the services provided. In addition, United Bank and United Financial Bancorp, Inc. have entered into an agreement to establish a method for allocating and for reimbursing the payment of their consolidated tax liability.

United Charitable Foundation

We established the United Charitable Foundation in 2005 in connection with our minority stock offering. At December 31, 2009, the foundation owned 358,156 shares of our common stock, or 2.1% of the shares outstanding. To maintain favorable tax status, the foundation must make annual grants equal to 5% of its assets, and grants are made to community activities and charitable causes in the communities in which we operate. Six of the foundation’s seven directors are directors of United Bank. All shares of common stock owned by the foundation must be voted in the same proportion as all other shares of our common stock are voted on any matter to come before the stockholders.

Personnel

As of December 31, 2009, we had 256 full-time employees and 28 part-time employees. Our employees are not represented by any collective bargaining group. Management believes that we have good relations with our employees.

SUPERVISION AND REGULATION

General

United Bank is examined and supervised by the Office of Thrift Supervision and is also subject to examination by the Federal Deposit Insurance Corporation. This regulation and supervision establishes a comprehensive framework of activities in which an institution may engage and is intended primarily for the protection of the Federal Deposit Insurance Corporation’s deposit insurance funds and depositors. Under this

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system of federal regulation, financial institutions are periodically examined to ensure that they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity and sensitivity to market interest rates. Following completion of its examination, the federal agency critiques the institution’s operations and assigns its rating (known as an institution’s CAMELS rating). Under federal law, an institution may not disclose its CAMELS rating to the public. United Bank also is a member of and owns stock in the Federal Home Loan Bank of Boston, which is one of the twelve regional banks in the Federal Home Loan Bank System. United Bank also is regulated to a lesser extent by the Board of Governors of the Federal Reserve System, governing reserves to be maintained against deposits and other matters. The Office of Thrift Supervision examines United Bank and prepares reports for the consideration of its Board of Directors on any operating deficiencies. United Bank’s relationship with its depositors and borrowers also is regulated to a great extent by federal law and, to a much lesser extent, state law, especially in matters concerning the ownership of deposit accounts and the form and content of United Bank’s mortgage documents.

Certain of the regulatory requirements that are or will be applicable to United Bank and United Financial Bancorp, Inc., are described below. This description of statutes and regulations is not intended to be a complete explanation of such statutes and regulations and their effects on United Bank and United Financial Bancorp, Inc. and is qualified in its entirety by reference to the actual statutes and regulations. Any change in these laws or regulations, whether by the Federal Deposit Insurance Corporation, the Office of Thrift Supervision or Congress, could have a material adverse impact on United Financial Bancorp and United Bank and their operations.

Federal Banking Regulation

Business Activities. A federal savings bank derives its lending and investment powers from the Home Owners’ Loan Act, as amended, and the regulations of the Office of Thrift Supervision. Under these laws and regulations, United Bank may invest in mortgage loans secured by residential real estate without limitations as a percentage of assets and non-residential real estate loans which may not in the aggregate exceed 400% of capital, commercial business loans up to 20% of assets in the aggregate and consumer loans up to 35% of assets in the aggregate, certain types of debt securities and certain other assets. United Bank also may establish subsidiaries that may engage in activities not otherwise permissible for United Bank, including real estate investment and securities and insurance brokerage.

Capital Requirements. Office of Thrift Supervision capital regulations require savings associations to meet three minimum capital standards: a 1.5% tangible capital to total assets ratio; a 4% tier 1 capital to assets leverage ratio (3% for institutions receiving the highest rating on the CAMELS financial institution examination rating system); and an 8% risk-based capital ratio. In addition, the prompt corrective action standards discussed below also establish, in effect, a minimum 2% tangible capital standard, a 4% leverage ratio (3% for institutions receiving the highest examination rating) and, together with the risk-based capital standard itself, a 4% Tier 1 risk-based capital standard. The Office of Thrift Supervision regulations also require that, in meeting the tangible, leverage and risk-based capital standards, institutions must generally deduct investments in and loans to subsidiaries engaged in activities as principal that are not permissible for a national bank.

The risk-based capital standard for savings associations requires the maintenance of Tier 1 (core) and total capital (which is defined as core capital and supplementary capital, less certain specified deductions from total capital such as reciprocal holdings of depository institution capital instruments and equity investments) to risk-weighted assets of at least 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet activities, recourse obligations, residual interests and direct credit substitutes, are multiplied by a risk-weight factor of 0% to 100%, assigned by the Office of Thrift Supervision capital regulation based on the risks believed inherent in the type of asset. Core (Tier 1) capital is generally defined as common stockholders’ equity (including retained earnings), certain non-cumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital (Tier 2 capital) include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets, and up to 45% of unrealized gains on available-for-sale equity securities with readily determinable fair market values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.

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The Office of Thrift Supervision also has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of the particular circumstances. Additionally, a savings bank that retains credit risk in connection with an asset sale may be required to maintain additional regulatory capital because of the recourse back to the savings bank.

In assessing an institution’s capital adequacy, the Office of Thrift Supervision takes into consideration not only these numeric factors but also qualitative factors as well, and has the authority to establish higher capital requirements for individual savings banks where necessary.

At December 31, 2009, United Bank’s capital exceeded all applicable requirements.

Loans-to-One Borrower. Generally, a federal savings bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2009, United Bank was in compliance with the loans-to-one borrower limitations.

Qualified Thrift Lender Test. As a federal savings bank, United Bank must satisfy the qualified thrift lender, or “QTL,” test. Under the QTL test, United Bank must maintain at least 65% of its “portfolio assets” in “qualified thrift investments” in at least nine months of the most recent 12 months. “Portfolio assets” generally means total assets of a savings institution, less the sum of specified liquid assets up to 20% of total assets, goodwill and other intangible assets, and the value of property used in the conduct of the savings bank’s business.

“Qualified thrift investments” include various types of loans made for residential and housing purposes, investments related to such purposes, including certain mortgage-backed and related securities, and loans for personal, family, household and certain other purposes up to a limit of 20% of portfolio assets. “Qualified thrift investments” also include 100% of an institution’s credit card loans, education loans and small business loans. United Bank also may satisfy the QTL test by qualifying as a “domestic building and loan association” as defined in the Internal Revenue Code.

A savings bank that fails the qualified thrift lender test must either convert to a bank charter or operate under specified restrictions. At December 31, 2009, United Bank satisfied this test.

Capital Distributions. Office of Thrift Supervision regulations govern capital distributions by a federal savings bank, which include cash dividends, stock repurchases and other transactions charged to the capital account. Savings banks must file an application for approval of a capital distribution if:

the total capital distributions for the applicable calendar year exceed the sum of the savings bank’s net income for that year to date plus the savings bank’s retained net income for the preceding two years;

the savings bank would not be at least adequately capitalized following the distribution;

the distribution would violate any applicable statute, regulation, agreement or Office of Thrift Supervision-imposed condition; or

the savings bank is not eligible for expedited treatment of its filings.

Even if an application is not otherwise required, every savings bank that is a subsidiary of a holding company must still file a notice with the Office of Thrift Supervision at least 30 days before the Board of Directors declares a dividend or approves a capital distribution.

The Office of Thrift Supervision may disapprove a notice or application if:

the association would be undercapitalized following the distribution;

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the proposed capital distribution raises safety and soundness concerns; or

the capital distribution would violate a prohibition contained in any statute, regulation or agreement.

In addition, the Federal Deposit Insurance Act provides that an insured depository institution may not make any capital distribution, if after making such distribution the institution would be undercapitalized.

Liquidity. A federal savings bank is required to maintain a sufficient amount of liquid assets to ensure its safe and sound operation.

Community Reinvestment Act and Fair Lending Laws. All savings banks have a responsibility under the Community Reinvestment Act and related regulations of the Office of Thrift Supervision to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In connection with its examination of a federal savings bank, the Office of Thrift Supervision is required to assess the savings bank’s record of compliance with the Community Reinvestment Act. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. A savings bank’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the Office of Thrift Supervision, as well as other federal regulatory agencies and the Department of Justice. United Bank received a “satisfactory” Community Reinvestment Act rating in its most recent federal examination.

Transactions with Related Parties. A federal savings bank’s authority to engage in transactions with its affiliates is limited by Office of Thrift Supervision regulations and by Sections 23A and 23B of the Federal Reserve Act and its implementing Regulation W. An affiliate is a company that controls, is controlled by, or is under common control with an insured depository institution such as United Bank. The Company is an affiliate of United Bank. In general, loan transactions between an insured depository institution and its affiliate are subject to certain quantitative and collateral requirements. In this regard, transactions between an insured depository institution and its affiliate are limited to 10% of the institution’s unimpaired capital and unimpaired surplus for transactions with any one affiliate and 20% of unimpaired capital and unimpaired surplus for transactions in the aggregate with all affiliates. Collateral in specified amounts ranging from 100% to 130% of the amount of the transaction must usually be provided by affiliates in order to receive loans from the savings bank. In addition, Office of Thrift Supervision regulations prohibit a savings bank from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates. The Office of Thrift Supervision requires savings banks to maintain detailed records of all transactions with affiliates.

United Bank’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the FRA and Regulation O of the Federal Reserve Board. Among other things, these provisions generally require that extensions of credit to insiders (i) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features, and (ii) not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of United Bank’s capital. In addition, extensions of credit in excess of certain limits must be approved by United Bank’s Board of Directors.

Enforcement. The Office of Thrift Supervision has primary enforcement responsibility over federal savings banks and has the authority to bring enforcement action against all “institution-affiliated parties,” including stockholders, and attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action by the Office of Thrift Supervision may range from the issuance of a capital directive or cease and desist order, to removal of officers

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and/or directors of the institution and the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1.0 million per day. The Federal Deposit Insurance Corporation also has the authority to terminate deposit insurance or to recommend to the Director of the Office of Thrift Supervision that enforcement action be taken with respect to a particular savings institution. If action is not taken by the Director, the Federal Deposit Insurance Corporation has authority to take action under specified circumstances.

Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, and other operational and managerial standards as the agency deems appropriate. The federal banking agencies adopted Interagency Guidelines Prescribing Standards for Safety and Soundness to implement the safety and soundness standards required under federal law. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The guidelines address internal controls and information systems, internal audit systems, credit underwriting, loan documentation, interest rate risk exposure, asset growth, compensation, fees and benefits. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to submit a compliance plan.

Prompt Corrective Action Regulations. Under the prompt corrective action regulations, the Office of Thrift Supervision is required and authorized to take supervisory actions against undercapitalized savings banks. For this purpose, a savings bank is placed in one of the following five categories based on the savings bank’s capital:

well-capitalized (at least 5% leverage capital, 6% Tier 1 risk-based capital and 10% total risk-based capital);

adequately capitalized (at least 4% leverage capital, 4% Tier 1 risk-based capital and 8% total risk-based capital);

undercapitalized (less than 3% leverage capital, 4% Tier 1 risk-based capital or 8% total risk-based capital);

significantly undercapitalized (less than 3% leverage capital, 3% Tier 1 risk-based capital or 6% total risk-based capital); and

critically undercapitalized (less than 2% tangible capital).

Generally, the Office of Thrift Supervision is required to appoint a receiver or conservator for a savings bank that is “critically undercapitalized” within specific time frames. The regulations also provide that a capital restoration plan must be filed with the Office of Thrift Supervision within 45 days of the date a savings bank receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” The criteria for an acceptable capital restoration plan include, among other things, the establishment of the methodology and assumptions for attaining adequately capitalized status on an annual basis, procedures for ensuring compliance with restrictions imposed by applicable federal regulations, the identification of the types and levels of activities the savings bank will engage in while the capital restoration plan is in effect, and assurances that the capital restoration plan will not appreciably increase the current risk profile of the savings bank. Any holding company for the savings bank required to submit a capital restoration plan must guarantee the lesser of an amount equal to 5% of a savings bank’s assets at the time it was notified or deemed to be undercapitalized by the Office of Thrift Supervision, or the amount necessary to restore the savings bank to adequately capitalized status. This guarantee remains in place until the Office of Thrift Supervision notifies the savings bank that it has maintained adequately capitalized status for each of four consecutive calendar quarters, and the Office of Thrift Supervision has the authority to require payment and collect payment under the guarantee. Failure by a holding company to provide the required guarantee will result in certain operating restrictions on the savings bank, such as restrictions on the ability to declare and pay dividends, pay executive compensation and management fees, and increase assets or expand operations. The Office of Thrift

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Supervision may also take any one of a number of discretionary supervisory actions against undercapitalized savings banks, including the issuance of a capital directive and the replacement of senior executive officers and directors.

At December 31, 2009, United Bank met the criteria for being considered “well-capitalized.”

Insurance for Deposit Accounts. United Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation. The Deposit Insurance Fund is the successor to the Bank Insurance Fund and the Savings Association Insurance Fund, which were merged in 2006.

Under the Federal Deposit Insurance Corporation’s risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other factors, with less risky institutions paying lower assessments. An institution’s assessment rate depends upon the category to which it is assigned. For calendar 2008, assessments ranged from five to forty-three basis points of each institution’s deposit assessment base. Due to losses incurred by the Deposit Insurance Fund in 2008 from failed institutions, and anticipated future losses, the Federal Deposit Insurance Corporation adopted, pursuant to a Restoration Plan to replenish the fund, an across the board seven basis point increase in the assessment range for the first quarter of 2009. The Federal Deposit Insurance Corporation made further refinements to its risk-based assessment that were effective April 1, 2009 and that effectively made the range seven to 771/2 basis points. The Federal Deposit Insurance Corporation may adjust the scale uniformly from one quarter to the next, except that no adjustment can deviate more than three basis points from the base scale without notice and comment rulemaking. No institution may pay a dividend if in default of the federal deposit insurance assessment.

The Federal Deposit Insurance Corporation imposed on all insured institutions a special emergency assessment of five basis points of total assets minus tier 1 capital, as of June 30, 2009 (capped at ten basis points of an institution’s deposit assessment base), in order to cover losses to the Deposit Insurance Fund. That special assessment was collected on September 30, 2009. The Federal Deposit Insurance Corporation provided for similar assessments during the final two quarters of 2009, if deemed necessary. However, in lieu of further special assessments, the Federal Deposit Insurance Corporation required insured institutions to prepay estimated quarterly risk-based assessments for the fourth quarter of 2009 through the fourth quarter of 2012. The estimated assessments, which include an assumed annual assessment base increase of 5%, were recorded as a prepaid expense asset as of December 30, 2009. As of December 31, 2009, and each quarter thereafter, a charge to earnings will be recorded for each regular assessment with an offsetting credit to the prepaid asset.

Due to the recent difficult economic conditions, deposit insurance per account owner has been raised to $250,000 for all types of accounts until January 1, 2014. In addition, the Federal Deposit Insurance Corporation adopted an optional Temporary Liquidity Guarantee Program by which, for a fee, noninterest bearing transaction accounts received unlimited insurance coverage until December 31, 2009, subsequently extended until June 30, 2010. Certain senior unsecured debt issued by institutions and their holding companies during specified time periods could also be guaranteed by the Federal Deposit Insurance Corporation through June 30, 2012, or in some cases, December 31, 2012. United Bank decided to participate in the unlimited noninterest bearing transaction account coverage and United Bank opted to participate in the unsecured debt guarantee program.

Federal law also provides for the possibility that the Federal Deposit Insurance Corporation may pay dividends to insured institutions once the Deposit Insurance fund reserve ratio equals or exceeds 1.35% of estimated insured deposits.

In addition to the assessment for deposit insurance, institutions are required to make payments on bonds issued in the late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund. That payment is established quarterly and during the fourth quarter ended December 31, 2009 averaged 1.06 basis points of assessable deposits.

The Federal Deposit Insurance Corporation has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of United Bank. Management cannot predict what insurance assessment rates will be in the future.

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Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the Federal Deposit Insurance Corporation or the Office of Thrift Supervision. The management of United Bank does not know of any practice, condition or violation that might lead to termination of deposit insurance.

Prohibitions Against Tying Arrangements. Federal savings banks are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

Federal Home Loan Bank System. United Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions. United Bank, as a member of the Federal Home Loan Bank, is required to acquire and hold shares of capital stock in that Federal Home Loan Bank. United Bank was in compliance with this requirement with an investment in Federal Home Loan Bank stock at December 31, 2009, of $15.4 million. Federal Home Loan Bank advances must be secured by specified types of collateral.

The Federal Home Loan Banks have been required to provide funds for the resolution of insolvent thrifts in the late 1980s and contribute funds for affordable housing programs. These and similar requirements, and general economic conditions, could reduce the amount of dividends that the Federal Home Loan Banks pay to their members and result in the Federal Home Loan Banks imposing a higher rate of interest on advances to their members. If dividends were reduced, or interest on future Federal Home Loan Bank advances increased, United Bank’s net interest income would likely also be reduced.

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Federal Reserve System

Federal Reserve Board regulations require savings banks to maintain noninterest-earning reserves against their transaction accounts, such as negotiable order of withdrawal and regular checking accounts. At December 31, 2009, United Bank was in compliance with these reserve requirements.

Other Regulations

Interest and other charges collected or contracted for by United Bank are subject to state usury laws and federal laws concerning interest rates. United Bank’s operations are also subject to federal laws applicable to credit transactions, such as the:

Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;

Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

Truth in Savings Act; and

rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

The operations of United Bank also are subject to the:

Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

The USA PATRIOT Act, which requires savings banks to, among other things, establish broadened anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement existing compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control regulations; and

The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties. Specifically, the Gramm-

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Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of certain personal financial information with unaffiliated third parties.

Holding Company Regulation

The Company is a unitary savings and loan holding company, subject to regulation and supervision by the Office of Thrift Supervision. The Office of Thrift Supervision has enforcement authority over the Company and its non-savings institution subsidiaries. Among other things, this authority permits the Office of Thrift Supervision to restrict or prohibit activities that are determined to be a risk to United Bank. Unlike bank holding companies, federal savings and loan holding companies are not subject to any regulatory capital requirements or to supervision by the Federal Reserve Board.

Under federal law, the business activities of the Company are limited to those activities permissible for financial holding companies or for multiple savings and loan holding companies. A financial holding company may engage in activities that are financial in nature, including underwriting equity securities and insurance, as well as activities that are incidental to financial activities or complementary to a financial activity. A multiple savings and loan holding company is generally limited to activities permissible for bank holding companies under Section 4(c) (8) of the Bank Holding Company Act, subject to the prior approval of the Office of Thrift Supervision, and certain additional activities authorized by Office of Thrift Supervision regulations.

Federal law prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries, from acquiring control of another savings institution or holding company thereof, without prior written approval of the Office of Thrift Supervision. It also prohibits the acquisition or retention of, with specified exceptions, more than 5% of the equity securities of a company engaged in activities that are not closely related to banking or financial in nature or acquiring or retaining control of an institution that is not federally insured. In evaluating applications by holding companies to acquire savings institutions, the Office of Thrift Supervision must consider, among other things, the financial and managerial resources and future prospects of the savings institution and company involved, the effect of the acquisition on the risk to the insurance fund, the convenience and needs of the community and competitive factors.

The Office of Thrift Supervision is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions:

(i)

the approval of interstate supervisory acquisitions by savings and loan holding companies; and

(ii)

the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisition.

The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.

Regulatory Restructuring Legislation

The Obama Administration has proposed, and the House of Representatives and Senate are currently considering, legislation that would restructure the regulation of depository institutions. Proposals range from the merger of the Office of Thrift Supervision with the Office of the Comptroller of the Currency, which regulates national banks, to the creation of an independent federal agency that would assume the regulatory responsibilities of the Office of Thrift Supervision, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency and Federal Reserve Board. The federal savings association charter would be eliminated and federal associations required to become banks under some proposals, although others would grandfather existing charters such as that of United Bank. Savings and loan holding companies would become regulated as bank holding companies under certain proposals. Also proposed is the creation of a new federal agency to administer and enforce consumer and fair lending laws, a function that is now performed by the depository institution regulators. The federal preemption

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of state laws currently accorded federally chartered depository institutions would be reduced under certain proposals as well.

Enactment of any of these proposals would revise the regulatory structure imposed on United Bank, which could result in more stringent regulation. At this time, management has no way of predicting the contents of any final legislation, or whether any legislation will be enacted at all.

Federal Securities Laws

The Company’s common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1933. The Company is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

TAXATION

Federal Taxation

General. The Company and United Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to United Financial Bancorp, Inc. or United Bank.

The Internal Revenue Service (“IRS”) commenced an examination of the Company’s 2005 and 2006 federal income tax returns in the second quarter of 2007. During the quarter ended March 31, 2008, the IRS proposed certain adjustments challenging the methodology used by the Company to estimate the fair market value of its residential mortgage portfolio under Internal Revenue Code (“IRC”) Sec. 475. The change in fair value calculated under IRC Sec. 475 is considered a temporary difference in the Company’s deferred income tax calculations as required by the Income Taxes Topic of FASB ASC. In June 2008, the Company agreed to a settlement of the proposed adjustments with the IRS. As a result, for tax years 2005 and 2006 the Company had a tax deficiency of $994,000 and related interest due of $76,000. In conjunction with the settlement, the Company has amended its calculation of the fair market value of its residential mortgage portfolio beginning with the 2007 tax year.

Method of Accounting. For federal income tax purposes, the Company currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal and state income tax returns.

Bad Debt Reserves. Historically, United Bank has been subject to special provisions in the tax law regarding allowable bad debt tax deductions and related reserves. Tax law changes were enacted in 1996, pursuant to the Small Business Protection Act of 1996 (the “1996 Act”), that eliminated the use of the percentage of taxable income method for tax years after 1995 and required recapture into taxable income over a six year period all bad debt reserves accumulated after 1988. United Bank recaptured its reserves accumulated after 1988 over the six-year period ended December 31, 2001.

Currently, the Company’s consolidated group uses the specific charge off method to account for bad debt deductions for income tax purposes.

Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt reserves created prior to November 1, 1988 were subject to recapture into taxable income if United Bank failed to meet certain thrift asset and definitional tests.

At December 31, 2009, United Bank’s total federal base year reserve was approximately $2.6 million. However, under current law, base-year reserves remain subject to recapture if United Bank makes certain non-dividend distributions, repurchases any of its stock, pays dividends in excess of tax earnings and profits, or ceases to maintain a bank charter.

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Alternative Minimum Tax. The IRC imposes an alternative minimum tax (“AMT”) at a rate of 20% on a base of regular taxable income plus certain tax preferences (“alternative minimum taxable income” or “AMTI”). The AMT is payable to the extent such AMTI is in excess of an exemption amount and the AMT exceeds the regular income tax. Net operating losses can offset no more than 90% of AMTI. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. The Company and United Bank have not been subject to the alternative minimum tax and have no such amounts available as credits for carryover.

Corporate Dividends-Received Deduction. The Company may exclude from its federal taxable income 100% of dividends received from United Bank as a wholly owned subsidiary. The corporate dividends-received deduction is 80% when the dividend is received from a corporation having at least 20% of its stock owned by the recipient corporation. A 70% dividends-received deduction is available for dividends received from corporations owned less than 20% by the recipient corporation.

State Taxation

For Massachusetts income tax purposes, until 2009 a consolidated tax return could not be filed. Instead, United Financial Bancorp, Inc., United Bank, and each of their subsidiaries filed separate annual income tax returns. Beginning in 2009, United Financial Bancorp, Inc. and United Bank will be required to file a combined return pursuant to a Massachusetts law change enacted in July 2008. The security corporation subsidiary will continue to file separately. United Financial Bancorp, Inc.’s state tax returns, as well as those of United Bank and its subsidiaries, are not currently under audit. The years after 2005 are open for exam.

United Bank files Massachusetts financial institution income tax returns and is subject to an annual Massachusetts tax at a rate of 10.5% of its net income. Massachusetts net income is defined as gross income, other than 95% of dividends received in any taxable year beginning on or after January 1, 1999 from or on account of the ownership of any class of stock if the institution owns 15% or more of the voting stock of the institution paying the dividend, less the deductions, but not the credits allowable under the provisions of the Internal Revenue Code, as amended and in effect for the taxable year. The dividends must meet the qualifications under Massachusetts law. Deductions with respect to the following items, however, are not allowed except as otherwise provided: (a) dividends received, except as otherwise provided; (b) losses sustained in other taxable years; (c) taxes on or measured by income, franchise taxes measured by net income, franchise taxes for the privilege of doing business and capital stock taxes imposed by any state; or (d) the deduction allowed by section 168(k) of the Code.

Due to this legislative change, beginning in 2010 the Massachusetts financial institution tax rate will decrease by 0.5% each year for three years until 2012, when it will become 9% and will remain at that rate.

United Financial Bancorp is required to file a Massachusetts income tax return and is generally subject to a state income tax rate that is the same rate as the tax rate for financial institutions in Massachusetts. As a Maryland business corporation, United Financial Bancorp is required to file annual returns and pay annual fees to the State of Maryland.

United Bank’s subsidiary, UCB Securities, Inc., is taxed as a Massachusetts security corporation, and is subject to a state tax rate of 1.32% of its gross income.

Executive Officers of the Registrant

The executive officers of the Company and the Bank are elected annually by the Board of Directors and serve at the Board’s discretion. The executive officers of the Company and the Bank are:

Name		Position
Richard B. Collins		President and Chief Executive Officer the Company and the Bank
Keith E. Harvey		Executive Vice President, Operations and Retail Sales, of the Bank
Mark A. Roberts		Executive Vice President and Chief Financial Officer of the Company and the Bank
J. Jeffrey Sullivan		Executive Vice President and Chief Lending Officer of the Bank

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Charles R. Valade		Executive Vice President, Commercial Lending/Worcester Region, of the Bank
John J. Patterson		Senior Vice President, Risk Management, of the Bank
William Clark		Senior Vice President, Residential Lending, of the Bank
Dena M. Hall		Senior Vice President, Marketing and Community Relations, of the Bank

Below is information regarding the executive officers who are not also directors. Unless otherwise stated, each executive officer has held his current position for at least the last five years. Ages presented are as of December 31, 2009.

Keith E. Harvey is the Executive Vice President for Operations and Retail Sales of the Bank. Mr. Harvey joined the Bank in 1984. Age 62.

Mark A. Roberts is the Executive Vice President and Chief Financial Officer of the Company and the Bank. He joined the Company and the Bank in 2006. Prior to that, he served as the Vice President and Controller for The Connecticut Bank and Trust Company in Hartford, Connecticut and was the Vice President of Finance at Woronoco Savings Bank for six years. Age 46.

J. Jeffrey Sullivan is Executive Vice President and Chief Lending Officer of the Bank. Mr. Sullivan joined the Bank in 2003. Age 45.

