UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2005
OR
[ ] Transition Report Pursuant To Section 13 or 15(d) Of The Securities And
Exchange Act of 1934
For the transition period from ______________ to _____________
Commission File Number 000-51369
United Financial Bancorp, Inc.
------------------------------
(Exact name of registrant as specified in its charter)
Federal 83-0395247
------------------------ ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
95 Elm Street, West Springfield, Massachusetts 01089
----------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (413) 787-1700
--------------
Indicate by check whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
----- -----
Indicate by check whether the Registrant is an accelerated filer.
Yes No X
---- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common stock, $0.01 par value
No shares outstanding as of June 23, 2005
United Financial Bancorp, Inc.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)............ 1
Consolidated Statements of Condition
March 31, 2005 and December 31, 2004 .................. 1
Consolidated Statements of Earnings
three months ended March 31, 2005 and 2004 ............... 2
Consolidated Statements of Stockholders' Equity
three months ended March 31, 2005 and 2004................ 3
Consolidated Statements of Cash Flows
three months ended March 31, 2005 and 2004................ 4
Notes to Unaudited Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 14
Item 4. Controls and Procedures................................... 14
PART II. OTHER INFORMATION.............................................. 14
Item 1. Legal Proceedings......................................... 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities............................ 14
Item 4. Submission of Matters to a Vote of Security Holders........ 14
Item 5. Other Information.......................................... 14
Item 6. Exhibits................................................... 15
SIGNATURES ....................................................... 16
Exhibit 31.1 Certification of Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002..... 17
Exhibit 31.2 Certification of Chief Financial Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002..... 18
Exhibit 32.1 Statement of Chief Executive Officer Furnished
Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.............................................. 19
Exhibit 32.2 Statement of Chief Financial Officer Furnished
Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.............................................. 20
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION (unaudited)
-------------------------------------------------------------------------------
March 31, December 31,
2005 2004
ASSETS --------- ------------
Cash and due from banks.................................................... $ 13,882,704 $ 15,771,939
Interest bearing deposits.................................................. 13,631,883 7,179,660
Liquidity fund............................................................. 282,469 281,025
--------------- ---------------
Total cash and cash equivalents...................................... 27,797,056 23,232,624
Securities available for sale, at market value............................. 174,288,091 152,329,320
Securities to be held to maturity, at amortized cost (fair value $2,480,637
in 2005 and $2,497,947 in 2004)......................................... 2,497,495 2,498,499
Loans, net of allowance for loan losses of $6,105,513 in 2005 and $5,749,944
in 2004................................................................. 565,933,073 569,243,257
Banking premises and equipment, net........................................ 7,579,053 7,670,506
Accrued interest receivable................................................ 3,136,293 2,862,328
Deferred tax asset......................................................... 1,718,221 1,550,800
Stock in the Federal Home Loan Bank of Boston.............................. 6,020,800 6,020,800
Bank-owned life insurance................................................. 5,786,064 5,705,064
Other assets............................................................... 1,252,299 894,698
--------------- ---------------
TOTAL ASSETS......................................................... $ 796,008,445 $ 772,007,896
=============== ===============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Deposits:
Interest bearing......................................................... $ 552,736,973 $ 527,426,088
Non-interest bearing..................................................... 85,324,530 86,245,978
--------------- ---------------
Total deposits....................................................... 638,061,503 613,672,066
Federal Home Loan Bank of Boston advances................................ 84,667,026 86,694,417
Repurchase agreements.................................................... 6,254,423 4,316,592
Escrow funds held for borrowers.......................................... 1,176,738 954,120
Accrued expenses and other liabilities................................... 3,384,056 4,115,987
--------------- ---------------
Total liabilities.................................................... 733,543,746 709,753,182
Commitments and contingencies............................................
Stockholder's equity:
Preferred stock, par value $0.01 per share, authorized 5,000,000 shares;
none issued............................................................ -- --
Common stock, par value $0.01 per share, authorized 60,000,000 shares;
100 shares issued in 2004.............................................. 1 1
Paid-in capital.......................................................... 99 99
Retained earnings........................................................ 64,032,850 62,666,577
Accumulated other comprehensive loss..................................... (1,568,251) (411,963)
--------------- ---------------
Total stockholder's equity........................................... 62,464,699 62,254,714
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........................... $ 796,008,445 $ 772,007,896
=============== ===============
1
UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2005 and 2004
--------------------------------------------------------------------------------
Three Months Ended
---------------------------------
March 31,
---------------------------------
2005 2004
Interest and dividend income: -------------- ---------------
Loans...................................................... $ 8,106,708 $ 7,076,054
Investment interest and dividends.......................... 1,528,478 1,841,327
Other interest-earning assets.............................. 140,046 40,550
-------------- --------------
Total interest and dividend income...................... 9,775,232 8,957,931
Interest expense