Charles R. Valade is Executive Vice President, Commercial Lending/Worcester Region, of the Bank. Prior to joining the Bank in connection with the Company’s acquisition of CNB Financial in November 2009, Mr. Valade served as President and Chief Executive Officer of CNB Financial since its formation in 2005. Age 58.

William Clark is Senior Vice President, Residential Lending. Mr. Clark joined the Bank in 1998. Age 45.

Dena M. Hall is the Senior Vice President of Marketing and Community Relations of the Bank. She joined the Bank in 2005. Previously, she was the Director of Marketing for Woronoco Savings Bank for seven years. Age 36.

John J. Patterson is Senior Vice President, Risk Management of the Bank. Mr. Patterson joined the Bank in 1993. Age 63.

ITEM 1A.

RISK FACTORS

An investment in our common stock involves risk. You should carefully consider the risks described below and all other information contained in this annual report on Form 10-K before you decide to buy our common stock. It is possible that risks and uncertainties not listed below may arise or become material in the future and affect our business.

The United States Economy Is In Recession. A Prolonged Economic Downturn, Especially One Affecting Our Geographic Market Area, Could Materially Affect our Business and Financial Results.

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The United States economy entered a recession in the fourth quarter of 2007. Throughout the course of 2008 and 2009, economic conditions continued to worsen, due in large part to the fallout from the collapse of the sub-prime mortgage market. While we did not originate or invest in sub-prime mortgages, our lending business is tied, in large part, to the housing market. Declines in home prices, increases in foreclosures and higher unemployment have adversely affected the credit performance of real estate-related loans, resulting in the write-down of asset values. The continuing housing slump also has resulted in reduced demand for the construction of new housing, further declines in home prices, and increased delinquencies on our construction, residential and commercial mortgage loans. Further, the ongoing concern about the stability of the financial markets in general has caused many lenders to reduce or cease providing funding to borrowers. These conditions may also cause a further reduction in loan demand, and increases in our non-performing assets, net charge-offs and provisions for loan losses.

Future Changes in Interest Rates Could Reduce Our Profits

Our ability to make a profit largely depends on our net interest income, which could be negatively affected by changes in interest rates. Net interest income is the difference between:

the interest income we earn on our interest-earning assets, such as loans and securities; and

the interest expense we pay on our interest-bearing liabilities, such as deposits and borrowings.

The rates we earn on our assets and the rates we pay on our liabilities are generally fixed for a contractual period of time. Like many savings institutions, our liabilities generally have shorter contractual maturities than our assets. This imbalance can create significant earnings volatility, because market interest rates change over time. In a period of rising interest rates, the interest income earned on our assets may not increase as rapidly as the interest paid on our liabilities. In a period of declining interest rates, the interest income earned on our assets may decrease more rapidly than the interest paid on our liabilities, as borrowers prepay mortgage loans, and mortgage-backed securities and callable investment securities are called or prepaid thereby requiring us to reinvest those cash flows at lower interest rates. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Management of Market Risk.”

In addition, changes in interest rates can affect the average life of loans and mortgage-backed and related securities. A reduction in interest rates results in increased prepayments of loans and mortgage-backed and related securities, as borrowers refinance their debt in order to reduce their borrowing costs. This creates reinvestment risk, which is the risk that we may not be able to reinvest prepayments at rates that are comparable to the rates we earned on the prepaid loans or securities. Additionally, increases in interest rates may decrease loan demand and/or make it more difficult for borrowers to repay adjustable-rate loans.

Changes in interest rates also affect the current fair value of our interest-earning securities portfolio. Generally, the value of securities moves inversely with changes in interest rates. At December 31, 2009, the fair value of our available-for-sale securities portfolio, consisting of agency securities, mortgage-backed securities, corporate debt obligations, municipal obligations and preferred stock, totaled $243.3 million. Unrealized net gains on these available-for-sale securities totaled $9.6 million at December 31, 2009 and are reported as a separate component of stockholders’ equity. Decreases in the fair value of securities available for sale in future periods would have an adverse effect on stockholders’ equity.

We evaluate interest rate sensitivity using income simulation models that estimate the change in United Bank’s net interest income over a range of interest rate scenarios. Net income at risk measures the risk of a decline in earnings due to potential short-term and long term changes in interest rates. At December 31, 2009, the latest date for which such information is available, in the event of an immediate 200 basis point increase in interest rates, the model projects that we would experience a 0.54% increase in net interest income over the following 12 months.

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As a Result of Our Emphasis on Originating Commercial Real Estate and Commercial and Industrial Loans, Our Credit Risk Has and Will Continue to Increase. Continued Weakness or a Deeper Downturn in the Real Estate Market and Local Economy Could Adversely Affect Our Earnings.

At December 31, 2009, our portfolio of commercial real estate loans totaled $409.7 million, or 36.5% of our total loans, and our portfolio of commercial and industrial loans totaled $159.4 million, or 14.2% of our total loans. These loans have increased as a percentage of our total loan portfolio in recent years and generally have more risk than one- to four-family residential mortgage loans. Because the repayment of commercial real estate and commercial and industrial loans depends on the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can be affected by adverse conditions in the real estate market or the local economy. Many of our borrowers also have more than one commercial real estate or commercial and industrial loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan. Finally, if we foreclose on a commercial real estate or commercial and industrial loan, our holding period for the collateral, if any, typically is longer than for one- to four-family residential mortgage loans because there are fewer potential purchasers of the collateral. Because we plan to continue to increase our originations of these loans, it may be necessary to increase the level of our allowance for loan losses because of the increased risk characteristics associated with these types of loans. Any such increase to our allowance for loan losses would adversely affect our earnings.

If Our Allowance for Loan Losses is Not Sufficient to Cover Actual Loan Losses, Our Earnings Could Decrease.

We make various assumptions and judgments about the collectibility of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. If our assumptions are incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in additions to our allowance. Our allowance for loan losses was 0.82% of total loans and 56.36% of non-performing loans at December 31, 2009, compared to 0.95% of total loans and 171.98% of non-performing loans at December 31, 2008. Excluding the $242.9 million in acquired loans and $22.7 million in loans purchased from other financial institutions, allowance for loan losses as a percent of total loans would have been 1.07%. Excluding the $3.3 million in nonperforming acquired loans, allowance for loan losses as a percent of non-performing loans would have been 70.44%. Material additions to our allowance could materially decrease our net income.

In addition, bank regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities may have a material adverse effect on our financial condition and results of operations.

Further Declines in the Value of Certain Investment Securities Could Require Write-Downs, Which Would Reduce our Earnings.

At December 31, 2009, our investment portfolio included $1.7 million in trust preferred securities and $18.4 million in municipal bonds. During 2009 and 2008, we recognized $82,000 and $1.3 million charges for the other-than-temporary impairment of certain trust preferred securities. During 2008 we also recognized a $94,000 charge for the other-than-temporary impairment of one municipal security. A number of factors or combinations of factors could cause us to conclude in one or more future reporting periods that an unrealized loss that exists with respect to these securities constitutes an impairment that is other than temporary. These factors include, but are not limited to, failure to make scheduled interest payments, an increase in the severity of the unrealized loss on a particular security, an increase in the continuous duration of the unrealized loss without an improvement in value or changes in market conditions and/or industry or issuer specific factors that would render us unable to forecast a full recovery in value. An other-than-temporary impairment write-down would reduce our earnings.

Future Legislative or Regulatory Actions Responding to Financial and Market Weakness Could Affect Us Adversely. There Can Be No Assurance that Actions of the U.S. Government, Federal Reserve and Other

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Governmental and Regulatory Bodies For the Purpose of Stabilizing the Financial Markets Will Achieve the Intended Effect.

In response to the financial crises affecting the banking system and financial markets, the U.S. Congress has passed legislation and the U.S. Treasury has promulgated programs designed to purchase assets from, provide equity capital to, and guarantee the liquidity of the financial services industry. Specifically, Congress adopted the Emergency Economic Stabilization Act of 2008, under which the U.S. Treasury has the authority to expend up to $700 billion to assist in stabilizing and providing liquidity to the U.S. financial system. On October 14, 2008, the U.S. Treasury announced the Capital Purchase Program, under which it will purchase up to $250 billion of non-voting senior preferred shares of certain qualified financial institutions in an attempt to encourage financial institutions to build capital to increase the flow of financing to businesses and consumers and to support the economy. In addition, Congress temporarily increased FDIC deposit insurance from $100,000 to $250,000 per depositor until the end of 2013. The FDIC has also announced the creation of the Temporary Liquidity Guarantee Program which is intended to strengthen confidence and encourage liquidity in financial institutions by temporarily guaranteeing newly issued senior unsecured debt of participating organizations and providing full insurance coverage for noninterest-bearing transaction deposit accounts (such as business checking accounts, interest-bearing transaction accounts paying 50 basis points or less and lawyers’ trust accounts), regardless of dollar amount until June 30, 2010. In February 2009, the American Recovery and Reinvestment Act of 2009 was enacted, which was intended to expand and establish government spending programs and provide certain tax cuts to stimulate the economy. In November 2009 the FDIC voted to require insured institutions to prepay three years of estimated insurance assessments. The pre-payment allows the FDIC to strengthen the cash position of the Deposit Insurance Fund (DIF) immediately without immediately impacting earnings of the industry. The U.S. government continues to evaluate and develop various programs and initiatives designed to stabilize the financial and housing markets and stimulate the economy, including the U.S. Treasury’s recently announced Financial Stability Plan and the recently announced foreclosure prevention program.

The potential exists for additional federal or state laws and regulations regarding lending and funding practices and liquidity standards, and bank regulatory agencies are expected to be active in responding to concerns and trends identified in examinations, and the issuance of many formal enforcement orders is expected. Actions taken to date, as well as potential actions, may not have the beneficial effects that are intended, particularly with respect to the extreme levels of volatility and limited credit availability currently being experienced. In addition, new laws, regulations, and other regulatory changes will increase our costs of regulatory compliance and of doing business, and otherwise affect our operations. New laws, regulations, and other regulatory changes, along with negative developments in the financial services industry and the credit markets, may significantly affect the markets in which we do business, the markets for and value of our loans and investments, and our ongoing operations, costs and profitability.

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Proposed regulatory reform may have a material impact on our operations.

The Obama Administration has published a comprehensive regulatory reform plan that is intended to modernize and protect the integrity of the United States financial system and has offered proposed legislation to accomplish these reforms. The U.S. House of Representatives has passed financial regulatory reform legislation and the Senate is considering its own version. These various plans contain several elements that would have a direct effect on the Company and the Bank. Under the proposed legislation, the federal thrift charter and the Office of Thrift Supervision would be eliminated and all companies that control an insured depository institution must register as a bank holding company. Existing federal thrifts, such as the Bank, would become a national bank or could choose to adopt a state charter. Registration as a bank holding company would represent a significant change, as there currently exist significant differences between savings and loan holding company and bank holding company supervision and regulation. For example, the Federal Reserve imposes leverage and risk-based capital requirements on bank holding companies whereas the Office of Thrift Supervision does not impose any capital requirements on savings and loan holding companies. The Administration has also proposed the creation of a new federal agency, the Consumer Financial Protection Agency, that would be dedicated to protecting consumers in the financial products and services market. The creation of this agency could result in new regulatory requirements and raise the cost of regulatory compliance. In addition, legislation stemming from the reform plan could require changes in regulatory capital requirements, loan loss provisioning practices, and compensation practices. If implemented, the foregoing regulatory reforms may have a material impact on our operations. However, because the final legislation may differ significantly from the reform plan proposed by the President or passed by the House of Representatives, we cannot determine the specific impact of regulatory reform at this time.

We operate in a highly regulated environment and we may be adversely affected by changes in laws and regulations.

We are subject to extensive regulation, supervision and examination by the Office of Thrift Supervision, our primary federal regulator, and the Federal Deposit Insurance Corporation, as insurer of its deposits. Such regulation and supervision governs the activities in which an institution and its holding company may engage, and are intended primarily for the protection of the insurance fund and the depositors and borrowers of the Bank rather than for holders of our common stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations.

Increased and/or special FDIC assessments will hurt our earnings.

The recent economic recession has caused a high level of bank failures, which has dramatically increased FDIC resolution costs and led to a significant reduction in the balance of the Deposit Insurance Fund. As a result, the FDIC has significantly increased the initial base assessment rates paid by financial institutions for deposit insurance. Increases in the base assessment rate have increased our deposit insurance costs and negatively impacted our earnings. In addition, in May 2009, the FDIC imposed a special assessment on all insured institutions. Our special assessment, which was reflected in earnings for the quarter ended June 30, 2009, was $538,000. In lieu of imposing an additional special assessment, the FDIC required all institutions to prepay their assessments for all of 2010, 2011 and 2012, which for us totaled $4.8 million. Additional increases in the base assessment rate or additional special assessments would negatively impact our earnings.

If our Investment in the Federal Home Loan Bank of Boston is Classified as Other-Than-Temporarily Impaired or as Permanently Impaired, our Earnings and Stockholders’ Equity Would Decrease.

We own common stock of the Federal Home Loan Bank of Boston. We hold this stock to qualify for membership in the Federal Home Loan Bank System and to be eligible to borrow funds under the Federal Home Loan Bank of Boston’s advance program. The aggregate cost and fair value of our Federal Home Loan Bank of Boston common stock as of December 31, 2009 was $15.4 million based on its par value. There is no market for our Federal Home Loan Bank of Boston common stock. Recent published reports indicate that certain member banks of

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the Federal Home Loan Bank System may be subject to accounting rules and asset quality risks that could result in materially lower regulatory capital levels. In an extreme situation, it is possible that the capitalization of a Federal Home Loan Bank, including the Federal Home Loan Bank of Boston, could be substantially diminished. Consequently, we believe that there is a risk that our investment in Federal Home Loan Bank of Boston common stock could be impaired at some time in the future. If this occurs, it would cause our earnings and stockholders’ equity to decrease by the after-tax amount of the impairment charge.

The Federal Home Loan Bank of Boston Suspended Dividends During the Fourth Quarter of 2008. This Negatively Affects our Earnings.

The Federal Home Loan Bank of Boston suspended dividends during the fourth quarter of 2008. We received $402,000 in dividends from the Federal Home Loan Bank of Boston during the year ended December 31, 2008. The failure of the Federal Home Loan Bank of Boston to pay dividends during 2009 has reduced our earnings.

Our Wholesale Funding Sources May Prove Insufficient to Replace Deposits at Maturity and Support Our Future Growth.

We must maintain sufficient funds to respond to the needs of depositors and borrowers. As a part of our liquidity management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments. As we continue to grow, we are likely to become more dependent on these sources, which include Federal Home Loan Bank advances, borrowings from the Federal Reserve Bank, reverse repurchase agreements, brokered CD’s and proceeds from the sale of loans and securities and liquidity resources of the holding company. At December 31, 2009, we had approximately $208.2 million of FHLB advances outstanding. Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. Finally, if we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In this case, our operating margins and profitability would be adversely affected.

Lack of Consumer Confidence in Financial Institutions May Decrease Our Level of Deposits.

Our level of deposits may be affected by lack of consumer confidence in financial institutions, which has resulted in large numbers of depositors unwilling to maintain deposits that are not insured by the Federal Deposit Insurance Corporation. In some cases, depositors have withdrawn deposits and invested uninsured funds in investments perceived as being more secure, such as securities issued by the U.S. Treasury. These consumer preferences may force us to pay higher interest rates to retain deposits and may constrain liquidity as we seek to meet funding needs caused by reduced deposit levels.

Economic Conditions May Adversely Affect Our Liquidity.

In the past year, significant declines in the values of mortgage-backed securities and derivative securities issued by financial institutions, government sponsored entities, and major commercial and investment banks has led to decreased confidence in financial markets among borrowers, lenders, and depositors, as well as disruption and extreme volatility in the capital and credit markets and the failure of some entities in the financial sector. As a result, many lenders and institutional investors have reduced or ceased to provide funding to borrowers. Continued turbulence in the capital and credit markets may adversely affect our liquidity and financial condition and the willingness of certain counterparties and customers to do business with us.

Strong Competition Within Our Market Area May Limit Our Growth and Profitability.

Competition in the banking and financial services industry is intense. In our market area, we compete with commercial banks, savings and cooperative institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere. Some of our competitors have substantially greater resources and lending limits than we have, have greater name recognition and market presence that benefit them in attracting business, and offer certain services that

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we do not or cannot provide. In addition, larger competitors may be able to price loans and deposits more aggressively than we do. Our profitability depends upon our continued ability to successfully compete in our market area. The greater resources and deposit and loan products offered by some of our competitors may limit our ability to increase our interest-earning assets.

Recent Negative Developments in the Financial Services Industry And the Credit Markets May Subject Us to Additional Regulation.

As a result of the recent financial crisis, the potential exists for the promulgation of new federal or state laws and regulations regarding lending and funding practices and liquidity standards, and bank regulatory agencies are expected to be active in responding to concerns and trends identified in examinations, which are expected to result in the issuance of many formal enforcement orders. Negative developments in the financial services industry and the credit markets, and the impact of new legislation in response to these developments, may negatively affect our operations by restricting our business operations, including our ability to originate or sell loans and pursue business opportunities. Compliance with such regulation also will likely increase our costs.

Our Future Growth May Require Us to Raise Additional Capital in the Future, But That Capital May Not Be Available When It Is Needed.

We are required by regulatory authorities to maintain adequate levels of capital to support our operations. We believe that our current capital levels will satisfy our regulatory requirements for the foreseeable future. We may at some point, however, need to raise additional capital to support our continued growth. Our ability to raise additional capital will depend, in part, on conditions in the capital markets at that time, which are outside our control, and on our financial performance. Accordingly, we may be unable to raise additional capital, if and when needed, on terms acceptable to us, or at all. If we cannot raise additional capital when needed, our ability to further expand our operations through internal growth and acquisitions could be materially impaired. In addition, if we decide to raise additional equity capital, your interest in our common stock could be diluted.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

Not applicable.

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ITEM 2.

PROPERTIES

The following table provides certain information as of December 31, 2009 with respect to our main office located in West Springfield and our 21 other full service branch offices, our drive-up facilities and our financial service facilities:

Location	Leased or Owned	Year Acquired or Leased	Square Footage	Net Book Value of Real Property
				(In thousands)
Main Office:

95 Elm Street West Springfield, MA 01089	Owned	1999	46,147	$ 1,358

Full Service Branches:
Springfield Region

115 State Street Springfield, MA 01103	Leased	(1)	3,401	18

1077 St. James Avenue Springfield, MA 01104	Owned	2003	8,354	826

459 Main Street Indian Orchard, MA 01151	Leased	(2)	2,560	-

528 Center Street Ludlow, MA 01056	Owned	2002	3,000	933

1930 Wilbraham Road Springfield, MA 01129	Owned	2001	2,304	635

670 Bliss Road Longmeadow, MA 01106	Leased	(3)	1,652	-

1325 Springfield Street Feeding Hills, MA 01030	Leased	(4)	2,400	-

180 Main Street Northampton, MA 01060	Leased	(5)	2,800	174

10 Elm Street Westfield, MA 01085	Owned	1981	8,500	703

14 Russell Road Huntington, MA 01050	Owned	2001	720	185

168 Southampton Road Westfield, MA 01085	Leased	(6)	2,890	1,686

1830 Northampton Street Holyoke, MA 01040	Owned	1994	6,409	540

94 Shaker Road East Longmeadow, MA 01028	Leased	2008 (7)	2,411	-

806 Suffield Street Agawam, MA 01001	Leased	2008 (8)	2,972	1,194

445 Montgomery Street Chicopee, MA 01020	Leased	2009 (9)	2,890	2,069

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Worcester Region

33 Waldo Street Worcester, MA 01608	Leased	2001 (10)	9,957	254

1 West Boylston Street Worcester, MA 01605	Leased	2003(11)	2,820	101

572 Main Street Shrewsbury, MA 01545	Ground Leased	2002 (12)	28,253	531

701 Church Street Northbridge, MA 01588	Sale, Leaseback	2004 (13)	30,492	-

1393 Grafton Street Worcester, MA 01604	Leased	2006 (14)	2,000	280

26 West Boylston Street West Boylston, MA 01583	Leased	2006 (15)	1,800	283

Other:
52 Van Deene Avenue West Springfield, MA 01089	Owned	2005 (16)	547	587

33 Westfield Street West Springfield, MA 01089	Owned	(17)	1,720	907

140 Main Street Northampton, MA 01060	Leased	2006 (18)	1,375	-

491 Pleasant Street Northampton, MA 01060	Leased	2008 (19)	7,405	514

67 Millbrook Street Worcester, MA 01606	Leased	2006 (20)	7,704	6

___________________________________

(1)	United Bank has a lease for a five-year period expiring in June 2010 with a renewal option for five additional years.

(2)	United Bank has a lease for a five-year period expiring in May 2013 with an additional five-year renewal option.

(3)	United Bank has a lease for a five-year period expiring in September 2011.

(4)	United Bank has a lease for a five-year period expiring in September 2010 with a renewal option for five additional years.

(5)	United Bank has a lease for a ten-year period expiring in April 2016 with two five-year renewal options.

(6)	United Bank has a lease for a twenty-five year period expiring in March 2031 with two five-year renewal options. This lease is classified as a capitalized lease for accounting and reporting purposes.

(7)	United Bank has a lease for a ten-year period expiring in January 2018 with a renewal option for ten additional years.

(8)	United Bank has a lease for a twenty-year period expiring in March 2028 with two five-year renewal options. This lease is classified as a capitalized lease for accounting and reporting purposes.

(9)	United Bank has a lease for a twenty-five year period expiring in May 2034 with two five-year renewal options. This lease is classified as a capitalized lease for accounting and reporting purposes.

(10)	This location has a lease for a fifteen-year period expiring in October 2016 with two additional five-year renewal options.

(11)	This location has a lease for a twenty-year period expiring in March 2023 with two additional five-year renewal options.

(12)	This location has a ground lease for a twenty-year period expiring in June 2022 with eleven additional five-year renewal options.

(13)	This location has a leaseback agreement for a twenty-year period expiring in November 2024 with two additional five-year renewal options.

(14)	This location has a lease for a ten-year period expiring in January 2016 with three additional five-year renewal options.

(15)	This location has a lease for a ten-year period expiring in June 2016 with three additional five-year renewal options.

(16)	This office is a drive-up facility only.

(17)	A portion of this facility is used as a Wealth Management office which offers insurance, investment products and financial planning services.

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(18)	United Bank has a two-year lease for this Wealth Management services facility which expires in November 2010 and has one two-year renewal option.

(19)	This office is an express drive-up branch.

(20)	This location is used as an operation center and has a five year lease which expires in July 2012 and has an additional five year renewal option.

The net book value of our premises, land and equipment, including capitalized lease assets, was $13.8 million at December 31, 2009.

ITEM 3.

LEGAL PROCEEDINGS

The Company and its subsidiary are subject to various legal actions arising in the normal course of business. At December 31, 2009, we were not involved in any legal proceedings that were material to the Company’s financial condition or results of operations.

ITEM 4.

[RESERVED]

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a) Our shares of common stock are traded on the Nasdaq Global Select Market under the symbol “UBNK”. The approximate number of holders of record of United Financial Bancorp, Inc.’s common stock as of March 4, 2010 was 2,938. Certain shares of United Financial Bancorp, Inc. are held in “nominee” or “street” name; accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.

At the close of business on December 31, 2009, there were 16,838,598 shares of common stock outstanding. The following table presents quarterly market information for the common stock of the Company for the years ended December 31, 2009 and 2008. The high and low sales prices for the quarterly periods noted below were obtained from the NASDAQ Global Select Market.

	Price Per Share				Cash
	High		Low		Dividend Declared
2009
Fourth quarter	$	13.47	$	11.51	$	0.07
Third quarter		14.00		11.31		0.07
Second quarter		14.69		11.66		0.07
First quarter		15.48		11.77		0.07

2008
Fourth quarter	$	15.32	$	11.00	$	0.07
Third quarter		17.10		10.97		0.07
Second quarter		12.47		10.71		0.07
First quarter		12.00		10.23		0.06

Set forth hereunder is a stock performance graph comparing (a) the cumulative total return on the Common Stock for the period beginning on July 13, 2005 through December 31, 2009, (b) the cumulative total return on stocks included in the SNL Thrift Index over such period and (c) the cumulative total return on stocks included in the Russell 2000 Index over such period.

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The cumulative total return on the Common Stock was computed assuming the reinvestment of cash dividends during the period and is expressed in dollars based on an assumed initial investment of $100.

	Period Ending
Index	07/13/05		12/31/05		12/31/06		12/31/07		12/31/08		12/31/09
United Financial Bancorp, Inc.		100.00		98.13		119.32		101.73		141.84		125.44
Russell 2000		100.00		101.41		120.04		118.16		78.23		99.49
SNL Thrift Index		100.00		100.76		117.45		70.46		44.84		41.82

On January 21, 2010, the Board of Directors of United Financial Bancorp, Inc. declared a cash dividend of $0.07 per share. The dividend will be payable on March 9, 2010 to shareholders of record as of February 16, 2010.

Dividend payments by United Financial Bancorp, Inc. are dependent primarily on cash flows from the investment portfolio, debt service payments from United Bank in connection with its loan to the Employee Stock Ownership Plan, and dividends or capital distributions from United Bank.

For a discussion of United Bank’s ability to pay dividends, see “Supervision and Regulation—Federal Banking Regulation” and Note L to the Company’s financial statements.

(b)

Not Applicable.

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(c) The following table provides certain information with regard to shares repurchased by the Company in the fourth quarter of 2009.

Period	(a) Total Number of Shares (or Units) Purchased			(b) Average Price Paid Per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1, 2)

October 1 -31, 2009		78,795	(3)	$	12.90		78,630		129,708

November 1 - 30, 2009		135,998			12.80		135,998		791,765

December 1 -31, 2009		59,240			12.88		59,240		732,525
Total		274,033		$	12.85		273,868

____________________

(1)

On February 19, 2009, the Board of Directors approved a plan to repurchase up to 5%, or approximately 841,138 shares, of the Company’s common stock. On December 2, 2009, the Company announced the completion of its stock repurchase program at a cost of approximately $10.8 million and at an average price of $12.88 per share.

(2)

On October 16, 2009, the Board of Directors approved a plan to repurchase up to 5%, or approximately 798,055 shares, of the Company’s common stock. This repurchase program commenced immediately upon completion of the previous plan approved on February 19, 2009. Under this plan, the Company intends to repurchase shares from time to time, depending on market conditions and will continue until it is completed.

(3)	Includes the withholding of 165 shares at $12.85 per share subject to restricted stock awards under the United Bank 2006 Stock-Based Incentive Plan as payment of taxes due upon the vesting of the restricted stock awards.

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ITEM 6.

SELECTED FINANCIAL DATA

The summary financial information presented below is derived in part from the consolidated financial statements of United Financial Bancorp, Inc. The following is only a summary and you should read it in conjunction with the consolidated financial statements and notes beginning on page F-1. The information at December 31, 2009 and 2008 and for the years ended December 31, 2009, 2008 and 2007 is derived in part from the audited consolidated financial statements of United Financial Bancorp, Inc. that appear in this Annual Report. The information for the years ended December 31, 2006 and 2005 is derived in part from audited consolidated financial statements that do not appear in this Annual Report.

	At December 31,
	2009		2008		2007		2006		2005
	(In thousands)
Selected Financial Condition Data:
Total assets	$	1,541,040	$	1,263,134	$	1,079,281	$	1,009,433	$	906,513
Cash and cash equivalents		21,877		13,572		14,254		25,419		15,843
Short-term investments		1,096		1,071		1,030		-		-
Investment securities available-for-sale		243,304		313,506		201,257		190,237		226,465
Investment securities held-to-maturity		63,174		3,191		3,632		3,241		3,325
Loans, net (1)		1,115,416		864,421		819,117		756,180		630,558
Deposits		1,038,927		782,663		718,682		685,686		653,611
FHLB advances		208,173		208,564		107,997		169,806		101,880
Repurchase agreements		47,303		28,042		13,864		10,425		8,434
Subordinated debentures		5,357		-		-		-		-
Stockholders' equity		225,246		227,714		226,120		137,711		137,005
Non-performing assets (2)		17,832		5,795		2,665		1,850		3,319

	Years Ended December 31,
	2009			2008			2007		2006		2005
	(Dollars in thousands, except per share amounts)
Selected Operating Data:
Interest and dividend income	$	62,986		$	64,814		$	59,250	$	52,202	$	43,233
Interest expense		21,986			25,003			30,083		24,647		16,206
Net interest income before provision for loan
losses		41,000			39,811			29,167		27,555		27,027
Provision for loan losses		2,998			1,846			1,425		969		917
Net interest income after provision for loan
losses		38,002			37,965			27,742		26,586		26,110
Non-interest income		8,676			5,220			5,735		5,392		5,020
Non-interest expense		36,858			30,690			26,039		24,036		24,112
Income before taxes		9,820			12,495			7,438		7,942		7,018
Income tax expense		4,014			5,197			3,061		3,018		2,649
Net income	$	5,806	(3)	$	7,298	(4)	$	4,377	$	4,924	$	4,369	(5)

Basic earnings per share (6)	$	0.38		$	0.44		$	0.26	$	0.29	$	0.33
Diluted earnings per share (6)	$	0.38		$	0.44		$	0.26	$	0.29	$	0.33
Dividends per share	$	0.28		$	0.27		$	0.24	$	0.20	NA

Number of shares outstanding (6)
Basic		15,265,192			16,445,388			17,126,864		17,134,150		13,193,088
Diluted		15,273,375			16,445,388			17,128,141		17,134,150		13,193,088

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	At or For the Years Ended December 31,
	2009			2008			2007			2006			2005
Selected Financial Ratios and Other Data:

Performance Ratios (7):
Return on average assets		0.46	%(8)		0.62	%(14)		0.42	%		0.51	%		0.51	%(15)
Return on average equity		2.67	%(8)		3.23	%(14)		2.99	%		3.59	%		4.45	%(15)
Average equity to average assets		17.17	%		19.06	%		14.17	%		14.35	%		11.42	%
Tangible equity to tangible assets at end of period (7)		14.18	%(9)		18.03	%		20.95	%		13.64	%		15.11	%
Interest rate spread (10)		2.83	%		2.69	%		2.08	%		2.23	%		2.77	%
Net interest margin (11)		3.39	%		3.47	%		2.91	%		2.97	%		3.27	%
Average interest-earning assets to average
interest-bearing liabilitites		130.87	%		135.95	%		127.77	%		128.10	%		125.61	%
Total non-interest expense to average total assets		2.91	%(12)		2.59	%		2.52	%		2.51	%		2.81	%(15)
Efficiency ratio (13)		75.45	%(12)		66.16	%		74.02	%		72.95	%		75.25	%(15)
Dividend payout ratio		72.99	%		60.78	%		40.15	%		29.69	%	NA

Regulatory Capital Ratios (7,16):
Tier I risk-based capital		15.73	%		17.76	%		19.25	%		14.83	%		17.21	%
Tier I (core) capital		12.14	%		12.31	%		14.00	%		10.57	%		11.63	%
Tangible Equity Ratio		12.14	%		12.31	%		14.00	%	NA			NA
Total risk-based capital		16.53	%		18.71	%		20.25	%		15.86	%		18.28	%

Asset Quality Ratios (7):
Non-performing assets as a percent of total assets (2)		1.16	%		0.46	%		0.25	%		0.18	%		0.37	%
Non-performing loans as a percent of total loans (2)		1.45	%		0.55	%		0.22	%		0.17	%		0.27	%
Allowance for loan losses as a percent of total loans		0.82	%(17)		0.95	%		0.94	%		0.95	%		1.00	%
Allowance for loan losses as a percent of non-
performing loans (2)		56.36	%(18)		171.98	%		432.16	%		560.40	%		371.69	%

Number of full service customer facilities		22			15			13			13			11

(1)	The allowance for loan losses at December 31, 2009, 2008, 2007, 2006 and 2005 was $9.2 million, $8.3 million, $7.7 million, $7.2 million and $6.4 million, respectively.

(2)

Non-performing assets consist of non-performing loans and foreclosed real estate owned (“REO”). Non-performing loans consist of non-accrual and accruing loans 90 days or more overdue, while REO consists of real estate acquired through foreclosure and real estate acquired by acceptance of a deed-in-lieu of foreclosure.

(3)	Exclusive of the $2.5 million (after tax) in acquisition related expenses and a $318,000 (after tax) special FDIC insurance assessment, net income for the year ended December 31, 2009 would have been $8.7 million

(4)	Exclusive of the $1.4 million OTTI charge and related tax effect of $550,000, net income in 2008 would have been $8.1 million.

(5)	Excluding the effect of a $3,591,000 charitable contribution ($2,199,000 after taxes) to fund the newly-formed United Charitable Foundation, net income in 2005 would have amounted to $6,568,000 or $0.50 per share.

(6)

The Company issued 17,205,995 shares of common stock in its July 2005 initial public offering, including 9,189,722 shares held by United Mutual Holding Company. In December 2007, the Company completed a second step conversion and offering in which each outstanding minority share was exchanged for 1.04079 shares and 9,564,570 shares were sold in a subscription and syndicated offering. All earnings per share data and share information have been adjusted by the exchange ratio for 2007 and all periods prior.

(7)	Asset Quality Ratios and Regulatory Capital Ratios and the “tangible equity to tangible assets” ratio are end-of-period ratios. With the exception of end-of-period ratios, all ratios are based on average monthly balances during the indicated periods and are annualized where appropriate.

(8)	Exclusive of the $2.5 million (after tax) in acquisition related expenses and a $318,000 (after tax) special FDIC insurance assessment, the return on average assets and average equity would have been 0.68% and 3.97%, respectively.

(9)	Excludes the impact of goodwill of $7.8 million.

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

(11)	The net interest margin represents net interest income as a percent of average interest-earning assets.

(12)	Exclusive of the $2.9 million in acquisition related expenses and a $538,000 special FDIC insurance assessment, non-interest expense to average total assets would have been 2.64% and the efficiency ratio would have been 68.49%.

(13)	The efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income and excludes gains/losses on sales of securities and loans and impairment charges on securities.

(14)	Exclusive of the $1.4 million OTTI charge and related tax effect of $550,000, the return on average assets and average equity would have been 0.68% and 3.59%, respectively.

(15)	Exclusive of the contribution to the United Charitable Foundation in 2005, return on average assets, return on average equity, total non-interest expense to average total assets, and efficiency ratio would have been 0.76%, 6.70%, 2.43% and 64.41%, respectively.

(16)	Regulatory Capital Ratios are reported for United Bank only.

(17)	Exclusive of the $242.9 million in loans acquired from CNB Financial and $22.7 million in loans purchased from other financial institutions, allowance for loan losses as a percent of total loans would have been 1.07%..

(18)	Excluding the $3.3 million in nonperforming loans acquired from CNB Financial, allowance for loan losses as a percent of non-performing loans would have been 70.44%.

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ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the audited consolidated financial statements, which appear beginning on page F-1 of this Annual Report. You should read the information in this section in conjunction with the business and financial information regarding United Financial Bancorp, Inc. provided in this Annual Report.

Overview

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities (including mortgage-backed securities, other securities and corporate and municipal bonds) and other interest-earning assets (primarily federal home loan bank stock and cash and cash equivalents), and the interest paid on our interest-bearing liabilities, consisting primarily of savings accounts, money market accounts, transaction accounts, certificates of deposit and Federal Home Loan Bank advances. Net interest income before provision for loan losses increased $1.2 million, or 3.0%, to $41.0 million for the year ended December 31, 2009 from $39.8 million for the year ended December 31, 2008 due to growth in average interest-earning assets, partially offset by net interest margin compression. Average earning assets increased $60.7 million, or 5.3%, to $1.2 billion mainly due to purchases of mortgage-backed securities and loan growth. Net interest margin decreased 8 basis points to 3.39% for the year ended December 31, 2009 from 3.47% for the prior year period reflecting a substantial amount of loan refinancing activity, an increase in funds held in lower-yielding cash equivalents, the elimination of the FHLB stock dividend beginning with the fourth quarter 2008 payment and the cost to fund the purchase of bank-owned life insurance and share repurchases, partially offset by improved spreads.

Our results of operations are also affected by our provision for loan losses, non-interest income and non-interest expense. Non-interest income consists primarily of deposit account fees, financial services fees, increases in cash value-insurance, gains and losses on the sale of securities, impairment charges for securities and miscellaneous other income. Non-interest expense consists primarily of compensation and employee benefits, data processing, occupancy, marketing and public relations, professional services, printing and office supplies, and other operating expenses. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities..

Critical Accounting Policies

Critical accounting policies are those that involve significant judgments and assumptions by management and that have, or could have, a material impact on our income or the carrying value of our assets. Our critical accounting policies are those related to our allowance for loan losses and valuation allowances associated with deferred tax assets.

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover credit losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses which is charged against income. The methodology for determining the allowance for loan losses is considered a critical accounting policy by management due to the high degree of judgment involved, the subjectivity of the assumptions utilized and the potential for changes in the economic environment that could result in adjustments to the amount of the recorded allowance for loan losses.

As a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans and discounted cash flow valuations of properties are critical in determining the amount of the allowance required for specific loans. Assumptions for appraisals and discounted cash flow valuations are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property securing a loan and the related allowance determined. The assumptions supporting such appraisals and discounted cash flow valuations are

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reviewed by management to determine that the resulting values reasonably reflect amounts realizable on the related loans.

Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. We consider a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic and real estate market conditions.

The evaluation has a specific and general component. The specific component relates to loans that are delinquent or otherwise identified as problem loans through the application of our loan review process and our loan grading system. All such loans are evaluated individually, with principal consideration given to the value of the collateral securing the loans. Specific allowances are established as required by this analysis. The general component is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. We also analyze historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations. This analysis establishes factors that are applied to the loan groups to determine the amount of the general component of the allowance for loan losses.

Actual loan losses may be significantly more than the allowances we have established which could have a material negative effect on our financial results.

Evaluation of the Investment Portfolio for Other-Than-Temporary Impairment. The evaluation of the investment portfolio for other-than-temporary impairment is also a critical accounting estimate. In evaluating the investment portfolio for other-than-temporary impairment, management considers the issuer’s credit rating, credit outlook, payment status and financial condition, the length of time the bond has been in a loss position, the size of the loss position and other meaningful information. If a decline in the fair value of an investment security below its cost is judged to be other-than-temporary the cost basis of the investment security is written down to fair value as a new cost basis and the amount of the write-down is included in the results of operations. A number of factors or combinations of factors could cause us to conclude in one or more future reporting periods that an unrealized loss that exists with respect to these securities constitutes an impairment that is other than temporary. These factors include, but are not limited to, failure to make scheduled principal and/or interest payments, an increase in the severity of the unrealized loss on a particular security, an increase in the continuous duration of the unrealized loss without an improvement in value or changes in market conditions and/or industry or issuer specific factors that would render us unable to forecast a full recovery in value.

Business Strategy

Our business strategy is to operate as a well-capitalized and profitable community bank dedicated to providing exceptional personal service to our individual and business customers. Over the past several years, we have emphasized the origination of commercial and industrial loans and loans secured by commercial real estate, and we intend to increase our origination of these loans in the future. In addition, we intend to expand our branch network in our primary market area, which consists of Hampden, Hampshire and Worcester Counties, Massachusetts. We also intend to evaluate opportunities to expand into new markets, including Northern Connecticut. We cannot assure you that we will successfully implement our business strategy.

Highlights of our business strategy are as follows:

Remaining a Community-Oriented Financial Institution. We were established in 1882 and have been operating continuously since that time, growing through internal growth and a series of five mutual-to-mutual business combinations that occurred between 1960 and 1994. We have been, and continue to be, committed to meeting the financial needs of the communities in which we operate, and we are dedicated to providing quality personal service to our customers. We provide a broad range of individualized consumer and business financial services from our main office, 21 branch offices, two offsite ATMs and two drive-up facilities.

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Expanding our Branch Network. We currently operate from 22 full-service banking offices, a drive-up only facility and a drive-up express facility. We also maintain two financial services facilities that offer insurance and investment products and financial planning services. In 2009, we opened a new branch in Chicopee and acquired six branches in Worcester County in connection with our acquisition of CNB Financial. We intend to evaluate new branch expansion opportunities, through acquisitions and de novo branching, to expand our presence within and outside our primary market area, including Northern Connecticut, and our current business plan calls for the acquisition and establishment of additional branch offices. In addition, we intend to evaluate acquisitions of other financial institutions, as opportunities present themselves.

Increasing our Commercial Real Estate and Commercial and Industrial Lending. We intend to continue to increase our origination of higher-yielding commercial real estate and commercial and industrial loans as a means of increasing our interest income and improving our net interest margin. In support of this initiative we increased our commercial real estate and commercial and industrial loan portfolio significantly in 2009 as a result of our acquisition of CNB Financial. In addition, we have supplemented our existing staff of commercial loan officers, increased our credit analysis resources and enhanced the outside loan review process. We originated $69.6 million of commercial real estate loans and $61.0 million of commercial and industrial loans during the year ended December 31, 2009. At December 31, 2009, our commercial real estate loans and commercial and industrial loans totaled $409.7 million and $159.4 million, respectively. The additional capital raised from our 2007 “second-step” conversion offering has increased our commercial lending capacity by enabling us to originate more loans and loans with larger balances. Originating more commercial real estate loans and commercial and industrial loans exposes us to increased risks, as discussed in the Risk Factors section of this Annual Report.

Maintaining High Asset Quality. We have emphasized maintaining strong asset quality by following conservative underwriting criteria and by originating loans secured primarily by real estate. We will continue to focus on maintaining high asset quality as we seek to expand our commercial lending activities. During the past year, however, deterioration in economic conditions and the real estate market have contributed to an increase in non-performing assets from $5.8 million, or 0.46% of total assets, at December 31, 2008 to $17.8 million, or 1.16% of total assets, at December 31, 2009. The acquisition of CNB Financial resulted in an additional $4.3 million in non-performing assets. The acquired loans represent two construction loans ($2.7 million) that are considered collateral dependent. The sale of the underlying collateral will ultimately repay the loans. Excluding the impact of the acquisition, the increase of $7.8 million was driven by the addition of five commercial real estate relationships. Two of the five loans are scheduled to be paid off or substantially paid down early in the first quarter of 2010. The remaining three have active workout plans in place and are expected to be resolved in the first half of 2010. Although non-performing assets increased during the period, our loan portfolio has no exposure to sub-prime borrowers. In addition, net charge-offs have increased from 0.15% of average loans outstanding for the year ended December 31, 2008 to 0.23% of our average loans outstanding for the year ended December 31, 2009. Continued weakness or further deterioration in the economy and the real estate market may lead to future increases in non-performing assets and net charge-offs.

Increasing our Share of Lower-Cost Deposits. We remain committed to gathering lower cost and more stable core deposits. We attract and retain core deposits with competitive products and rates, excellent customer service, a comprehensive marketing program and a well-established incentive-based cross-sales program. Our efforts to attract and retain core deposits have resulted in an increase in core account balances and total number of accounts during 2009. At December 31, 2009, core deposits (demand deposits, NOW accounts, money market accounts and savings accounts) totaled $560.7 million, or 54.0% of total deposits, compared to $406.8 million, or 52.0% of our total deposits, at December 31, 2008.

Increasing and Diversifying our Sources of Non-interest Income. In order to reduce our reliance on net interest income and the impact of market rates on our financial results, we have sought to diversify our revenue stream. In connection with our success in growing our deposit base, our fee income derived from deposits has increased. Through United Wealth Management Group, a division of United Bank, we offer United Bank customers and others a complete range of non-deposit investment products and financial planning services, including mutual funds, debt, equity and government securities, insurance products,

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fixed and variable annuities, financial planning for individual and commercial customers and estate planning services. In 2006, United Bank purchased Levine Securities in Northampton, Massachusetts in order to expand our market and capitalize on the establishment of a new branch. United Wealth Management Group offers these services through its partnership with NFP Securities, Inc. We have also invested in bank-owned life insurance for certain executive officers and directors, providing another source of non-interest income through the recognition of the growing cash surrender value of this insurance over time.

Comparison of Financial Condition at December 31, 2009 and 2008

Balance Sheet Summary Total assets increased $277.9 million, or 22.0%, to $1.5 billion at December 31, 2009 from $1.3 billion at December 31, 2008, mainly due to the acquisition of Commonwealth National Bank and growth of $40 million in the existing commercial real estate portfolio. These items were partially offset by sales of mortgage-backed securities totaling $23.9 million and sales of residential mortgages totaling $29.5 million. Total deposits increased $256.3 million, or 32.7%, to $1.04 billion at December 31, 2009 primarily reflecting the acquisition of $195.2 million of deposits from CNB Financial and organic growth of $68.8 million, or 16.9%, in core account balances. A portion of the cash flows received from the sales of loans and investment securities was used to pay down Federal Home Loan Bank advances and to fund the repurchase of 1.6 million shares of the Company’s common stock at a total cost of $21.5 million. At year end, the Company continued to have considerable liquidity including significant unused borrowing capacity at the Federal Home Loan Bank and access to funding through the repurchase agreement and brokered deposit markets. The Company’s balance sheet is also supported by a strong capital position, with total stockholders’ equity of $225.2 million, or 14.6% of total assets, at December 31, 2009.

Loans Net loans increased $251.0 million, or 29.0%, to $1.12 billion at December 31, 2009 from $864.4 million at December 31, 2008 mainly due to the acquisition of CNB Financial and growth of $40.1 million in the existing commercial real estate portfolio. The acquisition of CNB Financial added $22.0 million of residential real estate loans, $129.6 million of commercial real estate loans, $57.9 million of commercial and industrial loans, $14.2 million of home equity loans, $18.7 million of construction loans and $165,000 of consumer loans. Commercial real estate loans increased $161.2 million, or 64.9%, to $409.7 million, and commercial and industrial loans increased $74.5 million, or 87.8%, to $159.4 million, as a result of the acquisition, economic activity in our primary market area, competitive pricing, attractive products and services, established relationships and successful business development efforts. The increase in commercial mortgage balances also reflects the purchase of $10.3 million of loans in the second quarter of 2009. One- to four-family residential mortgage loans decreased $13.1 million, or 3.7%, to $343.3 million at December 31, 2009, due to sales of lower coupon, fixed rate mortgages totaling $29.5 million, offset by the impact of the acquisition. Home equity loans increased $16.6 million, or 13.8%, to $137.4 million, largely as a result of the acquisition, healthy demand, business development efforts and attractive products and pricing. Construction loans increased $16.7 million, or 52.1%, to $48.8 million largely due to the acquisition of CNB Financial. Prior to the acquisition, construction loans were decreasing as several credits converted to fixed-rate commercial mortgages or were paid-in-full and management elected to be more cautious in evaluating and approving funding for construction projects. A significant portion of these loans mature in less than two years and will either convert to permanent financing or pay-off in full. Automobile loan balances declined $2.6 million, or 15.0%, to $14.7 million in connection with a slow-down in demand in connection with weaker car sales and payments on existing loans. We continued to focus our efforts on growing the commercial real estate and commercial and industrial loan portfolios in order to increase our interest income and improve our net interest rate spread.

Asset Quality Throughout the course of 2008 and 2009, economic conditions continued to worsen, due in large part to the fallout from the collapse of the sub-prime mortgage market. While we did not originate or invest in sub-prime mortgages, our lending business is tied, in large part, to the housing market. Declines in home prices, increases in foreclosures and higher unemployment have adversely affected the credit performance of real estate-related loans, resulting in the write-down of asset values. The continuing housing slump also has resulted in reduced demand for the construction of new housing, further declines in home prices, and increased delinquencies on our construction, residential and commercial mortgage loans. Our asset quality has also been impacted by a strategy adopted several years ago to emphasize the origination of commercial and industrial loans and commercial mortgages. These loans have increased as a percentage of our total loan portfolio in recent years and generally have

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more risk than one- to four-family residential mortgage loans. Because the repayment of commercial and industrial loans and commercial mortgages depends on the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can be affected by adverse conditions in the real estate market or the local economy.

As a result of a slowing economy and deterioration in the housing market, we have experienced increases in non-performing loans and classified assets. Non-performing loans increased $11.5 million to $16.3 million, or 1.45% of total loans, at December 31, 2009 compared to $4.8 million, or 0.55% of total loans, at December 31, 2008. The increase in non-performing loans was primarily due to the impact of the CNB Financial acquisition and several residential and commercial real estate loans which became more than 90 days past due during 2009. The acquired loans represent two construction loans ($2.7 million) that are considered collateral dependent. The sale of the underlying collateral will ultimately repay the loans. Excluding $3.3 million of non-performing loans acquired from CNB Financial, the increase of $8.2 million was driven by the addition of five commercial real estate relationships. Two of the five loans are scheduled to be paid off or substantially paid down early in the first quarter of 2010. The remaining three have active workout plans in place and are expected to be resolved in the first half of 2010. Although non-performing assets increased during the period, our loan portfolio has no exposure to sub-prime borrowers. In addition to the non-performing loans, the Company has identified $82.6 million of classified assets at December 31, 2009, as compared to $44.8 million at December 31, 2008. Classified assets include loans that are currently performing, are of lesser quality and are reported as special mention, substandard, doubtful or loss, as well as other real estate owned. At December 31, 2009 and 2008, classified loans primarily consisted of special mention and substandard commercial business loans and commercial mortgages. Other real estate owned totaled $1.5 million at December 31, 2009 and was comprised of four residential properties. Management cannot predict the extent to which economic conditions may worsen or other factors may impact borrowers and the classified assets. Accordingly, there can be no assurance that additional loans will not become 90 days or more past due, be placed on nonaccrual status, become classified or restructured, or require increased allowance coverage and provision for loan losses.

Investments Our total investment portfolio decreased $10.2 million, or 3.2%, to $306.5 million at December 31, 2009 from $316.7 million at December 31, 2008, mainly due to sales of $31.3 million and calls, maturities and principal repayments of $74.7 million, offset by purchases of $60.4 million and securities acquired due to the acquisition of CNB Financial which amounted to $32.4 million.

Deposits and Other Funding Sources Total deposits increased $256.3 million, or 32.7%, to $1.0 billion at December 31, 2009 from $782.7 million at December 31, 2008, mainly due to the acquisition of CNB Financial as well as attractive products and services, competitive pricing, excellent customer service, targeted promotional activities and the opening of two new branches. Core deposits increased $153.9 million, or 37.8%, to $560.7 million at December 31, 2009, and represented 54.0% of total deposits at that date. Repurchase agreements increased $19.3 million to $47.3 million at December 31, 2009, reflecting an additional $10 million, term, reverse repurchase agreement secured through another financial institution in 2009 and routine fluctuations in overnight sweep accounts for certain business customers. The Company has outstanding subordinated debt in the form of trust preferred securities issued through a private placement offering in the amount of $7,732. The Company recorded a fair value acquisition discount of $2,383 in connection with the acquisition of CNB Financial. The issue has a maturity date of March 15, 2036 and bears a floating rate of interest that reprices quarterly at the 3-month LIBOR rate plus 1.85%. The interest rate at December 31, 2009 was 2.10%. A special redemption provision allows the Company to redeem the issue at 103.525% of par for the first year and thereafter on a sliding scale down to 100% of par beginning in 2007. Interest expense for 2009 was $14.

Total Stockholders’ Equity Total stockholders’ equity decreased $2.5 million, or 1.1%, to $225.2 million at December 31, 2009 from $227.7 million at December 31, 2008, mainly as a result of repurchases of our common stock totaling $21.2 million and cash dividends totaling $4.2 million, substantially offset by an increase in total equity of $12.1 million for shares issued in connection with the CNB Financial acquisition, net income of $5.8 million, stock-based compensation of $3.2 million, and other comprehensive income of $2.4 million.

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Comparison of Operating Results for the Years Ended December 31, 2009 and 2008

Net Income. Our net income for the year ended December 31, 2009 totaled $5.8 million, or $0.38 per diluted share, compared to net income of $7.3 million, or $0.44 per diluted share, for the same period in 2008. Excluding the impact of acquisition related expenses totaling $2.9 million ($2.5 million net of tax benefit), and the second quarter special FDIC insurance assessment of $537,000 ($312,000 net of tax benefit), net income would have been $8.6 million, or $0.57 per diluted share in the 2009 period. Excluding a non-cash charge of $1.4 million ($850,000, net of tax benefit) for other-than-temporary-impairment of specific securities, 2008 net income would have been $8.1 million, or $0.50 per diluted share.

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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. Loan fees are not included in interest income amounts. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield.

	Years Ended December 31,
	2009							2008
	Average Balance		Interest and Dividends		Yield/ Cost			Average Balance		Interest and Dividends		Yield/ Cost
	(Dollars in thousands)
Interest-earning assets:
Loans:
Residential real estate(1)	$	340,396	$	18,738		5.50	%	$	356,685	$	20,069		5.63	%
Commercial real estate		312,120		18,568		5.95	%		260,675		16,411		6.30	%
Home equity loans		123,484		5,530		4.48	%		119,401		6,793		5.69	%
Commercial and industrial		90,396		4,732		5.23	%		83,470		5,223		6.26	%
Consumer and other		26,333		1,484		5.64	%		30,211		1,679		5.56	%
Total loans		892,729		49,052		5.49	%		850,442		50,175		5.90	%
Investment securities		291,310		13,904		4.77	%		280,447		14,109		5.03	%
Other interest-earning assets		23,666		30		0.13	%		16,103		530		3.29	%
Total interest-earning assets		1,207,705		62,986		5.22	%		1,146,992		64,814		5.65	%
Noninterest-earning assets(2)		60,267							39,501
Total assets	$	1,267,972						$	1,186,493

Interest-bearing liabilities:
Savings accounts	$	124,606		1,320		1.06	%	$	84,816		1,015		1.20	%
Money market accounts		183,652		2,209		1.20	%		170,439		3,336		1.96	%
NOW accounts		31,161		149		0.48	%		32,228		171		0.53	%
Certificates of deposit		375,972		10,617		2.82	%		363,836		13,309		3.66	%
Total interest-bearing deposits		715,391		14,295		2.00	%		651,319		17,831		2.74	%
FHLB advances		171,301		6,662		3.89	%		178,699		6,739		3.77	%
Other interest-bearing liabilities		36,163		1,029		2.85	%		13,686		433		3.16	%
Total interest-bearing liabilities		922,855		21,986		2.38	%		843,704		25,003		2.96	%
Demand deposits		118,434							107,182
Other noninterest-bearing liabilities		8,912							9,503
Total liabilities		1,050,201							960,389
Stockholders' equity		217,771							226,104
Total liabilities and stockholders' equity	$	1,267,972						$	1,186,493

Net interest income			$	41,000						$	39,811
Interest rate spread(3)						2.84	%						2.69	%
Net interest-earning assets(4)	$	284,850						$	303,288
Net interest margin(5)						3.39	%						3.47	%
Average interest-earning assets to
average interest-bearing liabilities						130.87	%						135.95	%

(1)	Includes loans held for sale.

(2)	Includes bank-owned life insurance, the income on which is classified as non-interest income.

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

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

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

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

	Years Ended December 31, 2009 vs. 2008
	Increase (Decrease) Due to
	Volume			Rate			Net
	(In thousands)

Interest-earning assets:
Loans:
Residential real estate(1)	$	(903	)	$	(428	)	$	(1,331	)
Commercial real estate		3,100			(943	)		2,157
Home equity loans		225			(1,488	)		(1,263	)
Commercial and industrial		409			(900	)		(491	)
Consumer and other		(219	)		24			(195	)
Total loans		2,612			(3,735	)		(1,123	)
Investment securities		535			(740	)		(205	)
Other interest-earning assets		171			(671	)		(500	)
Total interest-earning assets		3,318			(5,146	)		(1,828	)

Interest-bearing liabilities:
Savings accounts		432			(127	)		305
Money market accounts		242			(1,369	)		(1,127	)
NOW accounts		(6	)		(16	)		(22	)
Certificates of deposit		431			(3,123	)		(2,692	)
Total interest-bearing deposits		1,099			(4,635	)		(3,536	)
FHLB advances		(284	)		207			(77	)
Other interest-bearing liabilities		643			(47	)		596
Total interest-bearing liabilities		1,458			(4,475	)		(3,017	)

Change in net interest income	$	1,860		$	(671	)	$	1,189

(1) Includes loans held for sale.

Net Interest Income Before Provision for Loan Losses. Net interest income before provision for loan losses increased $1.2 million, or 3.0%, to $41.0 million for the year ended September 30, 2009 from $39.8 million for the comparable 2008 period reflecting growth in average earning assets, partially offset by net interest margin contraction. Average earning assets increased $60.7 million, or 5.3%, to $1.2 billion mainly due to purchases of mortgage-backed securities and loan growth. Net interest margin decreased 8 basis points to 3.39% for the year ended December 31, 2009 from 3.47% for the prior year period reflecting a substantial amount of loan refinancing activity, an increase in funds held in lower-yielding cash equivalents, the elimination of the FHLB stock dividend beginning with the fourth quarter 2008 payment and the cost to fund the purchase of bank-owned life insurance and share repurchases, partially offset by improved spreads.

Interest Income. Interest income decreased $1.8 million, or 2.8%, to $63.0 million for the year ended December 31, 2009 from $64.8 million for the prior year period reflecting a decrease in the yield on average interest-earning assets, partially offset by an increase in total average interest-earning asset balances. The yield on average interest-earning assets decreased 43 basis points to 5.22% for the year ended December 31, 2009 in

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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. Total average interest-earning asset balances increased $60.7 million, or 5.3%, to $1.2 billion for the year ended December 31, 2009 due in large part to loan growth and purchases of investment securities. Total average loans increased $42.3 million, or 5.0%, to $892.7 million during the year ended December 31, 2009 as a result of origination activity, partially offset by loan sales, prepayments and normal amortization. Total average investment securities increased by $10.9 million, or 3.9%, to $291.3 million for the year ended December 31, 2009 primarily due to purchases of mortgaged-backed securities, partially offset by sales of mortgaged-backed securities and principal repayments on existing securities.

Interest Expense. Interest expense decreased $3.0 million, or 12.1%, to $22.0 million for the year ended December 31, 2009 from $25.0 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 58 basis points to 2.38% for the year ended December 31, 2009 reflecting the repricing of money market and certificate of deposit balances in response to interest rate cuts initiated by the Federal Reserve Board. Since a large portion of the Company’s interest-bearing liabilities are short-term, the impact of the expansion in market rates was significant. Average interest-bearing liabilities increased $79.2 million, or 9.4%, to $922.9 million for the year ended December 31, 2009 reflecting growth in interest-bearing deposits and other interest-bearing liabilities. Total average interest-bearing deposits increased $64.1 million, or 9.8%, to $715.4 million for the year ended December 31, 2009 mainly attributable to an increase in savings, money market and certificate of deposit balances related to new branches opened in 2008 and 2009, attractive products, competitive pricing and excellent customer service. Other interest-bearing liabilities increased $22.5 million or 164.2% reflecting the use of repurchase agreements to support balance sheet expansion and lengthen the duration of borrowings at attractive rates.

Provision for Loan Losses. We establish provisions for loan losses, which are charged to operations, at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, trends in nonperforming loans and delinquency rates, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events occur. The provision for loan losses was $3.0 million for the year ended December 31, 2009 as compared to $1.8 million for the same period in 2008. The increase in the 2009 provision reflects the impact of an expansion in non-accrual and classified assets and the continuing shift to a more commercially oriented loan portfolio. The allowance for loan losses was $9.2 million, or 0.82% of loans outstanding, at December 31, 2009. Excluding the impact of the $242.9 million of loans acquired from CNB Financial and $22.7 million of loans acquired from other financial institutions, the ratio of the allowance for loan losses to total loans would have been 1.07%.

Non-interest Income. Non-interest income increased $3.5 million, or 66.2%, to $8.7 million for the year ended December 31, 2009 from $5.2 million for the 2008 period. Excluding impairment charges on investment securities of $82,000 in 2009 and $1.4 million in 2008 (for information regarding the evaluation of other than temporary impairment refer to Note C - Investment Securities to the Consolidated Financial Statements), non-interest income would have increased by $2.2 million, or 32.8%, largely driven by an increase in BOLI income of $1.0 million, a $520,000 increase in net gains on sales of securities, net gains of $363,000 realized from loan sales and a $239,000, or 5.1%, increase in fee income on depositors’ accounts. The expansion in income from bank-owned life insurance reflects the purchase of an additional $20.0 million of insurance in November 2008. The increase in deposit service charges was primarily due to growth in accounts and transactions. These increases were partially offset by a decrease of $119,0000 in wealth management income driven by the effect of the lower market valuations on assets under management and lower transaction fees earned from annuity sales.

Non-interest Expense. Non-interest expense increased $6.2 million, or 20.1%, to $36.9 million for the year ended December 31, 2009, from $30.7 million for the prior year period. Excluding acquisition-related expenses of $2.9 million, total non-interest expenses would have increased $3.3 million, or 10.8%. Total salaries and benefits increased $1.6 million, or 9.2%, mainly due to staffing costs for our new Chicopee branch opened in the second quarter of 2009, annual wage increases, growth in stock-based compensation, a higher incentive

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compensation accrual associated with improved financial performance and additional expenses incurred in December to operate CNB Financial. Occupancy costs grew $284,000, or 12.2%, principally attributable to new branches opened in 2008 and 2009 and costs incurred in December to operate CNB Financial. Data processing costs increased $248,000, or 7.8%, reflecting a larger loan and deposit base and new branches opened in 2008 and 2009. FDIC insurance assessments increased $1.0 million, or 202.5%, reflecting a special FDIC insurance assessment of $538,000 incurred in the second quarter of 2009 and an increase in the quarterly expense related to higher premiums that became effective in 2009. Other expenses increased $433,000, or 10.3%, primarily attributable to increases in check fraud losses and foreclosed properties costs, expenses associated with new branches opened in 2008 and 2009 and costs incurred to operate CNB Financial in December. These increases were partially offset by a decrease in professional fees of $320,000 as a result of lower legal and consulting costs.

Income Tax Expense. Income tax expense decreased $1.2 million, or 22.8%, to $4.0 million for year ended December 31, 2009 from $5.2 million for the comparable 2008 period due in large part to lower income before income taxes and to a lesser extent a slight decrease in the effective tax rate from 41.6% in 2008 to 40.9% in 2009.

Comparison of Operating Results for the Years Ended December 31, 2008 and 2007

Net Income. Our net income for the year ended December 31, 2008 totaled $7.3 million, or $0.45 per diluted share, compared to $4.4 million, or $0.26 per diluted share, for the year ended December 31, 2007. The Company’s improved results were largely due to a significant increase in net interest income, driven by a 56 basis points increase in our net interest margin and growth in average earning assets largely funded by net cash proceeds of $82.7 million from the Company’s December 2007 second-step stock offering. Our improved operating performance was also favorably affected by an increase in fee income from deposit and wealth management accounts, partially offset by higher provisions for loan losses, other-than-temporary impairment losses on securities and an increase in non-interest expenses.

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	Years Ended December 31,
	2008							2007
	Average Balance		Interest and Dividends		Yield/ Cost			Average Balance		Interest and Dividends		Yield/ Cost
	(Dollars in thousands)
Interest-earning assets:
Loans:
Residential real estate	$	356,685	$	20,069		5.63	%	$	342,719	$	19,380		5.65	%
Commercial real estate		260,675		16,411		6.30	%		235,600		15,590		6.62	%
Home equity loans		119,401		6,793		5.69	%		117,640		7,704		6.55	%
Commercial and industrial		83,470		5,223		6.26	%		75,348		5,513		7.32	%
Consumer and other		30,211		1,679		5.56	%		30,586		1,625		5.31	%
Total loans		850,442		50,175		5.90	%		801,893		49,812		6.21	%
Investment securities		280,447		14,109		5.03	%		177,000		8,200		4.63	%
Other interest-earning assets		16,103		530		3.29	%		22,543		1,238		5.49	%
Total interest-earning assets		1,146,992		64,814		5.65	%		1,001,436		59,250		5.92	%
Noninterest-earning assets		39,501							32,744
Total assets	$	1,186,493						$	1,034,180

Interest-bearing liabilities:
Savings accounts	$	84,816		1,015		1.20	%	$	64,029		593		0.93	%
Money market accounts		170,439		3,336		1.96	%		178,005		5,631		3.16	%
NOW accounts		32,228		171		0.53	%		33,890		178		0.53	%
Certificates of deposit		363,836		13,309		3.66	%		337,193		15,540		4.61	%
Total interest-bearing deposits		651,319		17,831		2.74	%		613,117		21,942		3.58	%
FHLB advances		178,699		6,739		3.77	%		158,595		7,617		4.80	%
Other interest-bearing liabilities		13,686		433		3.16	%		12,042		524		4.35	%
Total interest-bearing liabilities		843,704		25,003		2.96	%		783,754		30,083		3.84	%
Demand deposits		107,182							99,155
Other noninterest-bearing liabilities		9,503							4,725
Total liabilities		960,389							887,634
Stockholders' equity		226,104							146,546
Total liabilities and stockholders' equity	$	1,186,493						$	1,034,180

Net interest income			$	39,811						$	29,167
Interest rate spread(1)						2.69	%						2.08	%
Net interest-earning assets(2)	$	303,288						$	217,682
Net interest margin(3)						3.47	%						2.91	%
Average interest-earning assets to
average interest-bearing liabilities						135.95	%						127.77	%

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

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

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

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	Years Ended December 31,
	2008 vs. 2007
	Increase (Decrease) Due to
	Volume			Rate			Net
	(In thousands)

Interest-earning assets:
Loans:
Residential real estate	$	786		$	(97	)	$	689
Commercial real estate		1,603			(782	)		821
Home equity loans		113			(1,024	)		(911	)
Commercial and industrial		557			(847	)		(290	)
Consumer and other		(20	)		74			54
Total loans		3,039			(2,676	)		363
Investment securities		5,151			758			5,909
Other interest-earning assets		(295	)		(413	)		(708	)
Total interest-earning assets		7,895			(2,331	)		5,564

Interest-bearing liabilities:
Savings accounts		223			199			422
Money market accounts		(230	)		(2,065	)		(2,295	)
NOW accounts		(9	)		2			(7	)
Certificates of deposit		1,158			(3,389	)		(2,231	)
Total interest-bearing deposits		1,142			(5,253	)		(4,111	)
FHLB advances		889			(1,767	)		(878	)
Other interest-bearing liabilities		65			(156	)		(91	)
Total interest-bearing liabilities		2,096			(7,176	)		(5,080	)

Change in net interest income	$	5,799		$	4,845		$	10,644

Net Interest Income Before Provision for Loan Losses. Net interest income before provision for loan losses increased $10.6 million, or 36.5%, to $39.8 million for the year ended December 31, 2008, from $29.2 million for the year ended December 31, 2007, reflecting growth in average earning assets and net interest margin expansion. Net interest margin increased 56 basis points to 3.47% for the year ended December 31, 2008, due to the use of net proceeds from the Company’s second-step stock offering completed in December 2007 to fund asset growth as well as a significant decrease in the cost of deposits as a result of the 4.00% reduction in the federal funds rate from 4.25% at December 11, 2007 to 0.25% at December 31, 2008.

Interest Income. Interest income increased $5.6 million, or 9.4%, to $64.8 million for the year ended December 31, 2008 from $59.2 million for the prior year period, reflecting expansion in total average interest-earning asset balances, partially offset by a decrease in the yield on average interest-earning assets. Total average interest-earning asset balances increased $145.6 million, or 14.5%, to $1.1 billion for the year ended December 31, 2008 due in large part to purchases of investment securities and loan growth, funded largely by deposit growth and the proceeds of the December 2007 second-step stock offering. Total average investment securities increased by $103.4 million, or 58.4%, to $280.4 million primarily due to purchases of mortgage-backed securities in connection with the implementation of a strategy to deploy excess capital and liquidity resulting from the Company’s 2007 second-step stock offering. Total average loans increased $48.5 million, or 6.1%, to $850.4 million for the year ended December 31, 2008, as a result of healthy origination activity, partially offset by prepayments and normal amortization. The yield on average interest-earning assets decreased 27 basis points to 5.65% for the year ended December 31, 2008, reflecting the lower interest rate environment. Since a significant amount of the Company’s average interest-earning assets are fixed rate and the impact of Federal Reserve Board actions was less pronounced on the long end of the yield curve, the effect of the decrease in market rates was primarily limited to home equity, commercial loans and commercial real estate loans due to the significant number of loans tied to the prime rate or a shorter-term index. The impact of the decrease in market rates on loan yields was partially offset by purchases of higher yielding mortgage backed securities.

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Interest Expense. Interest expense decreased $5.1 million, or 16.9%, to $25.0 million for the year ended December 31, 2008, from $30.1 million for the year ended December 31, 2007, due to a decrease in the average rate paid on interest-bearing liabilities, partially offset by growth in average interest-bearing liabilities. The average rate paid on interest-bearing liabilities decreased 88 basis points to 2.96% for the year ended December 31, 2008, reflecting the repricing of money market and certificate of deposit account balances in response to interest rate cuts initiated by the Federal Reserve Board. Since a large portion of the Company’s interest-bearing liabilities are short-term, the impact of the reduction in market rates was significant. Average interest-bearing liabilities increased $60.0 million, or 7.7%, to $843.7 million for the year ended December 31, 2008, reflecting growth in interest-bearing deposits and FHLB advances. Total average interest-bearing deposits increased $38.2 million, or 6.2%, to $651.3 million for the year ended December 31, 2008, mainly due to growth in core deposits and certificates of deposit as a result of successful business development and marketing efforts, competitive product services and pricing and new branches opened in 2008. Total average FHLB advances increased $20.1 million, or 12.7%, to $178.7 million, and were used to fund asset growth and to take advantage of the lower interest rates.

Provision for Loan Losses. The provision for loan losses was $1.8 million for the year ended December 31, 2008 as compared to $1.4 million for the same period in 2007, reflecting an increase in reserves for non-performing and classified loans as well as higher net charge-offs. The allowance for loan losses was $8.3 million, or 0.95% of loans outstanding at December 31, 2008.

Non-interest Income. Non-interest income decreased $515,000, or 9.0%, to $5.2 million for the year ended December 31, 2008 from $5.7 million for the 2007 period mainly due to impairment charges of $1.4 million in 2008 compared to $180,000 in 2007. Management evaluated its securities portfolio and recognized a pre-tax, non-cash charge of $1.3 million in 2008 for other-than-temporary impairment (“OTTI”) of the Company’s $2.8 million trust preferred securities portfolio. Management also recognized an OTTI charge of $94 in 2008 for a $388 municipal security. Management based its assessment on the issuer’s credit rating, credit outlook, payment status and financial condition, the length of time the bond has been in a loss position, the size of the loss position and other meaningful information (for additional information regarding the evaluation of OTTI refer to Note C – Investment Securities to the Consolidated Financial Statements). These impairment charges were offset in part by growth in fee income on depositors’ accounts and wealth management accounts, an increase of $199,000 in income from bank-owned life insurance and a $49,000 gain in the first quarter of 2008 from VISA Inc.’s redemption of its Class B stock as part of its initial public offering. Fee income on depositors’ accounts increased $206,000, or 4.6%, as a result of growth in transaction account balances and activity. Wealth management income increased $107,000, or 15.5%, as a result of the retention of new accounts opened due to successful business development efforts and the acquisition of the Levine Financial Group in March 2006.

Non-interest Expense. Non-interest expense increased $4.7 million, or 17.9%, to $30.7 million for the year ended December 31, 2008, from $26.0 million for the prior year period. Total salaries and benefits increased $2.5 million, or 17.0%, mainly due to staffing costs for new branches opened in 2008, new employees hired to support and facilitate the growth of the Company, a higher incentive compensation accrual associated with improved financial performance and annual wage increases. Occupancy costs grew $402,000, or 20.9%, principally attributable to new branches opened in 2008. Data processing costs increased $455,000, or 16.6%, reflecting a larger loan and deposit base, new branches opened in 2008 and costs for a new branch imaging process. Professional services increased $403,000, or 31.6%, as a result of higher legal and consulting expenses and costs incurred in connection with the Company’s annual stockholders meeting at which the 2008 incentive plan was approved. Other expenses increased $801,000, or 20.6%, primarily due to an increase of $429,000 in Federal Deposit Insurance Corporation insurance premiums, an increase in other real estate owned expenses of $177,000, and a $113,000 interest assessment related to an income tax payment deficiency.

Income Tax Expense. Income tax expense increased $2.1 million, or 7.0%, to $5.2 million for year ended December 31, 2008, from $3.1 million for the comparable 2007 period, due to higher income before income taxes and a slight increase in the effective tax rate from 41.2% in 2007 to 41.6% in 2008.

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Management of Market Risk

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

Net Interest Simulation Analysis. We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. As part of our ongoing asset-liability management, we currently use the following strategies to manage our interest rate risk: (i) using alternative funding sources, such as advances from the Federal Home Loan Bank of Boston, to “match fund” longer-term one- to four-family residential mortgage loans; (ii) emphasizing increasing our core deposits; (iii) offering adjustable-rate and shorter-term commercial real estate loans and commercial and industrial loans; (iv) offering a variety of consumer loans, which typically have shorter-terms; and (v) investing in mortgage-backed securities with variable rates or fixed rates with shorter durations. Reducing the average maturity of our interest-earning assets by increasing our investments in shorter-term loans and securities, as well as loans and securities with variable rates of interest, helps to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates.

Net interest income at-risk measures the risk of a decline in earnings due to potential short-term and long term changes in interest rates. The table below represents an analysis of our interest rate risk as measured by the estimated changes in net interest income over the following twelve months, resulting from an instantaneous and sustained parallel shift in the yield curve of +200 and -100 basis points at December 31, 2009 and +200 basis points at December 31, 2008. 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. Due to the historically low level of interest rates, a model reflecting a downward shift in the yield curve is not relevant and was not produced for 2008.

Net Interest Income At-Risk

Change in Interest Rates (basis points)	Estimated Increase (Decrease) in NII (December 31, 2009)	Estimated Increase (Decrease) in NII (December 31, 2008)

-100	(2.8)%	NA
Stable	0.0%	0.0%
+200	0.5%	(3.3)%

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

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Net Portfolio Value Simulation Analysis. The Office of Thrift Supervision requires the computation of amounts by which the net present value of an institution’s cash flow from assets, liabilities and off balance sheet items (the institution’s net portfolio value or “NPV”) would change in the event of a range of assumed changes in market interest rates. The Office of Thrift Supervision provides all institutions that file a Consolidated Maturity/Rate Schedule as a part of their quarterly Thrift Financial Report an interest rate sensitivity report of net portfolio value. The Office of Thrift Supervision simulation model uses a discounted cash flow analysis and an option-based pricing approach to measuring the interest rate sensitivity of net portfolio value. Historically, the Office of Thrift Supervision model estimated the economic value of each type of asset, liability and off-balance sheet contract under the assumption that the United States Treasury yield curve increases or decreases instantaneously by 100 to 300 basis points in 100 basis point increments. However, given the low level of market interest rates at December 31, 2008, the Office of Thrift Supervision did not require a net portfolio value calculation for interest rate decreases. A basis point equals one-hundredth of one percent, and 200 basis points equals two percent. An increase in interest rates from 3% to 5% would mean, for example, a 200 basis point increase in the “Change in Interest Rates” column below. The Office of Thrift Supervision provides us the results of the interest rate sensitivity model, which is based on information we provide to the Office of Thrift Supervision to estimate the sensitivity of our net portfolio value.

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

	December 31, 2009
									NPV as a Percentage of Present Value of Assets (3)
Change in			Estimated Increase (Decrease) in NPV									Increase
Interest Rates (basis points) (1)	Estimated NPV (2)		Amount			Percent			NPV Ratio (4)			(Decrease) (basis points)
			(Dollars in thousands)

+300	$	138,536	$	(53,844	)		(28	)%		9.83	%		(278	)
+200		160,423		(31,957	)		(17	)		11.07			(155	)
+100		179,607		(12,773	)		(7	)		12.07			(55	)
0		192,380								12.62
-100		206,234		13,854			7			13.27			65

	December 31, 2008
									NPV as a Percentage of Present Value of Assets (3)
Change in			Estimated Increase (Decrease) in NPV									Increase
Interest Rates (basis points) (1)	Estimated NPV (2)		Amount			Percent			NPV Ratio (4)			(Decrease) (basis points)
			(Dollars in thousands)

+300	$	122,901	$	(66,712	)		(35	)%		10.52	%		(424	)
+200		147,220		(42,393	)		(22	)		12.19			(257	)
+100		170,707		(18,906	)		(10	)		13.68			(108	)
0		189,613								14.76

(1)	Assumes an instantaneous uniform change in interest rates at all maturities.

(2)	NPV is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

(3)	Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

(4)	NPV ratio represents NPV divided by the present value of assets.

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The tables above indicate that at December 31, 2009 and December 31, 2008, in the event of a 300 basis point increase in interest rates, we would experience a 28% and 35%, respectively, decrease in net portfolio value. In the event of a 100 basis point decrease in interest rates at December 31, 2009, we would experience a 7% increase in net portfolio value. A net portfolio value calculation for interest rate decreases at December 31, 2008 was not required, due to the historically low interest rate environment.

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

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs of our customers as well as unanticipated contingencies. We seek to maintain a liquidity ratio of 10% or greater. At December 31, 2009, our liquidity ratio was 19.49%.

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

Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At December 31, 2009, cash and cash equivalents totaled $21.9 million. Securities classified as available-for-sale and held-to-maturity, which provide additional sources of liquidity, totaled $243.3 million and $63.2 million, respectively, at December 31, 2009. In addition, at December 31, 2009, we had the ability to borrow a total of approximately $406.4 million from the Federal Home Loan Bank of Boston. On that date, we had $208.2 million in advances outstanding.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Consolidated Statements of Cash Flows included in our Consolidated Financial Statements.

At December 31, 2009, we had $16.1 million in loan commitments outstanding. In addition to commitments to originate loans, we had $226.5 million in unused lines of credit to borrowers. Certificates of deposit due within one year of December 31, 2009 totaled $325.2 million, or 31.3% 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, Federal Home Loan Bank advances, borrowings from the Federal Reserve Bank, reverse repurchase agreements and brokered deposits. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2010. We believe, however, based on past experience, a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Our primary investing activities are the origination of loans and the purchase of securities. In 2009, we originated $264.1 million of loans and purchased $60.4 million of securities. In 2008, we originated $299.8 million of loans and purchased $232.0 million of securities.

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Financing activities consist primarily of activity in deposit accounts and Federal Home Loan Bank advances. We experienced a net increase in total deposits of $256.3 million and $64.0 million for the years ended December 31, 2009 and 2008, respectively. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors.

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Boston, which provide an additional source of funds. Federal Home Loan Bank advances decreased $391,000 for the year ended December 31, 2009 reflecting the use of cash flows received from the loan and investment portfolios to pay down short term Federal Home Loan Bank advances, offset by outstanding advances assumed from CNB Financial as a result of the acquisition. For the year ended December 31, 2008, Federal Home Loan Bank advances increased $100.6 million to fund loan originations and purchases of mortgage-backed securities. Federal Home Loan Bank advances have primarily been used to fund loan demand and to purchase securities. Our current asset/liability management strategy has been to “match-fund” certain longer-term one- to four-family residential mortgage loans with Federal Home Loan Bank advances. The Bank’s unused borrowing capacity with the FHLBB, excluding its $12.4 million line of credit, was approximately $185.8 million at December 31, 2009 and $282.1 million at December 31, 2008. At December 31, 2009 and 2008, the Bank had no borrowing against the line of credit. We also have access to funding through the repurchase agreement and brokered CD markets and have received approval from the Federal Reserve Bank to access its discount window. The Bank’s unused borrowing capacity with the FRB was approximately $67.3 million at December 31, 2009.

United Financial is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, United Financial is responsible for paying any dividends declared to its shareholders. United Financial also has repurchased shares of its common stock. At December 31, 2009, United Financial had liquid assets of $16.7 million.

United Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At December 31, 2009, United Bank exceeded all regulatory capital requirements. United Bank is considered “well-capitalized” under regulatory guidelines. See Item 1. “Business—Supervision and Regulation—Federal Banking Regulation—Capital Requirements” and Note O of the Notes to the Consolidated Financial Statements.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

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

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include operating and capitalized leases for premises and equipment.

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The following table summarizes our significant fixed and determinable contractual obligations and other funding needs by payment date at December 31, 2009. 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 Year		One to Three Years		Three to Five Years		More than Five Years		Total
Contractual Obligations:
Certificates of deposit	$	325,161	$	115,243	$	37,854	$	-	$	478,258
Federal Home Loan Bank advances		47,644		65,359		57,489		35,060		205,552
Repurchase agreements		27,303		-		-		20,000		47,303
Subordinated debentures		-		-		-		7,732		7,732
Standby letters of credit		3,799		-		-		-		3,799
Operating leases		1,096		1,817		1,651		5,072		9,636
Capitalized leases		406		812		813		6,762		8,793
Future benefits to be paid under retirement plans		199		3,540		171		4,650		8,560
Total	$	405,608	$	186,771	$	97,978	$	79,276	$	769,633
Commitments:
Commitments to extend credit	$	279,043	$	-	$	-	$	-	$	279,043
Commitment to invest in venture capital fund	$	700	$	-	$	-	$	-	$	700
Total	$	279,743	$	-	$	-	$	-	$	279,743

Recent Accounting Pronouncements

In February 2008, the Financial Accounting Standards Board (“FASB”) issued new guidance in accordance with and as required by the Fair Value Measurements and Disclosures Topic of FASB Accounting Standards Codification (“ASC”) which permits a one-year deferral in applying the measurement provisions 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 to that item is deferred until fiscal years beginning after November 15, 2008. The adoption on January 1, 2009, had no material effect on the Company’s Consolidated Financial Statements.

In April 2009, the FASB issued new guidance in accordance with and as required by the Fair Value Measurements and Disclosures Topic of FASB ASC, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”, which provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. This guidance also includes identifying circumstances that indicate a transaction is not orderly. This guidance emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. This new guidance is effective for interim periods ending after June 15, 2009. The adoption of this new guidance in the second quarter of 2009 had no material effect on the Company’s Consolidated Financial Statements.

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than-temporary impairment guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This guidance does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This new guidance is effective for interim periods ending after June 15, 2009. The adoption of this new guidance in the second quarter of 2009 has been applied in the Company’s Consolidated Financial Statements as disclosed in Note C.

In April 2009, the FASB issued new guidance in accordance with and as required by the Financial Instruments Topic of FASB ASC, “Interim Disclosures about Fair Value of Financial Instruments,” which amends “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This guidance also amends “Interim Financial Reporting,” to require those disclosures in summarized financial information at interim reporting periods and is effective for interim periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The adoption of this new guidance in the second quarter of 2009 had no material effect on the Company’s Consolidated Financial Statements.

In May 2009, the FASB issued guidance establishing general standards of accounting for and disclosure of subsequent events, which are events occurring after the balance sheet date but before the date the financial statements are issued or available to be issued. In particular, this guidance requires entities to recognize in the financial statements the effect of all subsequent events that provide additional evidence of conditions that existed at the balance sheet date, including the estimates inherent in the financial preparation process. Entities may not recognize the impact of subsequent events that provide evidence about conditions that did not exist at the balance sheet date but arose after that date. This guidance also requires entities to disclose the date through which subsequent events have been evaluated. This guidance was effective for interim and annual reporting periods ending after June 15, 2009. The Company adopted the provisions of this guidance in the second quarter of 2009 and the effect is disclosed in Note R.

In June 2009, the FASB issued “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”. The FASB Accounting Standards Codification (“ASC”) will be the single source of authoritative nongovernmental GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. FASB ASC is effective for interim and annual periods ending after September 15, 2009. All existing accounting standards are superseded as described in the FASB ASC. All other accounting literature not included in the FASB ASC is nonauthoritative. The adoption of the FASB ASC in the third quarter of 2009 had no material effect on the Company’s Consolidated Financial Statements.

In August 2009, the FASB issued Accounting Standard Update 2009-05 (ASU 2009-05) “Measuring Liabilities at Fair Value”, in accordance with and as required by the Fair Value Measurements and Disclosures Topic of FASB ASC. This ASU was issued in response to the credit crisis and will reduce potential differences in measuring liabilities at fair value and thus promote comparability of companies’ financial statements. This update is effective for interim and fiscal periods beginning after October 1, 2009. The Company is evaluating the impact the adoption of ASU 2009-05 will have on its financial statements.

Impact of Inflation and Changing Prices

The consolidated financial statements and related notes of United Financial Bancorp, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

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ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

For information regarding market risk, see Item 7- “Management’s Discussion and Analysis of Financial Conditions and Results of Operations.”

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

INDEX TO FINANCIAL STATEMENTS

	Page


Report of Independent Registered Public Accounting Firm on Financial Statements	F-1

Financial Statements

Consolidated Balance Sheets	F-2

Consolidated Statements of Earnings	F-3

Consolidated Statements of Stockholders’ Equity and Comprehensive Income	F-4

Consolidated Statements of Cash Flows	F-5

Notes to Consolidated Financial Statements	F-6

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Report of Independent Registered Public Accounting Firm on Financial Statements

To the Board of Directors of

United Financial Bancorp, Inc.

We have audited the accompanying consolidated balance sheets of United Financial Bancorp, Inc. and subsidiary as of December 31, 2009 and 2008, and the related consolidated statements of earnings, stockholders’ equity and comprehensive income, and cash flows for the each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of United Financial Bancorp, Inc. and subsidiary as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), United Financial Bancorp, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 12, 2010 expressed an unqualified opinion thereon.

/s/ Grant Thornton LLP

Boston, Massachusetts

March 12, 2010

F-1

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Consolidated Balance Sheets

December 31, 2009 and 2008

(Dollars in thousands, except per share amounts)

	2009			2008
ASSETS

Cash and due from banks	$	14,565		$	10,356
Interest-bearing deposits		7,312			3,216
Total cash and cash equivalents		21,877			13,572

Short-term investments		1,096			1,071
Securities available for sale, at fair value		243,304			313,506
Securities held to maturity, at amortized cost (fair value of $63,063 at
December 31, 2009 and $3,238 at December 31, 2008)		63,174			3,191
Loans, net of allowance for loan losses of $9,180 at December 31, 2009
and $8,250 at December 31, 2008		1,115,416			864,421
Other real estate owned		1,545			998
Accrued interest receivable		5,209			4,706
Deferred tax asset, net		11,295			7,969
Stock in the Federal Home Loan Bank of Boston		15,365			12,223
Banking premises and equipment, net		15,935			12,125
Bank-owned life insurance		28,476			27,173
Goodwill		7,844			-
Other intangible assets		613			162
Other assets		9,891			2,017

TOTAL ASSETS	$	1,541,040		$	1,263,134

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Deposits:
Interest-bearing	$	884,553		$	668,485
Non-interest-bearing		154,374			114,178
Total deposits		1,038,927			782,663
Short-term borrowings		75,488			73,042
Long-term debt		179,988			163,564
Subordinated debentures		5,357			-
Escrow funds held for borrowers		1,977			1,667
Capitalized lease obligations		5,141			3,129
Accrued expenses and other liabilities		8,916			11,355
Total liabilities		1,315,794			1,035,420

Commitments and contingencies (Notes E and M)
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; shares
issued: 18,706,933 at December 31, 2009 and 17,763,747 at December 31, 2008		187			178
Paid-in capital		178,666			164,358
Retained earnings		77,456			75,888
Unearned compensation		(11,441	)		(12,144	)
Treasury stock, at cost (1,868,335 shares at December 31, 2009 and
261,798 shares at December 31, 2008)		(24,980	)		(3,497	)
Accumulated other comprehensive income, net of taxes		5,358			2,931
Total stockholders’ equity		225,246			227,714
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,541,040		$	1,263,134

The accompanying notes are an integral part of the consolidated financial statements.

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Table of Contents

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Earnings

For the years ended December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

	2009			2008			2007
Interest and dividend income:
Loans	$	49,052		$	50,175		$	49,812
Investments		13,904			14,109			8,200
Other interest-earning assets		30			530			1,238
Total interest and dividend income		62,986			64,814			59,250

Interest expense:
Deposits		14,295			17,831			21,942
Short-term borrowings		1,731			1,417			4,135
Long-term debt		5,960			5,755			4,006
Total interest expense		21,986			25,003			30,083

Net interest income before provision for loan losses		41,000			39,811			29,167

Provision for loan losses		2,998			1,846			1,425

Net interest income after provision for loan losses		38,002			37,965			27,742

Non-interest income:
Fee income on depositors’ accounts		4,877			4,638			4,432
Net gain on sales of loans		363			-			-
Net gain (loss) on sales of securities		543			23			(95	)
Impairment charges on securities		(82	)		(1,377	)		(180	)
Wealth management income		703			799			692
Income from bank-owned life insurance		1,382			357			158
Other income		890			780			728
Total non-interest income		8,676			5,220			5,735

Non-interest expense:
Salaries and benefits		18,954			17,359			14,835
Occupancy expenses		2,611			2,327			1,925
Marketing expenses		1,470			1,440			1,374
Data processing expenses		3,438			3,190			2,735
Professional fees		1,359			1,679			1,276
Acquisition related expenses		2,863			-			-
FDIC insurance assessments		1,546			511			82
Other expenses		4,617			4,184			3,812
Total non-interest expense		36,858			30,690			26,039

Income before provision for income taxes		9,820			12,495			7,438

Provision for income tax expense		4,014			5,197			3,061
Net income	$	5,806		$	7,298		$	4,377

Earnings per share:
Basic	$	0.38		$	0.44		$	0.26
Diluted	$	0.38		$	0.44		$	0.26

Weighted average shares outstanding:
Basic		15,265,192			16,445,388			17,126,864
Diluted		15,273,375			16,445,388			17,128,141

The accompanying notes are an integral part of the consolidated financial statements.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Stockholders’ Equity and Comprehensive Income

For the years ended December 31, 2009, 2008 and 2007

(Dollars in thousands)

	Common Shares Outstanding			Common Stock			Paid-In Capital			Retained Earnings			Unearned Compensation			Treasury Stock			Accumulated Other Comprehensive 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		-			-			-			4,377			-			-			-			4,377
Net unrealized gain on securities available for sale, net of
reclassification adjustments and taxes		-			-			-			-			-			-			2,463			2,463
Prior service costs on pension and other post-retirement
benefit plans, net of tax		-			-			-			-			-			-			(681	)		(681	)
Total comprehensive income																							6,159
Additional shares issued pursuant to second step
conversion and offering		320,739			2			(2	)		-			-			-			-			-
Cancelation of common stock owned by United Mutual
Holding Company		(9,189,722	)		(92	)		92			-			-			-			-			-
Proceeds from issuance of common stock pursuant to
second-step conversion, net of offering costs of $5,438		9,564,570			96			90,112			-			-			-			-			90,208
Cancelation of treasury shares		-			-			(1,914	)		-			-			1,914			-			-
Capital contribution pursuant to dissolution of United
Mutual Holding Company		-			-			82			-			-			-			-			82
Shares purchased for ESOP		-			-			-			-			(7,538	)		-			-			(7,538	)
Cash dividends paid ($0.24 per share)		-			-			-			(1,757	)		-			-			-			(1,757	)
Treasury stock purchases		(86,390	)		-			-			-			-			(1,250	)		-			(1,250	)
Stock-based compensation		-			-			1,880			-			-			-			-			1,880
ESOP shares committed to be released		-			-			150			-			475			-			-			625

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

Net income		-			-			-			7,298			-			-			-			7,298
Net unrealized gain on securities available for sale, net of
reclassification adjustments and taxes		-			-			-			-			-			-			3,331			3,331
Adjustments to pension and other post-retirement benefit
plans, net of reclassificaton adjustments and taxes		-			-			-			-			-			-			(231	)		(231	)
Total comprehensive income																							10,398
Net costs from issuance of common stock pursuant to
second-step conversion		-			-			(26	)		-			-			-			-			(26	)
Repurchase of stock to fund the 2008 Equity Incentive
Plan		(359,581	)		-			-			-			-			(4,240	)		-			(4,240	)
Shares repurchased in connection with restricted stock
forfeited for tax purposes		(10,086	)		-			-			-			-			(125	)		-			(125	)
Reissuance of treasury shares in connection with restricted
stock grants and stock appreciation rights exercised		314,069			-			(3,703	)		-			-			3,703			-			-
Cash dividends paid ($0.27 per share)		-			-			-			(4,436	)		-			-			-			(4,436	)
Treasury stock purchases		(206,200	)		-			-			-			-			(2,835	)		-			(2,835	)
Stock-based compensation		-			-			1,992			-			-			-			-			1,992
ESOP shares committed to be released		-			-			175			-			691			-			-			866

Balances at December 31, 2008		17,501,949			178			164,358			75,888			(12,144	)		(3,497	)		2,931			227,714

Net income		-			-			-			5,806			-			-			-			5,806
Net unrealized gain on securities available for sale, net of
reclassification adjustments and taxes		-			-			-			-			-			-			2,119			2,119
Adjustments to pension and other post-retirement benefit
plans, net of reclassificaton adjustments and taxes		-			-			-			-			-			-			308			308
Total comprehensive income																							8,233

Shares issued pursuant to the acquisition of CNB Financial		943,186			9			12,101			-			-			-			-			12,110
Cash paid for in-the-money stock options and warrants		-			-			(354	)		-			-			-			-			(354	)
Shares repurchased in connection with restricted stock
forfeited for tax purposes		(21,088	)		-			-			-			-			(273	)		-			(273	)
Tax benefit from MRP vesting		-			-			34			-			-			-			-			34
Reissuance of treasury shares in connection with restricted
stock grants		398			-			(5	)		-			-			5			-			-
Cash dividends paid ($0.28 per share)		-			-			-			(4,238	)		-			-			-			(4,238	)
Treasury stock purchases		(1,585,847	)		-			-			-			-			(21,215	)		-			(21,215	)
Stock-based compensation		-			-			2,281			-			-			-			-			2,281
ESOP shares committed to be released		-			-			251			-			703			-			-			954

Balances at December 31, 2009		16,838,598		$	187		$	178,666		$	77,456		$	(11,441	)	$	(24,980	)	$	5,358		$	225,246

The accompanying notes are an integral part of the consolidated financial statements.

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Table of Contents

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

For the years ended December 31, 2009, 2008 and 2007

(Dollars in thousands)


	2009			2008			2007
Cash flows from operating activities:
Net income	$	5,806		$	7,298		$	4,377
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses		2,998			1,846			1,425
ESOP expense		954			866			625
Stock-based compensation		2,281			1,992			1,880
Amortization of premiums and discounts		402			192			103
Depreciation and amortization		1,119			907			831
Amortization of intangible assets		23			30			30
Provision for other real estate owned		55			92			-
Loans originated for sale		(16,018	)		-			-
Proceeds from sales of loans held for sale		16,381			-			-
Net (gain) loss on sales of loans		(363	)		-			5
Net loss (gain) on sale of other real estate owned		30			45			(14	)
Net (gain) loss on sale of property and equipment		-			-			(4	)
Net (gain) loss on sale of available for sale securities		(543	)		(23	)		95
Impairment charges on securities		82			1,377			180
Deferred tax provision benefit		(1,556	)		(3,577	)		(2,348	)
Increase in cash surrender value of bank-owned life insurance		(1,303	)		(521	)		(348	)
Acquisition related expenses		2,863			-			-
Increase in accrued interest receivable		387			(229	)		(157	)
Increase in other assets		(4,722	)		(1,380	)		(789	)
(Decrease) increase in accrued expenses and other liabilities		(3,069	)		1,842			3,697
Net cash provided by operating activities		5,807			10,757			9,588

Cash flows from investing activities:
Purchases of securities available for sale		(4,482	)		(231,991	)		(90,513	)
Proceeds from sales of securities available for sale		31,808			51,448			16,537
Proceeds from calls, maturities and principal repayments of securities
available for sale		71,156			72,136			66,579
Purchases of securities held to maturity		(55,967	)		-			(675	)
Proceeds from maturities, calls and principal repayments of securities
held to maturity		3,538			435			274
Investment in short-term time deposits		(25	)		(41	)		(1,030	)
Purchases of Federal Home Loan Bank of Boston stock		-			(1,966	)		(983	)
Proceeds from sales of other real estate owned		782			655			576
Net loan originations, purchases and principal repayments		(31,636	)		(48,060	)		(67,288	)
Proceeds from sales of loans		13,637			-			2,041
Purchases of property and equipment		(946	)		(1,113	)		(685	)
Cash used for acquisition, net of cash acquired		(5,097	)		-			-
Cash paid on acquisition related expenses		(2,863	)		-			-
Cash paid to acquire Levine Financial Group		(92	)		(92	)		(55	)
Proceeds from sale of property and equipment		-			-			21
Purchases of bank-owned life insurance		-			(20,000	)		-
Net cash provided by (used in) investing activities		19,813			(178,589	)		(75,201	)

(Continued)

F-5

Table of Contents

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

For the years ended December 31, 2009, 2008 and 2007

(Dollars in thousands) – Continued


	2009			2008			2007
Cash flows from financing activities:
Net increase in deposits		60,243			63,981			32,996
Net change in short-term borrowings		(30,249	)		42,323			(47,706	)
Proceeds from issuance of long-term debt		29,181			95,000			30,000
Repayment of long-term debt		(50,766	)		(22,578	)		(40,664	)
Net increase in escrow funds held for borrowers		310			311			235
Payments on capitalized lease obligation		(342	)		(225	)		(158	)
Repurchases of common stock to fund the 2008 Equity Incentive Plan		-			(4,240	)		-
Tax benefit from MRP vesting		34			-			-
Treasury stock purchases		(21,488	)		(2,960	)		(1,250	)
Cash dividends paid		(4,238	)		(4,436	)		(1,757	)
Net (costs) proceeds from stock offering subscriptions		-			(26	)		90,290
Acquisition of common stock by ESOP		-			-			(7,538	)
Net cash (used in) provided by financing activities		(17,315	)		167,150			54,448
Increase (decrease) increase in cash and cash equivalents		8,305			(682	)		(11,165	)
Cash and cash equivalents at beginning of year		13,572			14,254			25,419
Cash and cash equivalents at end of year	$	21,877		$	13,572		$	14,254

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period:
Interest on deposits and other borrowings	$	21,706		$	24,793		$	30,361
Income taxes – net		9,685			9,612			2,467
Non-cash item:
Capitalized lease asset and obligations	$	2,119		$	1,308		$	1,932
Transfer of loans to other real estate owned		363			910			880
Fair value of assets acquired, net of cash acquired	$	280,499		$	-		$	-
Goodwill and core deposit		8,326			-			-
Fair value of liabilities assumed		271,621			-			-

The accompanying notes are an integral part of the consolidated financial statements.

F-6

Table of Contents

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements include the accounts of United Financial Bancorp, Inc. and its wholly-owned subsidiary, United Bank (the “Bank”). UCB Securities, Inc. is a subsidiary of the Bank and is engaged in buying, selling and holding of securities. UB Properties, LLC is a subsidiary of the Bank formed to hold real estate assets acquired through foreclosure. All significant intercompany accounts and transactions have been eliminated in consolidation. These entities are collectively referred to herein as “the Company”.

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and general practices within the banking industry.

Use of Estimates

In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change are fair values used in the application of acquisition accounting, the determination of the allowance for loan losses and the other than temporary impairment of securities.

The following is a description of the Company’s more significant accounting policies:

Cash and Cash Equivalents

The Company classifies cash and due from banks, interest-bearing deposits in other banks and overnight funds sold as cash and cash equivalents as these liquid assets have original maturities of 90 days or less.

Investment Securities

Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity and are reported at amortized cost; debt and equity securities that are bought and held principally for the purpose of selling in the near term are classified as trading and reported at fair value, with unrealized gains and losses included in earnings; and debt and equity securities not classified as either held to maturity or trading are classified as available for sale and reported at fair value, with unrealized gains and losses excluded from earnings and reported in comprehensive income (loss), net of taxes, and as a separate component of stockholders’ equity. The Company had no securities classified as trading at December 31, 2009 and 2008.

F-7

Table of Contents

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

Premiums and discounts on investment securities are amortized or accreted into income on the level yield method over the life of the investments. If a decline in the fair value of an investment security below its cost is judged to be other-than-temporary the cost basis of the investment security is written down to fair value as a new cost basis and the amount of the credit related impairment write-down is included in the results of operations and the non-credit related impairment for securities not expected to be sold is recognized in comprehensive income (loss). Gains and losses on the sale of investment securities are recognized at the time of sale on a specific identification basis.

Loans

Real estate mortgage loans and other loans are stated at their unpaid principal balance net of unearned loan fees and costs and the allowance for loan losses. The Company does not originate loans for the purpose of resale.

Interest on most loans is included in income as earned based upon interest rates applied to unpaid principal using the simple interest method. Accrual of interest on loans is discontinued when in the judgment of management the collectibility of principal or interest becomes doubtful or when a loan becomes contractually past due 90 days with respect to principal or interest. The accrual of interest on residential mortgage loans, however, may continue even though they are 90 days past due if management deems it appropriate, provided that the loans are well secured and in the process of collection.

When a loan is placed on nonaccrual status, all interest previously accrued is reversed against current period interest income. Interest subsequently received on nonaccrual loans is either applied against principal or recorded as income based on management’s judgment as to the collectibility of principal. Interest accruals are resumed on such loans only when they are brought fully current as to principal and interest and when, in the judgment of management, the loans are estimated to be fully collectible.

Loan origination and commitment fees and certain direct loan origination costs are deferred and the net amount is amortized over the contractual term of the loan as an adjustment of yield.

F-8

Table of Contents

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

A loan is classified as a troubled debt restructuring if the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. This usually includes a modification of loan terms, such as a reduction of the interest rate to below market terms, capitalizing past due interest or extending the maturity date or a partial forgiveness of debt. Interest income on restructured loans is returned to accrual status after the borrower demonstrates the ability to pay under the restructured terms through a sustained period of repayment performance, which is generally six months.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level determined by management to be adequate to absorb probable losses based on an evaluation of known and inherent losses in the portfolio. The adequacy of the allowance for loan losses is evaluated on a quarterly basis by management. Factors considered in evaluating the adequacy of the allowance include prior loss experience, current economic conditions and their effect on borrowers, the character and size of the loan portfolio, trends in nonperforming loans and delinquency rates and the performance of individual loans in relation to contractual terms. Loan losses are charged against the allowance when management believes that the collectibility of the principal is unlikely and recoveries are credited to the allowance when received.

Determining an appropriate level for the allowance for loan losses necessarily involves a high degree of judgment. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on judgments different from those of management.

A substantial portion of the Company’s loans are secured by real estate in Hampden, Hampshire and Worcester Counties of Massachusetts. Accordingly, the ultimate collectibility of the Company’s loan portfolio is susceptible to changing conditions in these market areas.

F-9

Table of Contents

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements – Continued

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

Goodwill

Goodwill is measured as the excess of the cost of a business acquisition over the sum of the amounts assigned to identifiable tangible and intangible assets acquired less liabilities assumed. Goodwill is not amortized but is reviewed for impairment annually or more frequently if circumstances warrant. Application of the goodwill impairment test requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth, the period over which cash flows will occur, and determination of our cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions related to goodwill impairment.

Other Intangible Assets

Intangible assets are initially recorded at estimated fair value and are amortized over the estimated useful lives. These assets are evaluated for impairment if circumstances suggest that the value may be impaired.

In connection with the acquisition of CNB Financial at November 30, 2009 (Note B), the Company recorded a core deposit intangible asset of $482, representing the economic value of the acquired deposit base. The core deposit intangible asset is amortized into expense using an accelerated method over 10 years. The Company amortized $7 from the acquisition date through December 31, 2009.

In 2006, the Company acquired Levine Financial Group, a financial management company with $88,000 in assets under management. The actual purchase price was $247. The intangible asset is amortized on a straight-line basis over its estimated useful life. The Company recognized amortization totaling $23, $30 and $30, respectively, for the years ended December 31, 2009, 2008 and 2007.

Business Segments

An operating segment is a component of a business for which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and evaluate performance. The Company's operations are limited to financial services provided within the framework of a community bank, and decisions are based generally on specific market areas and or product offerings. Accordingly, based on the financial information which is presently evaluated by the Company's chief operating decision-maker, the Company operates in a single business segment.

F-10

Table of Contents

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements – Continued

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

Off-balance Sheet Financial Instruments

In the ordinary course of business, the Company enters into off-balance sheet financial instruments, consisting primarily of credit related financial instruments. These financial instruments are recorded in the consolidated financial statements when they are funded or related fees are incurred or received.

Earnings Per Share

Basic earnings per share have been calculated by dividing net income by weighted average shares outstanding before any dilution and adjusted to exclude the weighted average number of unallocated shares held by the ESOP. 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.

Prior period basic and diluted share data were revised as required by the Earnings Per Share Topic of Financial Accounting Standards Board (“FASB”) and Accounting Standards Codification (“ASC”) and in accordance with the provisions of "Determining Whether Instruments Issued in Share-Based Payment Transactions are Participating Securities" which require that share-based compensation awards that qualify as participating securities (entitled to receive non-forfeitable dividends) be included in basic earnings per share using the two-class method. This revision decreased basic earnings per share $0.01 for the year ended December 31, 2008 and had no impact on basic earnings per share for the year ended December 31, 2007.

Other Real Estate Owned

Other real estate owned (“OREO”) is comprised of properties acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Losses arising from the acquisition of such properties are charged against the allowance for loan losses. Operating expenses are charged to current period operations as incurred. Gains and losses upon disposition are reflected in income as realized.

Foreclosed assets held for sale are recorded at the lower of fair value less estimated costs to sell or cost. Subsequent changes in the fair value of the foreclosed assets are reflected through a valuation allowance.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

Banking Premises and Equipment

Banking premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed for financial reporting purposes on the straight-line method over the estimated useful life of each type of asset. Leasehold improvements are amortized on the straight-line method over the shorter of the lease term, including consideration of renewal options, or the estimated useful life of the asset. The cost of maintenance and repairs is charged against income as incurred. The Company reviews for possible impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Any asset retirement obligations are recognized as a liability and measured at fair value. Because such liabilities are recorded at fair value and not the ultimate settlement amount, increases in the liability’s carrying amount for accretion are recognized each period. The Company also capitalizes the estimated cost of its asset retirement obligations as part of the carrying amount of the associated long-lived assets.

Bank Owned Life Insurance

The cash surrender value of Bank Owned Life Insurance (“BOLI”), net of any deferred acquisition and surrender costs or loans, is recorded as an asset. As of December 31, 2009 and 2008 there were no deferred acquisition costs, surrender costs or loans. Changes to cash surrender values are recorded in non-interest income, net of premiums paid.

Retirement Benefits

The Company maintained a defined benefit retirement plan for its employees through a multi-employer defined benefit plan sponsored by the Co-operative Banks Employees’ Retirement Association (CBERA). In the fourth quarter of 2006, following a comprehensive review of the Company’s employee benefit plans, the Board of Directors voted to freeze the defined benefit pension plan effective April 30, 2007. No additional expense related to the plan has been recognized since such date. The Company recognized pension expense based upon assessments by CBERA. The Company has also established a defined contribution plan for eligible employees. The Company matches employee contributions up to 5% of an employee’s qualified compensation.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

In 2007, the Company established an unfunded supplemental executive retirement plan (SERP) for certain employees that provides benefits that cannot be paid from a qualified retirement plan due to Internal Revenue Code restrictions. This plan is nonqualified under the Internal Revenue Code and assets used to fund benefit payments are not segregated from other assets of the Company; therefore, in general, a participant’s or beneficiary’s claim to benefits under these plans is as a general creditor.

The Company recognizes the plan’s over-funded or under-funded status as an asset or liability with an offsetting adjustment to Accumulated Other Comprehensive Income (“AOCI”). Actuarial gains and losses, prior service costs or credits, and transition assets or obligations are recognized as a component of AOCI.

Income Taxes

The Company recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are established for the tax consequences attributable to the temporary differences between the financial statement carrying amount and the tax bases of the Company’s assets and liabilities and certain tax carryforwards at enacted tax rates.

Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities. A valuation allowance is recorded against deferred tax assets when management deems a portion of the asset to be more likely than not unrealizable. The Company’s valuation allowance is reviewed and adjustments are made to the valuation allowance based on management’s judgments relating to the realizability of the deferred tax asset. It is management's belief, that it is more likely than not, that the reversal of deferred tax liabilities and results of future operations will generate sufficient taxable income to realize the deferred tax assets. Therefore, no valuation allowance was necessary at December 31, 2009 or 2008 for deferred tax assets.

As required by the Income Taxes Topic of FASB ASC, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company reports interest and penalties associated with tax obligations in other non-interest expense.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

Stock Compensation Plan

Share-based compensation costs are based on the grant date fair value and these costs are recognized over the requisite vesting period. For all of our stock option grants, the fair value of each grant was estimated at the date of grant using the Black-Scholes option pricing model. Black-Scholes utilizes assumptions related to volatility, the risk-free interest rate, the dividend yield and employee exercise behavior. Expected volatilities utilized in the model are based on the historic volatility of the Company’s stock price. The risk free interest rate is derived from the U.S. Treasury Yield curve in effect at the time of the grant. The model incorporates exercise and post-vesting forfeiture assumptions based on an analysis of historical data.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of stockholders’ equity such items, along with net income, are components of comprehensive income.

The components of other comprehensive income and related tax effects are as follows for the years ended December 31:

	2009			2008			2007
Change in unrealized holding gains on available for sale
securities	$	3,883		$	4,028		$	4,562
Reclassification adjustment for (gains) losses realized in
income		(461	)		1,354			275
Net change in unrealized gains		3,422			5,382			4,837
Tax effect		(1,303	)		(2,051	)		(2,374	)
		2,119			3,331			2,463
Pension liability for retirement plans		411			(514	)		(1,152	)
Pension liability adjustment		112			136			-
		523			(378	)		(1,152	)
Tax effect		(215	)		147			471
		308			(231	)		(681	)
Other comprehensive income	$	2,427		$	3,100		$	1,782

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

The components of accumulated other comprehensive income are as follows:

	December 31, 2009
	Gross Amount			Tax Effect		Net of Tax

Unrealized gain on securities available for sale	$	9,594		$	3,632	$	5,962
Pension liability		(1,007	)		404		(603	)

	December 31, 2008
	Gross Amount			Tax Effect		Net of Tax

Unrealized gain on securities available for sale	$	6,173		$	2,331	$	3,842
Pension liability		(1,530	)		619		(911	)

Advertising and public relations expense

Advertising, promotional and other business development costs are generally expensed as incurred. External costs incurred in producing media advertising are expensed the first time the advertising takes place. External costs relating to direct mailing costs are expensed in the period in which the direct mailings are sent.

Reclassifications

Amounts reported for prior periods are reclassified as necessary to be consistent with the current-period presentation.

Recent Accounting Developments

In February 2008, the FASB issued new guidance in accordance with and as required by the Fair Value Measurements and Disclosures Topic of FASB ASC which permited a one-year deferral in applying the measurement provisions 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 to that item was deferred until fiscal years beginning after November 15, 2008. The adoption of this new guidance on January 1, 2009, had no material effect on the Company’s Consolidated Financial Statements.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

In April 2009, the FASB issued new guidance in accordance with and as required by the Fair Value Measurements and Disclosures Topic of FASB ASC, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”, which provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. This guidance also includes identifying circumstances that indicate a transaction is not orderly. This guidance emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. This new guidance was effective for interim periods that ended after June 15, 2009. The adoption of this new guidance in the second quarter of 2009 had no material effect on the Company’s Consolidated Financial Statements.

In April 2009, the FASB issued new guidance in accordance with and as required by the Investments-Debt and Equity Securities Topic of FASB ASC, “Recognition and Presentation of Other-Than-Temporary Impairments”, in which the objective of an other-than-temporary impairment analysis under existing guidance is to determine whether the holder of an investment in a debt or equity security for which changes in fair value are not regularly recognized in earnings (such as securities classified as held-to-maturity or available-for-sale) should recognize a loss in earnings when the investment is impaired. An investment is impaired if the fair value of the investment is less than its amortized cost basis. This new guidance amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This guidance does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This new guidance was effective for interim periods that ended after June 15, 2009. The adoption of this new guidance in the second quarter of 2009 has been applied in the Company’s Consolidated Financial Statements as disclosed in Note C.

In April 2009, the FASB issued new guidance in accordance with and as required by the Financial Instruments Topic of FASB ASC, “Interim Disclosures about Fair Value of Financial Instruments,” which amends “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This guidance also amends “Interim Financial Reporting,” to require those disclosures in summarized financial information at interim reporting periods and was effective for interim periods that ended after June 15, 2009, with early adoption permitted for periods that ended after March 15, 2009. The adoption of this new guidance in the second quarter of 2009 had no material effect on the Company’s Consolidated Financial Statements.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Concluded

In May 2009, the FASB issued guidance establishing general standards of accounting for and disclosure of subsequent events, which are events occurring after the balance sheet date but before the date the financial statements are issued. In particular, this guidance requires entities to recognize in the financial statements the effect of all subsequent events that provide additional evidence of conditions that existed at the balance sheet date, including the estimates inherent in the financial preparation process. Entities may not recognize the impact of subsequent events that provide evidence about conditions that did not exist at the balance sheet date but arose after that date. This guidance was effective for interim and annual reporting periods that ended after June 15, 2009. The Company adopted the provisions of this guidance in the second quarter of 2009 and has evaluated subsequent events through the date the financial statements were issued.

In June 2009, the FASB issued “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“GAAP”). The FASB Accounting Standards Codification (“ASC”) will be the single source of authoritative nongovernmental GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. FASB ASC was effective for interim and annual periods that ended after September 15, 2009. All existing accounting standards are superseded as described in the FASB ASC. All other accounting literature not included in the FASB ASC is nonauthoritative. The adoption of the FASB ASC in the third quarter of 2009 had no material effect on the Company’s Consolidated Financial Statements.

In August 2009, the FASB issued Accounting Standard Update 2009-05 (ASU 2009-05) “Measuring Liabilities at Fair Value”, in accordance with and as required by the Fair Value Measurements and Disclosures Topic of FASB ASC. This ASU was issued in response to the credit crisis and will reduce potential differences in measuring liabilities at fair value and thus promote comparability of companies’ financial statements. This update was effective for interim and fiscal periods that began after October 1, 2009. The Company is evaluating the impact the adoption of ASU 2009-05 will have on its financial statements.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE B – ACQUISITION

On November 30, 2009, the Company completed its acquisition of CNB Financial, the holding company for Commonwealth National Bank. The transaction qualified as a tax-free reorganization for federal income tax purposes. The final consideration paid in the transaction to stockholders of CNB Financial consisted of approximately 943,186 shares of United Financial common stock and $12,639 in cash. Based upon the Company’s $12.84 per share closing price on November 30, 2009, the transaction was valued at approximately $24,750 in the aggregate.

The Company accounted for the transaction using the acquisition method pursuant to FASB ASC “Business Combinations.” Accordingly, the Company recorded merger and acquisition expenses totaling $2,863 during the year ended December 31, 2009. The Company’s results of operations include CNB Financial from the date of acquisition. Additionally, ASC “Business Combinations” requires an acquirer to recognize the assets acquired and the liabilities assumed at their fair values as of the acquisition date.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as of the date of the acquisition.

Assets:
Cash	$	7,546
Investments		32,354
Loans		236,387
Premises and equipment		1,838
Goodwill		7,844
Core deposit intangible		482
Other real estate owned		1,020
Other assets		8,900

Total Assets Acquired		296,371

Liabilities:
Deposits		196,021
Borrowings		74,134
Other liabilities		1,466

Total Liabilities Assumed		271,621

Net Assets Acquired	$	24,750

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE B – ACQUISITION – Concluded

As noted above, the Company acquired loans with a fair value of $236,387. Included in this amount was $5,178 of loans with evidence of deterioration of credit quality since origination for which it was probable, at the time of the acquisition, that the Company would be unable to collect all contractually required payments receivable. In accordance with the “Loans and Debt Securities Acquired with Deteriorating Credit Quality” section of FASB ASC 310 “Receivables,” the Company recorded a non accretable credit discount of $2,099, which is defined as the loan’s contractually required payments receivable in excess of the amount of its cash flows expected to be collected. The Company considered factors such as payment history, collateral values, and accrual status when determining whether there was evidence of deterioration of loan’s credit quality at the acquisition date.

The following summarizes the unaudited pro forma results of operations as if the Company acquired CNB Financial on January 1, 2008. The pro forma results for 2008 include merger costs net of tax of $3,602, or $0.21 per share.

	Years Ended December 31,
	2009		2008

Net interest income before provision for loan losses	$	52,285	$	52,012
Net income		9,454		3,446
Earnings per share - basic	$	0.58	$	0.20
Earnings per share - diluted	$	0.58	$	0.20

Excluded from the pro forma results of operations for the year ended December 31, 2009 are merger costs net of tax of $3,602, or $0.22 per diluted share.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE C – INVESTMENT SECURITIES

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

	Amortized		Unrealized
	Cost		Gain		Losses			Fair Value
Securities Available for Sale
December 31, 2009:
Debt Securities:
Government-sponsored enterprises	$	342	$	11	$	-		$	353
Government-sponsored and
government-guaranteed mortgage-
backed securities		215,819		9,216		(199	)		224,836
Private label mortgage-backed
securities		4,999		97		(60	)		5,036
Municipal bonds		11,004		189		(260	)		10,933
Corporate bonds		1,449		279		(16	)		1,712
Subtotal		233,613		9,792		(535	)		242,870
Marketable equity securities		97		337		-			434
Total	$	233,710	$	10,129	$	(535	)	$	243,304

December 31, 2008:
Debt Securities:
Government-sponsored enterprises	$	467	$	-	$	(2	)	$	465
Government-sponsored and
government-guaranteed mortgage-
backed securities		294,824		6,601		(314	)		301,111
Municipal bonds		10,504		83		(195	)		10,392
Corporate bonds		1,538		-		-			1,538
Total	$	307,333	$	6,684	$	(511	)	$	313,506

	Amortized		Unrealized
	Cost		Gain		Losses			Fair Value
Securities Held to Maturity
December 31, 2009:
Government-sponsored and
government-guaranteed mortgage-
backed securities	$	54,506	$	193	$	(418	)	$	54,281
IRB		1,039		-		-			1,039
State of Israel bonds		150		-		-			150
Municipal bonds		7,479		114		-			7,593
Total	$	63,174	$	307	$	(418	)	$	63,063

December 31, 2008:
IRB	$	1,122	$	-	$	-		$	1,122
Municipal bonds		2,069		49		(2	)		2,116
Total	$	3,191	$	49	$	(2	)	$	3,238

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE C – INVESTMENT SECURITIES - Continued

The Company’s portfolio of mortgage-backed securities, which represent interests in pools of residential mortgage loans, consists solely of securities issued by the Federal Home Loan Mortgage Corporation (Freddie Mac), the Federal National Mortgage Association (Fannie Mae), and the Government National Mortgage Association (Ginnie Mae), all of which are federal government owned or sponsored agencies. The Company also owns an insignificant amount of private label, residential mortgage-backed securities as a result of its acquisition of CNB Financial.

As of December 31, 2009, the Bank has pledged securities with an amortized cost of $103,097 and a fair value of $106,472 to secure municipal deposits, reverse repurchase agreements, treasury, tax and loan deposits at the Federal Reserve Bank of Boston and to secure customers’ repurchase agreements. Additionally, there is a blanket lien on certain securities to collateralize borrowings from the Federal Home Loan Bank of Boston (“FHLBB”), as discussed further in Note G.

Gross unrealized losses and fair values at December 31, 2009 and 2008 aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position follow:

	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Number of Securities		Fair Value		Unrealized Losses
2009:
Securities Available for Sale
Debt Securities:
Government-sponsored and
government-guaranteed mortgage-
backed securities	$	14,428	$	(197	)	$	1,068	$	(2	)		16	$	15,496	$	(199	)
Private label mortgage-backed
securities		2,301		(60	)		-		-			2		2,301		(60	)
Municipal bonds		2,076		(166	)		935		(94	)		9		3,011		(260	)
Corporate bonds		-		-			308		(16	)		1		308		(16	)
Total	$	18,805	$	(423	)	$	2,311	$	(112	)		28	$	21,116	$	(535	)

Securities Held to Maturity
Government-sponsored and
government-guaranteed mortgage-
backed securities	$	36,742	$	(418	)	$	-	$	-			15	$	36,742	$	(418	)
Municipal bonds		-		-			-		-			-		-		-
Total	$	36,742	$	(418	)	$	-	$	-			15	$	36,742	$	(418	)


2008:
Securities Available for Sale
Debt Securities:
Government-sponsored enterprises	$	465	$	(2	)	$	-	$	-			1	$	465	$	(2	)
Government-sponsored and
government-guaranteed mortgage-
backed securities		17,654		(216	)		4,256		(98	)		28		21,910		(314	)
Municipal bonds		5,652		(195	)		-		-			17		5,652		(195	)
Corporate bonds		-		-			-		-			-		-		-
Total	$	23,771	$	(413	)	$	4,256	$	(98	)		46	$	28,027	$	(511	)

Securities Held to Maturity
Municipal bonds	$	385	$	(2	)	$	-	$	-			1	$	385	$	(2	)
Total	$	385	$	(2	)	$	-	$	-			1	$	385	$	(2	)

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE C – INVESTMENT SECURITIES – Continued

Management evaluated the securities in the preceding tables and recognized pre-tax, non-cash charges in 2009 and 2008 of $82, and $1,300, respectively, for other-than-temporary impairment (“OTTI”) of the Company’s $1.8 million and $2.8 million (before OTTI), respectively, trust preferred securities portfolio. Management also recognized an OTTI charge of $94 in 2008 for a $388 municipal security. Management based its assessment on the issuers’ credit ratings, credit outlook, payment status and financial condition, the length of time the bonds have been in a loss position, the size of the loss position and other meaningful information.

Management has concluded that none of the other securities have experienced impairments that are other-than temporary. In its evaluation, management considered the types of securities, including if the securities were U.S. Government issued, the credit rating on the securities, credit outlook, payment status and financial condition, the length of time the bond has been in a loss position, the size of the loss position, our intent and ability to hold the securities to expected recovery of value and other meaningful information. Management believes that the current unrealized loss position is related to the current interest rate environment. The Company does not intend to sell any debt securities and is unlikely to be required to sell any security before its maturity or market price recovery.

Realized gains and losses and the proceeds from sales of securities available for sale are as follows for the years ended December 31:

	2009			2008			2007

Proceeds from sales	$	31,429		$	51,448		$	16,537
Gross gains		556			72			40
Gross losses		(13	)		(49	)		(135	)

The scheduled maturities of debt securities held to maturity and available for sale at December 31, 2009, are shown below. Actual maturities will differ from contractual maturities because issuers generally have the right to call or prepay obligations with or without call or prepayment penalties.

	At December 31, 2009
	Securities Available for Sale				Securities Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value

Due in one year or less	$	3,557	$	3,568	$	461	$	466
Due from one year to five years		5,288		5,424		604		631
Due from five years to ten years		23,964		24,936		19,081		19,168
Due after ten years		200,804		208,942		43,028		42,798
	$	233,613	$	242,870	$	63,174	$	63,063

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE C – INVESTMENT SECURITIES – Concluded

Maturities are based on the final contractual payment dates, and do not reflect the impact of potential prepayments or early redemptions. Such securities have been classified within the category that represents the final maturity date.

NOTE D – LOANS, NET

The components of loans are as follows at December 31:

	2009			2008

One- to four-family residential real estate	$	343,300		$	356,428
Commercial real estate		409,680			248,457
Construction		48,808			32,082
Home equity loans		137,371			120,724
Commercial and industrial		159,437			84,919
Automobile		14,729			17,332
Consumer		8,916			10,334
Total loans		1,122,241			870,276

Net deferred loan costs and fees		2,355			2,395
Allowance for loan losses		(9,180	)		(8,250	)
Loans, net	$	1,115,416		$	864,421

The Company’s lending activities are conducted principally in Hampden, Hampshire and Worcester counties of Massachusetts. The Company grants single family and multi-family residential loans, commercial real estate loans, commercial loans, and a variety of consumer loans. In addition, the Company grants loans for the construction of residential homes, multi-family properties and commercial real estate properties. Most loans granted by the Company are collateralized by real estate. The Company also from time-to-time purchases commercial loans secured by real estate. The ability and willingness of the single family residential, commercial and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the borrowers’ geographic areas and real estate values. The ability and willingness of commercial real estate and construction loan borrowers to honor their repayment commitments is generally dependent on the health of the real estate economic sector in the borrowers’ geographic areas and the general economy.

Nonaccrual loans amounted to approximately $16,287 and $4,797 at December 31, 2009 and 2008, respectively. Additional interest income of approximately $281, $132 and $69 would have been recorded during the years ended December 31, 2009, 2008 and 2007, respectively, if the loans had performed in accordance with their original terms.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE D – LOANS, NET – Continued

At December 31, 2009 and 2008, the recorded investment in impaired loans was $16,287 and $4,797, respectively. An allowance for loan losses was established on $11,843 and $4,797 of the impaired loans at December 31, 2009 and 2008, respectively, which allowances amounted to $599 and $343 at the respective year-ends. In accordance with FASB ASC “Business Combinations” the Company recorded a non-accretable credit discount of $2,217 related to impaired loans of $5,340 acquired from CNB Financial. The average balance of impaired loans was $9,264, $3,961 and $2,154 for the years ended December 31, 2009, 2008 and 2007, respectively. Interest income recognized on impaired loans during 2009, 2008 and 2007 was not significant.

Certain officers and directors of the Company and certain corporations and individuals related to such persons, incurred indebtedness, in the form of loans, as customers. These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time or comparable transactions with other customers and did not involve more than the normal risk of collectibility.

The following table summarizes the Company’s lending activity with its directors and executive officers all of which was conducted with terms consistent with those offered to unrelated parties:

	December 31,
	2009			2008

Beginning balance	$	1,699		$	1,127
New loans		345			829
Repayments		(473	)		(257	)
Ending balance	$	1,571		$	1,699

In 2009, the Company recognized proceeds of $16,381 from sales of residential mortgage loans originated for the purpose of reselling them in the secondary market and $13,637 from sales of residential mortgage loans held in its portfolio. In 2008, the Company had no loan sales. Loans serviced by the Company for others totaled $51,021 and $30,249 at December 31, 2009 and 2008, respectively. The balances of mortgage servicing rights related to such loans were insignificant at December 31, 2009 and 2008.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE D – LOANS, NET – Concluded

A summary of changes in the allowance for loan losses for the years ended December 31 follows:

	2009			2008			2007


Balance at beginning of year	$	8,250		$	7,714		$	7,218
Provision for loan losses		2,998			1,846			1,425
Charge-offs		(2,163	)		(1,336	)		(983	)
Recoveries		95			26			54
Balance at end of year	$	9,180	(1)	$	8,250		$	7,714
(1) In accordance with FASB ASC "Business Combinations" the Company recorded loans acquired from CNB Financial at fair value and as such no allowance for loan losses for these loans existed as of the acquisition date of November 30, 2009.

NOTE E – BANKING PREMISES AND EQUIPMENT

The composition of banking premises and equipment is as follows at December 31:

	2009			2008			Estimated Useful Lives

Land and improvements	$	2,419		$	2,387
Buildings and improvements		8,804			8,076		25 - 40 Years
Leasehold improvements		1,294			471		Lesser of useful life or term of lease
Furniture and equipment		3,326			2,104		3 - 10 Years
Assets under capitalized leases		5,359			3,240		Lesser of lease term or useful life


		21,202			16,278
Less accumulated depreciation
and amortization		(5,267	)		(4,153	)
	$	15,935		$	12,125

Depreciation and amortization expense, including amortization for capitalized leases, totaled $1,119, $907 and $831 for the years ended December 31, 2009, 2008 and 2007, respectively.

The Company leases fifteen of its branches, two ATM facilities, two financial services offices and an operation center. Rent expense for the years ended December 31, 2009, 2008 and 2007 amounted to approximately $757, $645 and $408, respectively. The leases, which are noncancelable, expire at various dates through 2034. The Company also entered into a capital lease obligation for three of its branches.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE E – BANKING PREMISES AND EQUIPMENT – Concluded

Future minimum rental commitments under the terms of these leases are as follows:

	Operating Leases		Capital Leases			Total
Years ending December 31,

2010	$	1,096	$	406		$	1,502
2011		971		406			1,377
2012		846		406			1,252
2013		824		406			1,230
2014		827		407			1,234
Thereafter		5,072		6,762			11,834
Total minimum lease payments	$	9,636		8,793		$	18,429

Less interest included above				(3,652	)
Capitalized lease obligations			$	5,141

NOTE F – DEPOSITS

Deposit accounts by type are summarized as follows at December 31:

	2009		2008

Demand	$	154,374	$	114,178
NOW		42,262		32,390
Savings		174,270		99,492
Money market		189,763		160,736
Certificates of deposit		478,258		375,867
	$	1,038,927	$	782,663

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE F – DEPOSITS – Concluded

The scheduled maturities of time deposits at December 31, 2009, are as follows:

	Time Deposits
	> $100		< $100		Total (1)
Less than one year	$	159,982	$	164,455	$	324,437
Over one year to two years		33,452		52,287		85,739
Over two years to three years		11,844		17,660		29,504
Over three years to four years		6,529		8,158		14,687
Over four years to five years		10,544		12,623		23,167
Total	$	222,351	$	255,183	$	477,534
(1) Excludes the fair value adjustment balance of $724 recorded in connection with the acquisition of CNB Financial.

Interest expense on deposits, classified by type, is as follows:

	Years Ended December 31,
	2009		2008		2007

NOW	$	149	$	171	$	178
Regular savings		1,320		1,015		593
Money market		2,209		3,336		5,631
Certificates of deposit		10,617		13,309		15,540
Total	$	14,295	$	17,831	$	21,942

NOTE G – SHORT-TERM BORROWINGS

Federal Home Loan Bank Advances

The Bank is a member of the FHLBB and as such, is required to invest in stock of the FHLBB. Such stock is redeemable at par value five years after filing for a redemption or upon termination of membership. The FHLBB may, but is not obligated to, repurchase its stock prior to expiration of the five year redemption notice. The Bank’s ability to redeem FHLBB shares is dependent on the redemption policies of the FHLBB. The Bank’s stock investment requirement is an amount equal to the sum of .35% of certain specified assets plus 4.5% of the Bank’s advances and certain other specified items.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE G – SHORT-TERM BORROWINGS – Concluded

The FHLBB is authorized to make advances to its members subject to such regulations and limitations as its Board of Directors may prescribe. The Bank’s advances are secured by its FHLBB stock and a blanket lien on certain qualified collateral, primarily one-to four-family first mortgage loans and certain debt securities. The Bank’s unused borrowing capacity with the FHLBB, excluding its $12,400 line of credit, was approximately $188,459 at December 31, 2009. At December 31, 2009 and 2008, the Bank had no borrowing against the line of credit. FHLBB advances with an original maturity of less than one year amounted to $47,644 and $55,000 at December 31, 2009 and 2008, respectively, at weighted average rates of 1.85% and 1.26%, respectively. The balance at December 31, 2009 excludes the fair value adjustment of $541 recorded in connection with the acquisition of CNB Financial.

Repurchase Agreements

Securities sold under agreements to repurchase include funds borrowed from customers on an overnight basis. These customer repurchase agreements amounted to $27,303 and $18,042 at December 31, 2009 and 2008, respectively, at weighted average rates of 1.12% and 1.60%, respectively. Interest expense for 2009, 2008 and 2007 was $122, $157, and $259, respectively. All of the repurchase agreements are secured by government-sponsored and government-guaranteed mortgage-backed securities.

NOTE H – LONG-TERM DEBT

Federal Home Loan Bank Advances

Advances outstanding at December 31, 2009 and 2008 consisted of the following:

	2009					2008
	Amount (1)		Weighted Average Rate			Amount		Weighted Average Rate


Over 1 year to 2 years	$	51,346		4.05	%	$	22,279		4.35	%
Over 2 years to 3 years		14,013		4.27	%		52,321		4.03	%
Over 3 years to 4 years		44,489		4.04	%		8,033		4.34	%
Over 4 years to 5 years		13,000		2.90	%		41,894		4.02	%
Over 5 years		35,060		3.98	%		29,037		3.84	%
	$	157,908		3.96	%	$	153,564		4.05	%

(1)	Excludes the fair value adjustment of $ 2,080 recorded in connection with the acquisition of CNB Financial.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE H – LONG-TERM DEBT – Concluded

At December 31, 2009, advances in the amount of $48,000 are callable at the option of the FHLBB at various dates through 2013.

Reverse Repurchase Agreements

The Company secured two structured term reverse repurchase agreements for $10,000 through another financial institution in 2008 and 2009. The reverse repurchase agreement secured in 2008 for $10,000 matures in 2018, is callable in 2011 and has a rate of 2.73%. The reverse repurchase agreement secured in 2009 for $10,000 matures in 2019, is callable in 2014 and has a rate of 2.44%. Interest expense for 2009 and 2008 was $494 and $27, respectively. All of the repurchase agreements are secured by government-sponsored and government-guaranteed mortgage-backed securities.

Subordinated Debentures

The Company has outstanding subordinated debt in the form of trust preferred securities issued through a private placement offering in the face amount of $7,732. The Company recorded a fair value acquisition discount of $2,383 in connection with the acquisition of CNB Financial. The issue has a maturity date of March 15, 2036 and bears a floating rate of interest that reprices quarterly at the 3-month LIBOR rate plus 1.85%. The interest rate at December 31, 2009 was 2.10%. A special redemption provision allows the Company to redeem the issue at par.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE I – INCOME TAXES

The provision for federal and state income taxes is as follows:

	Years Ended December 31,
	2009			2008			2007
Current tax provision:
Federal	$	4,514		$	6,942		$	4,240
State		1,056			1,832			1,161
		5,570			8,774			5,401
Deferred (prepaid) tax provision:
Federal		(1,190	)		(2,890	)		(1,719	)
State		(366	)		(687	)		(621	)
		(1,556	)		(3,577	)		(2,340	)

Provision for income taxes	$	4,014		$	5,197		$	3,061

The following table summarizes the difference between the Company’s statutory federal income tax rate and its effective rate:

	Years Ended December 31,
	2009			2008			2007

Statutory federal income tax rate		34.0	%		34.0	%		34.0	%
Increase (decrease) resulting from:
State taxes, net of federal tax benefit		4.6			6.0			4.8
Stock-based compensation		2.7			1.6			2.6
Tax-exempt obligations		(2.1	)		(1.3	)		(0.9	)
Bank owned life insurance		(4.9	)		(1.0	)		(0.7	)
Non-deductible acquisition expenses		6.2			-			-
Other, net		0.4			2.3			1.4

Effective tax rate		40.9	%		41.6	%		41.2	%

The components of the net deferred tax asset are as follows:

	December 31,
	2009			2008
Deferred tax asset:
Federal	$	13,194		$	7,694
State		3,450			2,322
		16,644			10,016
Deferred tax liability:
Federal		(4,480	)		(1,771	)
State		(869	)		(276	)
		(5,349	)		(2,047	)

Net deferred tax asset:	$	11,295		$	7,969

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE I – INCOME TAXES – Continued

The tax effects of each type of income and expense item that give rise to deferred taxes are as follows:

	At December 31,
	2009			2008
Cash basis of accounting	$	129		$	41
Investments:
Net unrealized gain on securities
available for sale		(3,632	)		(992	)
Impairment losses		596			-
Retirement benefits		405			619
Depreciation		679			699
Deferred benefit (expense)		(799	)		(1,027	)
Fair value acquisition adjustment		2,786			-
Allowance for loan losses		3,750			3,295
Employee benefit plans		2,807			2,178
Market value adjustment on loans		4,217			3,156
Contribution carryover		244			-
State tax credits		53			-
Other		60			-
Net deferred tax asset	$	11,295		$	7,969

A summary of the change in the net deferred tax asset is as follows:

	At December 31,
	2009			2008

Balance at beginning of year	$	7,969		$	4,953
Provision for prepaid taxes		1,556			3,577
Change in unrealized gain on securities
available for sale		(2,854	)		(561	)
Acquisition of CNB Financial		4,624			-
Balance at end of year	$	11,295		$	7,969

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 deferred income tax calculations as required by the Income Taxes Topic of FASB ASC. In June 2008, the Company agreed to a settlement of the proposed adjustments with the IRS. As a result, for tax years 2005 and 2006 the Company had a tax deficiency of $994 and related interest due of $76. In conjunction with the settlement, the Company has amended its calculation of the fair market value of its residential mortgage portfolio beginning with the 2007 tax year.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE I – INCOME TAXES – Concluded

The Bank’s base year reserve (as of December 31, 1995) will not be recaptured unless the reserve is used for purposes other than for loan losses, such as in a distribution in liquidation or otherwise. Accordingly, the Bank has not recorded a deferred tax liability of approximately $2,600 relating to approximately $6,200 of cumulative tax deductions related to loans generated prior to December 31, 1995.

NOTE J – EARNINGS PER SHARE

The calculation of basic earnings per common share and diluted earnings per common share for the years ended December 31, 2009, 2008 and 2007 is presented below.

	Years Ended December 31,
	2009		2008		2007

Net income	$	5,806	$	7,298	$	4,377
Weighted average common shares applicable to
basic EPS (1, 4 & 5)		15,265,192		16,445,388		17,126,864
Effect of dilutive potential common shares (2, 3)		8,183		-		1,277
Weighted average common shares applicable to
diluted EPS (5)		15,273,375		16,445,388		17,128,141

Earnings per share:
Basic	$	0.38	$	0.44	$	0.26
Diluted	$	0.38	$	0.44	$	0.26

(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.

(2)	For the years ended December 31, 2009, 2008 and 2007, options to purchase 1,604,850, 1,175,964 and 785,275 shares, respectively, were not included in the computation of diluted earnings per share because they were antidilutive.

(3)	Includes incremental shares related to dilutive stock options.

(4)	Includes shares repurchased in June 2008 through September 2008 to fund the 2008 Equity Incentive Plan.

(5)

Prior periods basic and diluted share data were revised as required by the Earnings Per Share Topic of FASB ASC and in accordance with the provisions of "Determining Whether Instruments Issued in Share-Based Payment Transactions are Participating Securities" which require that share-based compensation awards that qualify as participating securities (entitled to receive non-forfeitable dividends) be included in basic EPS using the two-class method. This revision decreased basic earnings per share $0.01 for the year ended December 31, 2008 and had no impact on basic earnings per share for the year ended December 31, 2007.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE K – STOCK-BASED INCENTIVE PLANS

The Company’s 2008 Equity Incentive Plan (the “2008 Incentive Plan”) was approved by the shareholders at the Company’s Annual Meeting held in June 2008. The 2008 Incentive Plan will remain in effect for a period of ten years and authorizes the issuance of up to 1,258,534 shares of Company common stock pursuant to grants of restricted stock awards, restricted stock unit awards, incentive stock options, non-statutory stock options and stock appreciation rights; provided, however, that no more than 898,953 shares may be issued or delivered in the aggregate pursuant to the exercise of stock options or stock appreciation rights, and no more than 359,581 shares may be issued or delivered pursuant to restricted stock awards or restricted stock unit awards.

Employees and outside directors of the Company are eligible to receive awards under the 2008 Incentive Plan. The holders of restricted stock awards also have full voting rights beginning on the grant date. Upon the occurrence of an event constituting a change in control of the Company, as defined in the 2008 Incentive Plan, all outstanding stock options will become fully vested, and all stock awards then outstanding will vest free of restrictions.

The Company’s 2006 Stock-Based Incentive Plan (the “2006 Incentive Plan”) was approved by shareholders at the Company’s Annual Meeting held in July 2006. The 2006 Incentive Plan will remain in effect for a period of ten years and provides for the issuance of up to 1,180,330 shares of Company common stock pursuant to grants of incentive and non-statutory stock options, stock appreciation rights and restricted stock awards, provided that no more than 337,237 shares may be issued as restricted stock awards, and no more than 843,093 shares may be issued pursuant to the exercise of stock options. As of a result of the Company’s second step conversion and offering completed in December 2007 and in accordance with provisions in the 2006 Incentive Plan, the Board of Directors voted to adjust the total number of shares authorized for grant, the number of stock options outstanding and the exercise prices for outstanding options by the exchange ratio of 1.04079. Employees and outside directors of the Company are eligible to receive awards under the 2006 Incentive Plan. The holders of restricted stock awards also have full voting rights beginning on the grant date. Upon the occurrence of an event constituting a change in control of the Company, as defined in the 2006 Incentive Plan, all outstanding stock options will become fully vested, and all stock awards then outstanding will vest free of restrictions.

Under the incentive plans, stock options are granted at an exercise price equal to the fair value of the underlying shares at the date of grant and have a contractual life of ten years. Stock options vest based on continued service with the Company over the five year period following the grant date. The compensation cost related to stock options is based upon the fair value for each option as of the date of the grant determined using the Black-Scholes option pricing model. The Black-Scholes model requires the Company to provide estimates of the expected term, volatility of the underlying stock, the stock’s dividend yield and the discount rate. The Company intends to repurchase shares in the open market to satisfy stock option exercises.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE K – STOCK-BASED INCENTIVE PLANS – Continued

The compensation cost related to restricted stock awards is based upon the Company’s stock price at the grant date. Restricted stock awards generally vest based upon continuous service with the Company over the five year period following the grant date. During the vesting period, participants are entitled to dividends for all awards.

A combined summary of activity in the Company’s incentive plans for the years ended December 31, 2008 and 2009 is presented in the following table:

				Stock Awards Outstanding					Stock Options Outstanding
	Shares Available for Grant			Number of Shares			Weighted- Average Grant Value		Number of Shares			Weighted- Average Exercise Price

Balance at December 31, 2007(1)		133,769			233,979		$	12.35		785,275		$	12.36
New Incentive Plan		1,258,534			-			-		-			-
Granted		(1,093,000	)		313,500			11.66		779,500			11.66
Stock options exercised		-			-			-		(3,538	)		12.35
Shares vested		-			(58,487	)		12.36		-			-
Forfeited		12,387			-			-		(12,387	)		12.35
Cancelled		23,105			-			-		(23,105	)		12.35
Balance at December 31, 2008		334,795			488,992		$	11.91		1,525,745		$	12.00
Stock Incentive Plans assumed
from CNB Financial		202,680	(2)		-			-		146,737	(3)		15.31
Granted		(232,500	)		68,750			12.94		163,750			12.99
Stock options exercised		-			-			-		(3,500	)		11.66
Shares vested		-			(121,196	)		12.02		-			-
Forfeited		8,847			-			-		(8,847	)		12.35
Cancelled		14,000			-			-		(14,000	)		11.66
Balance at December 31, 2009		327,822			436,546		$	12.04		1,809,885		$	12.36

(1)	In conjunction with the Company's second-step conversion in December 2007, the numbers of shares and weighted average prices for 2007 have been adjusted by the conversion ratio of 1.04079.

(2)	Reflects stock options and restricted shares available for grant under plans assumed from CNB Financial.

(3)	Certain options to acquire CNB Financial common stock (the “ CNB Financial Options ”) were assumed by the Company and converted into options to purchase 146,737 shares of the Company's Common Stock.

On December 1, 2009 the Company granted 155,250 stock options and 68,750 restricted shares to certain directors and employees under the 2006 and 2008 Incentive Plans. The stock options had a weighted average value of $4.16 per share, with a total grant date fair value of $646. The restricted shares had a weighted average value of $12.94 per share, with a total grant date fair value of $890. In 2009, the Company also granted 8,500 stock options to certain employees under the 2008 Incentive plan. The stock options had a weighted average fair value of $2.83 per share and a grant date fair value of $24.

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Table of Contents

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE K – STOCK-BASED INCENTIVE PLANS - Concluded

On June 19, 2008, the Company granted 755,000 stock options and 313,500 restricted shares to certain directors and employees under the 2008 Incentive Plan. The stock options had a weighted average value of $2.57 per share, with a total grant date fair value of $1,940. The restricted shares had a weighted average value of $11.66 per share, with a total grant date fair value of $3,655. In 2008, the Company also granted 24,500 stock options to certain employees under the 2006 Incentive plan. The stock options had a weighted average fair value of $2.39 per share and a grant date fair value of $59.

The Company’s total compensation cost for shared-based payment arrangements was $2,281 in 2009, $1,992 in 2008 and $1,880 in 2007. The Company recorded tax benefits of $266 in 2009, $204 in 2008 and $191 in 2007 related to the recognition of the shared-based compensation expense. As of December 31, 2009, compensation costs related to non-vested stock awards totaling $6,803 have not been recognized. These costs will be recognized over an estimated weighted average period of 3.3 years.

The following table presents the assumptions used to compute the fair value of options using the Black-Scholes option pricing model for stock options granted during 2009 and 2008.

	2009			2008

Weighted average fair value	$	4.16		$	2.57
Expected term (short-cut method)	6.50 years			6.50 years
Volatility		35.33	%		19.30	%
Expected dividend yield		2.18	%		1.88	%
Weighted average risk-free interest rate		3.28	%		3.89	%

A summary of stock options outstanding and exercisable at December 31, 2009 is as follows:

	Stock Options
	Outstanding			Exercisable

Total number of shares			1,809,885			768,963
Weighted average exercise price		$	12.36		$	12.83
Aggregate intrinsic value		$	1,357		$	215
Weighted average remaining contractual term		7.6 years			6.9 years

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Table of Contents

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE L – EMPLOYEE BENEFIT PLANS

Retirement Plans

The Company recognized pension expense based upon assessments by CBERA. The Company’s contributions to the plan were $227 for the year ended December 31, 2007. Under the plan, retirement benefits were based on years of service and the highest average compensation. The Company also sponsors a defined contribution plan. Employees make voluntary contributions which are matched by the Company up to a maximum of 5% of the employee’s qualified salary. The contributions matched by the Company were $434, $389 and $367 for the years ended December 31, 2009, 2008 and 2007, respectively.

Incentive Plan

The Company maintains an incentive plan in which employees are eligible to participate. The incentive plan provides for awards based on the achievement of both individual and Company performance goals, subject to approval by the Board of Directors. Related expense amounted to $972, $838 and $409 for the years ended December 31, 2009, 2008 and 2007, respectively.

Senior Executive Retirement Plan

The Company has entered into Executive Supplemental Compensation Agreements (the “Agreements”) with certain of its current and former officers. The estimated amount to be paid under the Agreements is accrued over the executive’s active employment from the time the agreement is signed to the date of full eligibility. Effective October 1, 2007, the Company consolidated the Agreements of current senior executives into a Senior Executive Retirement Plan (the “SERP”). The Company continues to maintain the Agreements for certain former officers. The liability associated with the Agreements was $777 and $822 at December 31, 2009 and 2008, respectively, and is included in accrued expenses and other liabilities in the consolidated balance sheets. The expense for the Agreements was $18 for the years ended December 31, 2009 and 2008, and $114 for the year ended 2007.

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Table of Contents

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE L – EMPLOYEE BENEFIT PLANS – Continued

The SERP provides that each executive will receive supplemental benefits, to the extent vested, commencing 180 days following separation from service. The supplemental benefit will be equal to the percentage of the executive’s final average compensation set forth in each executive’s participation agreement, multiplied by a fraction, the numerator of which is the executive’s years of credited service with the Company and the denominator of which is set forth in the executive’s participation agreement. The supplemental benefit will commence on the executive’s normal benefit date and will be payable in a lump sum, unless the executive has elected, at the time of execution of the participation agreement, to receive an annuity or other form of benefit. The SERP is unfunded and is considered a nonqualified plan under the Internal Revenue Code.

Directors Fee Continuation Plan

The Company sponsors a Directors Fee Continuation Plan under which a Director will annually receive $15 ($24 for former chairpersons) for ten years beginning upon attaining the normal retirement date. The benefit is reduced for directors serving fewer than 15 years. In the event of the participant’s death prior to receiving the full benefits of the plan, any unpaid benefits will be paid to the beneficiary. The Company recognizes expense under this plan on a ratable basis such that the present value of the liability is fully accrued at each director’s normal retirement date. Effective October 1, 2007, the Board of Directors adopted a Director Retirement Plan to replace the Directors Fee Continuation Plan. Current directors who are participants in the Directors Fee Continuation Plan, the predecessor plan, will participate in the plan from the effective date. Additional directors will begin participation in the plan as of the first day of the plan year in which they become members of the board of directors. Retired directors will continue to receive benefits under the Directors Fee Continuation Plan. At December 31, 2009 and 2008, the Company’s recorded liability for this plan amounted to $433 and $517, respectively, and is included in accrued expenses and other liabilities in the consolidated balance sheets. The Company was not required to record an expense for the years ended December 31, 2009 and 2008. The expense associated with this plan was $10 for the year ended December 31, 2007.

Director Retirement Plan

The Director Retirement Plan will provide for the payment of normal retirement benefits upon the director’s separation from service on or after attainment of his normal retirement age (age 72 or age 65 with 10 years of service). The normal retirement benefit will generally be equal to 70% of the average annual director’s fees over the highest three years during a Director’s final 10 years of service, and will be payable in 10 annual installments commencing within 60 days after the director’s separation from service.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE L – EMPLOYEE BENEFIT PLANS - Continued

In the event a participant has a separation from service prior to his normal retirement date (other than due to termination for cause, disability or death), the participant will be entitled to a lesser benefit payable in ten annual installments commencing at age 65. The amount payable will be determined by multiplying the normal retirement benefit by the director’s benefit percentage, which is 10% for each year of service, up to 100%. The supplemental benefit will commence on the director’s normal benefit date and will be payable in a lump sum, unless the director has elected, at the time of execution of the participation agreement, to receive an annuity or other form of benefit. A director’s benefit percentage will accelerate to 100% upon the director’s separation from service due to death, disability or a change in control. The Director Retirement Plan is accounted for as a defined benefit plan under the provisions and guidance of and as required by the Compensation-Retirement Benefits Topic of FASB ASC.

The following table summarizes the changes in the projected benefit obligation (PBO), the funded status of the PBO and the weighted average assumptions used to determine the benefit obligation for the SERP and Director Retirement Plan at December 31, 2009 and 2008. These plans had no assets at December 31, 2009 and 2008. Amounts recognized at December 31, 2009 and 2008 are reflected in accrued expenses and other liabilities on the consolidated balance sheets.

	At or For the Years Ended December 31,
	2009						2008
	SERP			Director Retirement Plan			SERP			Director Retirement Plan
Change in projected benefit obligation:
Beginning of period	$	2,721		$	708		$	1,796		$	588
Service cost		276			59			306			57
Interest cost		140			36			137			31
Actuarial (gain)/loss		(396	)		(15	)		482			32
Benefits paid		-			-			-			-
End of period	$	2,741		$	788		$	2,721		$	708
Funded status:
Accrued benefit cost	$	2,741		$	788		$	2,721		$	708
Amounts recognized in accumulated other
comprehensive income consist of:
Prior service cost	$	(670	)	$	(256	)	$	(746	)	$	(292	)
Net losses		(63	)		(18	)		(459	)		(32	)
Total	$	(733	)	$	(274	)	$	(1,205	)	$	(324	)
Weighted-average assumptions used to
determine benefit obligations:
Discount rate		6.00	%		5.00	%		6.00	%		5.00	%
Rate of compensation increase		5.00	%		2.00	%		5.00	%		2.00	%

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE L – EMPLOYEE BENEFIT PLANS - Continued

Components of the net periodic benefit cost are as follows:

	For the Years Ended December 31,
	2009						2008
	SERP			Director Retirement Plan			SERP			Director Retirement Plan
Periodic benefit cost:
Service cost	$	276		$	59		$	306		$	57
Interest cost		140			36			137			31
Total pension cost		416			95			443			88
Prior service cost amortization		76			36			76			36
Net loss amortization		-			-			24			-
Net periodic benefit cost	$	492		$	131		$	543		$	124
Weighted-average assumptions used to
determine net periodic benefit cost:
Discount rate		6.00	%		6.00	%		6.00	%		6.00	%
Rate of compensation increase		5.00	%		2.00	%		5.00	%		2.00	%

The unrecognized prior service cost is being amortized over a period of ten years. In 2010, approximately $77 and $37 in prior service cost for SERP and the Director Retirement Plan, respectively, is expected to be recognized as a component of net periodic benefit cost.

At December 31, 2009, the benefit payments expected to be paid in each of the next five years and the aggregate for the five fiscal years thereafter are as follows:

	SERP		Director Retirement Plan
Years ending December 31,
2010	$	-	$	199
2011		2,641		-
2012		722		177
2013		-		-
2014		-		171
2015 through 2019		-		574
Years after 2019		3,545		531
Total expected benefit payments	$	6,908	$	1,652

Except for the benefit payments expected to be paid, the Company does not expect to make contributions to these plans in 2010.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE L – EMPLOYEE BENEFIT PLANS – Concluded

Employee Stock Ownership Plan

In connection with the Company’s 2005 initial public offering, the Company established an Employee Stock Ownership Plan (“ESOP”) for the benefit of each employee that has reached the age of 21 and has completed at least 1,000 hours of service in the previous twelve-month period. The Company issued 641,301 shares of common stock to the ESOP in exchange for a twenty-year note. In connection with the Company’s second step conversion, the number of shares in the plan has been adjusted by the exchange ratio of 1.04079 to total 667,458 shares. The loan amount was approximately $6,413 and was recorded as "Unearned Compensation" within stockholders' equity. The loan bears interest equal to the prime rate in effect at January 1st of each year and provides for annual payments of principal and interest. In November 2006, the Board of Directors voted to accelerate its Employee Stock Ownership Plan benefit from a twenty (20) year to a fifteen (15) year allocation period beginning in 2007.

As part of the Company’s 2007 second step conversion and offering, an additional 753,834 shares of common stock were contributed to the ESOP in exchange for a twenty-year note. The loan amount was approximately $7,538 and was recorded as "Unearned Compensation" within stockholders' equity. The loan bears interest equal to the prime rate in effect at January 1st of each year and provides for annual payments of principal and interest. The Board of Directors voted to use a twenty (20) year allocation period for the related ESOP benefit beginning in 2008.

The Bank has committed to make contributions to the ESOP sufficient to support the debt service of the loan. The loan is secured by the shares held by the plan trustee in a suspense account for allocation among the participants as the loan is repaid. The Company reports compensation expense equal to the average daily market price of the shares as they are committed to be released from the suspense account. Total compensation expense applicable to the ESOP amounted to $954, $866 and $625 for the years ended December 31, 2009, 2008 and 2007, respectively.

Shares held by the ESOP, adjusted by the exchange ratio of 1.04079, include the following:

	December 31,
	2009		2008		2007

Allocated		181,587		109,880		64,738
Committed to be released		71,709		71,707		46,208
Unallocated		1,164,922		1,236,631		1,308,339
		1,418,218		1,418,218		1,419,285

Cash dividends received on allocated shares are allocated to participants and cash dividends received on shares held in suspense are used to fund the scheduled annual debt payment. The fair value of unallocated shares at December 31, 2009, 2008 and 2007 was $15,272, $18,723 and $14,281, respectively.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE M – COMMITMENTS AND CONTINGENCIES

Financial Instruments With Off-Balance Sheet Risk

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to originate loans and standby letters of credit. The Company does not record a liability for the fair value of the obligation undertaken in issuing standby letters of credit unless it becomes probable that the Company would have to perform under the guarantee. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual or notional amounts of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Financial instruments with off-balance sheet risk at December 31, 2009 and 2008 are as follows:

	2009		2008

Unused lines of credit	$	226,543	$	155,448
Amounts due mortgagors		30,225		14,479
Standby letters of credit		6,155		1,156
Commitments to originate loans		16,120		10,458

Included in commitments to originate loans at December 31, 2009 and 2008 are fixed rate commitments in the amount of $8,698 and $7,127, at interest ranges of 4.45% to 7.25% and 5.00% to 7.00%, respectively.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis.

The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE M – COMMITMENTS AND CONTINGENCIES – Concluded

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company holds residential or commercial real estate, accounts receivable, inventory and equipment as collateral supporting those commitments for which collateral is deemed necessary. The extent of collateral held for those commitments at December 31, 2009 and 2008 exceeds 100%.

Employment and Change in Control Agreements

The Company has entered into a three-year employment agreement with its President and Chief Executive Officer expiring in 2012. This agreement generally provides for a base salary and the continuation of certain benefits currently received. Annually the Company may extend the agreement for an additional year. Under certain specified circumstances, the employment agreement requires certain payments to be made for certain reasons other than cause, including a “change in control” as defined in the agreement. However, such employment may be terminated for cause, as defined, without incurring any continuing obligations.

The Company also entered into three-year change in control agreements with certain executive officers, none of whom are covered by an employment agreement. The change in control agreements are renewable on an annual basis and generally provide a severance payment and the continuation of certain benefits currently received following a “change in control” as defined in the agreements.

Litigation

The Company is subject to various legal actions arising in the normal course of business. At December 31, 2009, the Company was not involved in any legal proceedings for which expected resolution would have a material impact on its financial position, results of operations or cash flows.

NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS

In accordance with and as required by the Fair Value Measurements and Disclosures Topic of FASB ASC, 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:

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS – Continued

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

Level 2 – Valuations for assets and liabilities traded in less active dealer or broker markets. Level 2 includes mortgage-backed securities issued by government-sponsored enterprises. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities.

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

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

	Level 1		Level 2		Level 3		Total Fair Value
At December 31, 2009
Securities available for sale	$	787	$	240,503	$	2,014	$	243,304
Mortgage servicing rights		-		-		313		313

Total	$	787	$	240,503	$	2,327	$	243,617

At December 31, 2008
Securities available for sale	$	465	$	311,209	$	1,832	$	313,506
Mortgage servicing rights		-		-		124		124

Total	$	465	$	311,209	$	1,956	$	313,630

The Company has no liabilities measured at fair value on a recurring basis at December 31, 2009 and 2008 .

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS – Continued

The table below presents the changes in Level 3 assets measured at fair value on a recurring basis for the year ended December 31, 2009 and 2008.

	2009			2008
Balance at beginning of year	$	1,956		$	136
Total realized/unrealized losses included in net income		(116	)		(1,389	)
Change in unrealized gain		264			54
Purchases, sales, issuances and settlements		223			-
Transfers		-			3,155

Balance at end of year	$	2,327		$	1,956

The Company may be required, from time to time, to measure certain other financial assets on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-fair value accounting or write-downs of individual assets. The following table summarizes the fair value hierarchy used to determine the adjustment and the carrying value of the related assets as of and for the years ended December 31, 2009 and 2008.

December 31, 2009	Level 1		Level 2		Level 3		Total Gains/(Losses)
Assets:
Loans	$	-	$	16,287	$	-	$	(2,335	)
Other real estate owned		-		1,545		-		(85	)
Other assets		-		-		1,520		-
Total assets	$	-	$	17,832	$	1,520	$	(2,420	)

December 31, 2008
Assets:
Loans	$	-	$	5,362	$	-	$	(120	)
Other real estate owned		-		998		-		(137	)
Other assets		-		-		1,320		-
Total assets	$	-	$	6,360	$	1,320	$	(257	)

The amount of loans represents the carrying value and related write-down and valuation allowance of impaired loans for which adjustments are based on the estimated fair value of the underlying collateral. The other real estate owned amount represents the carrying value for which adjustments are also based on the estimated fair value of the property. Other assets consist of equity securities accounted for at cost which approximates fair value.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS – Continued

The Company is required to provide supplemental financial statement disclosures of the estimated fair value of its financial instruments. Financial instruments include cash and cash equivalents, investment and mortgage-backed securities, loan, deposits, borrowings and certain off-balance sheet items such as loan commitments. Other assets significant to the Company, including bank premises and equipment, deferred tax assets, as well as core deposit and other intangible assets are not considered financial instruments and are excluded from the fair value disclosures. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Bank’s entire holdings of a particular financial instrument. Because a market may not readily exist for a significant portion of the Bank’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The following methods and assumptions were used by the Company in estimating fair values of its financial instruments:

Cash and Cash Equivalents and Short-term Investments

For cash and short term investments having maturities of 90 days or less, the carrying amounts reported in the balance sheets approximate fair values. The carrying amount of short-term investments which consist of $1,096 and $1,071 held at December 31, 2009 and 2008, respectively, also approximates fair value.

Investment Securities and FHLBB Stock

The fair value of securities to be held to maturity and securities available for sale is estimated based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Ownership of FHLBB stock is restricted to member banks; therefore, the stock is not traded. The estimated fair value of FHLBB stock is equal to its carrying value, which represents the price at which the FHLBB is obligated to redeem its stock.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS – Continued

Loans

For valuation purposes, the loan portfolio was segregated into its significant categories, which are residential mortgage, commercial real estate, commercial and consumer. These categories were further segregated, where appropriate, into components based on significant financial characteristics such as type of interest rate (fixed or adjustable). Fair values were estimated for each component using assumptions developed by management and a valuation model provided by a third party specialist.

The fair values of residential mortgage, commercial real estate, commercial and consumer loans were estimated by discounting the anticipated cash flows from the respective portfolios. Estimates of the timing and amount of these cash flows considered factors such as future loan prepayments. The discount rates reflected current market rates for loans with similar terms to borrowers of similar credit quality. The fair value of home equity lines of credit was based on the outstanding loan balances.

Accrued Interest Receivable and Payable

The carrying amount of accrued interest receivable on investments and loans and accrued interest payable on deposits and borrowings approximates fair value.

Deposits

The fair value of deposits with no stated maturity, such as demand deposits, NOW, regular savings, and money market deposit accounts, is equal to the amount payable on demand. The fair value estimates do not include the benefit that results from the generally lower cost of funding provided by the deposit liabilities compared to the cost of borrowing funds in the market. The fair value estimate of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits having similar remaining maturities.

Federal Home Loan Bank of Boston Advances

The fair value estimate of the borrowings from the FHLBB is determined by discounting the anticipated future cash payments by using the rates currently available to the Company for debt with similar terms and remaining maturities.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS– Concluded

Repurchase Agreements

The Company enters into overnight repurchase agreements with its customers. Since these agreements are short-term instruments, the fair value of these agreements approximates their recorded balance. The Company also secures term repurchase agreements through other financial institutions. The fair value of these agreements are determined by discounting the anticipated future cash payments using rates currently available to the Bank for debt with similar terms and remaining maturities.

Subordinated Debentures

The Company has outstanding subordinated debt in the form of trust preferred securities issued through a private placement offering. The fair value estimate is determined by discounting the anticipated future cash payments by using the rates currently available to the Company for debt with similar terms and remaining maturities.

Off-Balance Sheet Instruments

Fair value of off-balance-sheet mortgage lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. In the case of the commitments discussed in Note M, the fair value equals the carrying amounts which are not significant.

The fair value of the Company’s financial instruments is as follows at December 31:

	2009				2008
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets:
Cash and cash equivalents	$	21,877	$	21,877	$	13,572	$	13,572
Short-term investments		1,096		1,096		1,071		1,071
Securities available for sale		243,304		243,304		313,506		313,506
Securities held to maturity		63,174		63,063		3,191		3,238
Stock in Federal Home Loan Bank of Boston		15,365		15,365		12,223		12,223
Net loans		1,115,416		1,109,232		864,421		870,731
Accrued interest receivable		5,209		5,209		4,706		4,706

Financial Liabilities:
Deposits (with no stated maturity)		560,669		560,669		406,796		406,796
Time deposits		478,258		483,843		375,867		378,424
Federal Home Loan Bank of Boston advances		208,173		211,954		208,564		217,236
Repurchase agreements		47,303		46,068		28,042		28,021
Subordinated debentures		5,357		5,357		-		-
Accrued interest payable		922		922		627		627

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE O – STOCKHOLDERS’ EQUITY

Regulatory Capital

The Bank is subject to various minimum regulatory capital standards promulgated by the Office of Thrift Supervision (“OTS”). Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The Company is not separately subject to capital guidelines.

The minimum capital standards of the OTS generally require the maintenance of regulatory capital sufficient to meet each of three tests, hereinafter described as the total risk-based capital requirement, the Tier I risk-based capital requirement and the Tier I or leverage capital requirement. The Tier I risk-based and Tier I leverage capital requirements provide for minimum core capital (tangible capital plus certain forms of supervisory goodwill and other qualifying intangible assets) generally equal to 4.0% of risk-weighted assets and to 4.0% of adjusted total assets, respectively, except for those banks with the highest examination rating and acceptable levels of risk. The risk-based capital requirement provides for the maintenance of core capital plus general loss allowances equal to 8.0% of risk-weighted assets. In computing risk-weighted assets, the Bank multiplies the value of each asset on its balance sheet by a defined risk-weighting factor, e.g., one- to four-family residential loans carry a risk-weighted factor of 50%.

The OTS capital rules also require savings associations to hold a ratio of 1.5% tangible capital to tangible assets. Tangible equity is defined as core capital less tangible assets. Tangible assets are defined as adjusted total assets less intangible assets.

As of December 31, 2009, the most recent notification from the OTS categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as adequately capitalized the Bank must maintain minimum ratios as set forth in the accompanying table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE O – STOCKHOLDERS’ EQUITY – Continued

The Bank’s actual capital amounts and ratios, as well as minimum amounts and ratios required for capital adequacy are presented below:

	Actual						For Capital Adequacy Purposes							To Be Well Capitalized Under Regulatory Framework
	Amount		Ratio				Amount			Ratio				Amount			Ratio

As of December 31, 2009:

Total Risk-based Capital
(to Risk Weighted Assets)	$	193,863		16.5	%	≥	$	93,846	≥		8.0	%	≥	$	117,308	≥		10.0	%

Tier I Risk-based Capital
(to Risk Weighted Assets)		184,531		15.7	%	≥		46,923	≥		4.0	%	≥		70,385	≥		6.0	%

Tier I (Core) Capital
(to Adjusted Total Assets)		184,531		12.1	%	≥		60,785	≥		4.0	%	≥		75,981	≥		5.0	%

Tangible Equity
(to Tangible Assets)		184,531		12.1	%	≥		22,794	≥		1.5	%	≥		N/A

As of December 31, 2008:

Total Risk-based Capital
(to Risk Weighted Assets)	$	162,782		18.7	%	≥	$	69,590	≥		8.0	%	≥	$	86,988	≥		10.0	%

Tier I Risk-based Capital
(to Risk Weighted Assets)		154,532		17.8	%	≥		34,795	≥		4.0	%	≥		52,193	≥		6.0	%

Tier I (Core) Capital
(to Adjusted Total Assets)		154,532		12.3	%	≥		50,231	≥		4.0	%	≥		62,789	≥		5.0	%

Tangible Equity
(to Tangible Assets)		154,532		12.3	%	≥		18,837	≥		1.5	%	≥		N/A

The following table provides a reconciliation of the Company’s total consolidated equity to the capital amounts for the Bank reflected in the preceding table:

	December 31
	2009			2008
Total consolidated equity	$	225,246		$	227,714
Adjustments:
Additional equity capital of United Financial Bancorp, Inc.		(26,867	)		(70,076	)
Accumulated other comprehensive income		(5,358	)		(2,931	)
Disallowed goodwill and intangible assets		(8,490	)		(175	)
Tangible, Tier I and Core Capital		184,531			154,532
Allowance for loan losses		9,180			8,250
Other		152			-

Total risk-based capital	$	193,863		$	162,782

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE O – STOCKHOLDERS’ EQUITY – Concluded

Common Stock Repurchase Plans

On October 16, 2009, the Board of Directors approved a plan to repurchase up to 5%, or approximately 798,055 shares, of the Company’s common stock through open market purchases. Stock repurchases are accounted for as treasury stock, carried at cost, and reflected as a reduction in stockholders’ equity. As of December 31, 2009, the Company repurchased 65,530 shares at a cost of approximately $842 and an average price of $12.85, under this plan.

On February 19, 2009, the Board of Directors approved a plan to repurchase up to 5%, or approximately 841,138 shares, of the Company’s common stock through open market purchases or privately negotiated transactions. The Company completed its repurchase of 841,138 shares of its outstanding common stock, at a cost of approximately $10,832 and at an average price of $12.88, on November 30, 2009.

On November 20, 2008, the Board of Directors approved a plan to repurchase up to 5%, or approximately 885,379 shares, of the Company’s common stock through open market purchases or privately negotiated transactions. The Company completed its repurchase of 885,379 shares of its outstanding common stock, at a cost of approximately $12,376 and at an average price of $13.98, on February 3, 2009.

On June 19, 2008, the Board of Directors approved a plan to repurchase up to 2%, or 359,581 shares, to fund awards of restricted stock under the Company's 2008 Incentive Plan, which was approved by stockholders at the Company's 2008 Annual Meeting held on June 10, 2008. The Company completed its repurchase of 359,581 shares of its outstanding common stock, at a cost of approximately $4,240 and at an average price of $11.79, on July 22, 2008.

In November 2006, the Board of Directors approved a plan to repurchase up to 5%, or approximately 858,000 shares, of the Company’s common stock through open market purchases or privately negotiated transactions. As of December 31, 2007, the Company had repurchased 86,390 shares at a cost of approximately $1,251 and at an average price of $14.48, under this plan. In connection with the Company’s second step conversion and offering, which closed on December 3, 2007, all treasury shares were cancelled and the repurchase plan approved in 2006 was terminated.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE P – CONDENSED FINANCIAL STATEMENTS OF

UNITED FINANCIAL BANCORP, INC.

The following are the condensed financial statements for United Financial Bancorp, Inc. (parent company only).

BALANCE SHEETS
	December 31,		December 31,
	2009		2008
ASSETS
Cash and cash equivalents	$	15,632	$	53,184
Short-term investments		1,096		1,071
Investment in Bank		198,379		157,638
ESOP loans receivable		12,262		12,829
Other assets		3,518		3,174
TOTAL ASSETS	$	230,887	$	227,896

LIABILITIES AND STOCKHOLDERS’ EQUITY

Subordinated debentures	$	5,357	$	-
Other liabilities		284		182
Stockholders’ equity		225,246		227,714
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	230,887	$	227,896

STATEMENTS OF INCOME
	Years Ended December 31,
	2009			2008		2007
Income:
Investment interest	$	399		$	1,235	$	1,252
ESOP loan interest		418			955		536
Gain on sale of securities		-			15		-
Other income		-			3		-
Total income		817			2,208		1,788
Expense:
Subordinated debentures interest		15			-		-
Professional services		1,089			1,311		1,105
Acquisition related expenses		1,841			-		-
Other expenses		52			47		43
Total expense		2,997			1,358		1,148

(Loss) income before income tax (benefit) expense		(2,180	)		850		640
Income tax (benefit) expense		(421	)		348		261
(Loss) income before equity in undistributed earnings
of the Bank		(1,759	)		502		379
Equity in undistributed earnings of the Bank		7,565			6,796		3,998
NET INCOME	$	5,806		$	7,298	$	4,377

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE P – CONDENSED FINANCIAL STATEMENTS OF

UNITED FINANCIAL BANCORP, INC. – Concluded

STATEMENTS OF CASH FLOWS
	Years Ended December 31,
	2009			2008			2007
Cash flows from operating activities:
Net income	$	5,806		$	7,298		$	4,377
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in undistributed earnings of the bank		(7,565	)		(6,796	)		(3,998	)
Net amortization of discounts and premiums		-			2			(27	)
Net gain on sale of available for sale securities		-			(15	)		-
Decrease in deferred income taxes		(51	)		(3	)		(525	)
Decrease in accrued interest receivable		-			247			17
Decrease (increase) in other assets		(94	)		718			(457	)
(Decrease) increase in intercompany payables and
other liabilities		121			(359	)		136
Net cash (used in) provided by operating activities		(1,783	)		1,092			(477	)
Cash flows from investing activities:
Purchases of securities available for sale		-			-			(12,059	)
Proceeds from sales of securities available for sale		-			9,352			-
Proceeds from maturities and principal repayments
of securities available for sale		-			9,218			15,181
Cash used for acquisition of CNB Financial, net of cash
acquired		(10,587	)		-			-
Capital contributions to venture capital fund		(200	)		(100	)
Investment in short term time deposits		(25	)		(41	)		(1,030	)
Loan to fund ESOP		-			-			(7,538	)
Principal payments on ESOP loans		567			331			270
Net cash (used in) provided by investing activities		(10,245	)		18,760			(5,176	)
Cash flows from financing activities:
Return of capital (investment in) United Bank		168			837			(45,152	)
Repurchase of stock to fund the 2008 Incentive Plan		-			(4,240	)		-
Tax benefit from MRP vesting		34
Treasury stock purchases		(21,488	)		(2,960	)		(1,250	)
Cash dividends paid		(4,238	)		(4,436	)		(1,757	)
Net (costs) proceeds from stock issuance		-			(26	)		90,289
Net cash (used in) provided by financing activities		(25,524	)		(10,825	)		42,130
(Decrease) increase in cash and cash equivalents		(37,552	)		9,027			36,477
Cash and cash equivalents at beginning of period		53,184			44,157			7,680
Cash and cash equivalents at end of period	$	15,632		$	53,184		$	44,157


Supplemental Disclosure of Cash Flow Information:
Cash paid during the period:
Income taxes – net		8,025			6,521			1,097

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE Q – QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table summarizes the operating results on a quarterly basis for the years ended December 31, 2009 and 2008.

	Three Months Ended
	March 31		June 30			September 30			December 31
2009:
Interest income	$	15,930	$	15,120		$	15,325		$	16,611
Interest expense		5,775		5,577			5,351			5,283
Net interest income		10,155		9,543			9,974			11,328
Provision for loan losses		540		675			800			983
Non-interest income		1,851		2,595			1,985			2,245
Non-interest expense		8,155		10,030	(1)		8,093	(1)		10,580	(1)
Income before income taxes		3,311		1,433			3,066			2,010
Income tax expense		1,188		873			1,165			788
Net income	$	2,123	$	560		$	1,901		$	1,222

Basic earnings per share	$	0.14	$	0.04		$	0.13		$	0.08
Diluted earnings per share	$	0.14	$	0.04		$	0.13		$	0.08


2008:
Interest income	$	15,406	$	15,973		$	16,811		$	16,624
Interest expense		6,375		6,065			6,275			6,288
Net interest income		9,031		9,908			10,536			10,336
Provision for loan losses		184		651			644			367
Non-interest income		1,519		1,574			1,733			394	(2)
Non-interest expense		7,176		7,550			7,806			8,158
Income before income taxes		3,190		3,281			3,819			2,205
Income tax expense		1,224		1,272			1,455			1,246
Net income	$	1,966	$	2,009		$	2,364		$	959

Basic earnings per share (3)	$	0.12	$	0.12		$	0.14		$	0.06
Diluted earnings per share (3)	$	0.12	$	0.12		$	0.14		$	0.06

(1)	Includes acquisition related expenses of $1,161, $270 and $1,432 for the quarters ended June 30, September 30 and December 31, 2009, respectively.

(2)	Includes other-than-temporary investment impairment charges totaling $1,377.

(3)

Prior period basic and diluted share data were revised as required by the Earnings Per Share Topic of FASB ASC and in accordance with the provisions of "Determining Whether Instruments Issued in Share-Based Payment Transactions are Participating Securities" which require that share-based compensation awards that qualify as participating securities (entitled to receive non-forfeitable dividends) be included in basic earnings per share using the two-class method. This revision decreased earnings per share $0.01 for the three months ended September 30, 2008 and had no impact on earnings per share for the other interim periods as previously reported.

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UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(Dollars in thousands, except per share amounts)

NOTE R – SUBSEQUENT EVENTS

On January 21, 2010, the Company announced a quarterly cash dividend of $0.07 per share. The dividend is payable on March 9, 2010 to shareholders of record as of February 16, 2010.

In January, 2010, the bank entered into a "troubled debt restructure" with its largest non-accruing relationship, a $4.5 million loan secured by commercial real estate. The bank received a significant paydown, forgave some debt and restructured the loan so that monthly payments were significantly reduced. The loan remains a classified asset and interest is being recognized when received.

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ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.

CONTROLS AND PROCEDURES

(a)

Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the fiscal year (the “Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective.

(b)

Management’s report on internal control over financial reporting.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting.

The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on that assessment, management concluded that, as of December 31, 2009, the Company’s internal control over financial reporting was effective based on the criteria established in Internal Control—Integrated Framework. Management’s evaluation of internal control over financial reporting as of December 31, 2009 excluded an evaluation of the internal control over financial reporting of CNB Financial Corp, which we acquired on November 30, 2009. CNB Financial Corp.’s total revenues and total assets, representing approximately 2% and 19% of the Company’s consolidated total, are included in the consolidated financial statements of the Company and its subsidiary as of and for the year ended December 31, 2009

Our internal control over financial reporting as of December 31, 2009 has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report which is included herein.

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(c)

Attestation report

Report of Independent Registered Public Accounting Firm on

Internal Control Over Financial Reporting

To the Board of Directors of

United Financial Bancorp, Inc.:

We have audited United Financial Bancorp, Inc. and subsidiary’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). United Financial Bancorp, Inc. and subsidiary’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting (Management’s Report). Our responsibility is to express an opinion on United Financial Bancorp, Inc. and subsidiary’s internal control over financial reporting based on our audit. Our audit of, and opinion on, United Financial Bancorp, Inc. and subsidiary’s internal control over financial reporting does not include internal control over financial reporting of CNB Financial Corp. whose financial statements reflect total assets and total revenues, representing approximately 19 and 2 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2009. As indicated in Management’s Report, CNB Financial Corp. was acquired on November 30, 2009 and therefore, management’s evaluation of the effectiveness of United Financial Bancorp and subsidiary’s internal control over financial reporting excluded an evaluation of the internal control over financial reporting of CNB Financial Corp.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

In our opinion, United Financial Bancorp, Inc. and subsidiary maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2009 consolidated financial statements of United Financial Bancorp, Inc. and subsidiary and our report dated March 12, 2010 expressed an unqualified opinion thereon.

/s/ Grant Thornton LLP

Boston, Massachusetts

March 12, 2010

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(d)

Changes to internal controls

There were no changes made in our internal controls over financial reporting that occurred during the quarter ended December 31, 2009 that could materially affect, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.

OTHER INFORMATION

Not Applicable.

PART III

ITEM 10.

DIRECTORS , EXECUTIVE OFFICERS AND COPORATE GOVERNANCE

Directors

For information concerning the Company’s directors, the information contained under the section captioned “Proposal 1—Election of Directors” in the Company’s Proxy Statement for the 2010 Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated herein by reference.

Executive Officers

For information relating to officers of the Company, the section captioned “Proposal 1—Election of Directors” in the Proxy Statement, and Part I, Item 1, “Business—Executive Officers of the Registrant” in this Annual Report on Form 10-K, are incorporated by reference.

Compliance with Section 16(a) of the Exchange Act

For information regarding compliance with Section 16(a) of the Exchange Act, the information contained under the section captioned “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement is incorporated herein by reference.

Disclosure of Code of Ethics

The Company has adopted a Code of Ethics for Chief Executive Officer and Senior Financial Officer, a copy of which can be found in the investor relations section of the Company’s website at www.bankatunited.com.

Corporate Governance

For information regarding the audit committee and its composition and the audit committee financial expert, the section captioned “Corporate Governance and Board Matters” in the Proxy Statement is incorporated herein by reference.

ITEM 11.

EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the “Compensation Discussion and Analysis”, “Executive Compensation”, “Corporate Governance and Board Matters—Directors’ Compensation” and “Compensation Committee Report” sections of the Company’s Proxy Statement for the 2010 Annual Meeting of Stockholders.

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ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

(a)

Security Ownership of Certain Beneficial Owners

Information required by this item is incorporated herein by reference to the section captioned “Stock Ownership” in the Proxy Statement.

(b)

Security Ownership of Management

Information required by this item is incorporated herein by reference to the section captioned “Stock Ownership” in the Proxy Statement.

(c)

Changes in Control

Management of the Company knows of no arrangements, including any pledge by any person or securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant.

(d)

Equity Compensation Plan Information

The following table sets forth information as of December 31, 2009 about Company common stock that may be issued under the Company’s equity compensation plans. All plans were approved by the Company’s stockholders.

Plan Category	(a) Number of securities to be issued upon the exercise of outstanding options, warrants and rights	(b) Weighted-average exercise price of outstanding options, warrants and rights	(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	1,809,885	$12.36	327,822
Equity compensation plans not approved by security holders	N/A	N/A	N/A
Total	1,809,885	$12.36	327,822

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR INDEPENDENCE

The information required by this item is incorporated by reference to the “Transactions with Related Persons” and “Corporate Governance—Director Independence” sections of the Company’s Proxy Statement for the 2010 Annual Meeting of Stockholders.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference to “Proposal 2 – Ratification of Appointment of Independent Registered Public Accounting Firm” of the Company’s Proxy Statement for the 2010 Annual Meeting of Stockholders.

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PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements

The following documents are filed as item 8 of this Form 10-K.

(A)

Report of Independent Registered Public Accounting Firm on Financial Statements

(B)

Consolidated Balance Sheets - at December 31, 2009 and 2008

(C)

Consolidated Statements of Earnings - Years Ended December 31, 2009, 2008 and 2007

(D)

Consolidated Statements of Stockholders’ Equity and Comprehensive Income - Years Ended December 31, 2009, 2008 and 2007

(E)

Consolidated Statements of Cash Flows - Years ended December 31, 2009, 2008 and 2007

(F)

Notes to Consolidated Financial Statements.

(a)(2) Financial Statement Schedules

None.

(a)(3) None.

(b) Exhibits – set forth below

Exhibits

3.1	Articles of Incorporation of United Financial Bancorp, Inc. (1)

3.2	Amended and Restated Bylaws of United Financial Bancorp, Inc. (2)

4	Form of Common Stock Certificate of United Financial Bancorp, Inc. (1)

10.1	Employment Agreement by and between United Bank and Richard B. Collins (4)*

10.2	Change in Control Agreement by and between United Bank and Keith E. Harvey (4)*

10.3	Change in Control Agreement by and between United Bank and J. Jeffrey Sullivan (4)*

10.4	Change in Control Agreement by and between United Bank and Mark A. Roberts (4)*

10.5	Change in Control Agreement by and between United Bank and Charles R. Valade*

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 2009 Annual Incentive Plan (2)*

10.12

United Bank 2007 Director Retirement Plan (7)*

10.13

Directors Fee Continuation Plan (3)*

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10.14

United Financial Bancorp, Inc. 2008 Equity Incentive Plan (8)

10.15

Retention Agreement by and between United Bank and Charles R. Valade*

10.16

CNB Financial Corp. 2008 Equity Incentive Plan (9)*

10.17

CNB Financial Corp. Amended and Restated Stock Option Plan (10)*

10.18

Form of Award Agreement under the CNB Financial Corp. 2008 Equity Incentive Plan (11)*

10.19

Form of Award Agreement under the CNB Financial Corp. Amended and Restated Stock Option Plan (10)*

21	Subsidiaries of Registrant (1)

23	Consent of Independent Registered Public Accounting Firm

31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

_______

*	Management contract or compensatory plan, contract or arrangement

(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 10-K of United Financial Bancorp, Inc. filed with the Securities and Exchange Commission on March 13, 2009.

(3)	Incorporated by reference to the Registration Statement on Form S-1 of United Financial Bancorp, Inc. (File No. 333-123371), originally filed with the Securities and Exchange Commission on March 16, 2005.

(4)	Incorporated by reference to the Form 8-K of United Financial Bancorp, Inc. filed with the Securities and Exchange Commission on November 29, 2007.

(5)	Incorporated by reference to the Form 8-K of United Financial Bancorp, Inc. filed with the Securities and Exchange Commission on January 2, 2008.

(6)	Incorporated by reference to Appendix B to the proxy statement for the 2006 Annual Meeting of Stockholders of United Financial Bancorp, Inc. (File No. 000-51369), filed by United Financial Bancorp, Inc. under the Securities Exchange Act of 1934, on June 12, 2006.

(7)	Incorporated by reference to the Form 8-K of United Financial Bancorp, Inc. filed with the Securities and Exchange Commission on November 21, 2007.

(8)	Incorporated by reference to Appendix A of the Company's Definitive Proxy Statement for the 2008 Annual Meeting of Stockholders (File No. 000-52947), as filed with the SEC on April 29, 2008).

(9)	Incorporated by reference to Appendix A to the Proxy Statement filed by CNB Financial Corp. with the Commission on April 11, 2008.

(10)	Incorporated by reference to the Registration Statement on Form S-8 filed by CNB Financial Corp. with the Commission on March 27, 2007.

(11)	Incorporated by reference to the Registration Statement on Form S-8 filed by CNB Financial Corp. with the Commission on August 7, 2008.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	UNITED FINANCIAL BANCORP, INC.


Date: March 12, 2010	By:	/s/ Richard B. Collins
		Richard B. Collins
		Chairman, President and Chief Executive Officer
		(Duly Authorized Representative)

Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signatures	Title	Date

/s/ Richard B. Collins	Chief Executive Officer,	March 12, 2010
Richard B. Collins	President and Chairman (Principal Executive Officer)

/s/ Mark A. Roberts	Executive Vice President and	March 12, 2010
Mark A. Roberts	Chief Financial Officer (Principal Financial and Accounting Officer)

/s/ Paula A. Aiello	Director	March 12, 2010
Paula A. Aiello

/s/ Michael F. Crowley	Director	March 12, 2010
Michael F. Crowley

/s/ Carol Moore Cutting	Director	March 12, 2010
Carol Moore Cutting

/s/ Carol A. Leary	Director	March 12, 2010
Carol A. Leary

/s/ G. Todd Marchant	Director	March 12, 2010
G. Todd Marchant

/s/ Kevin E. Ross	Director	March 12, 2010
Kevin E. Ross

/s/ Robert A. Stewart, Jr.	Director	March 12, 2010
Robert A. Stewart, Jr.

/s/ Thomas H. Themistos	Director	March 12, 2010
Thomas H. Themistos

/s/ Michael F. Werenski	Director	March 12, 2010
Michael F. Werenski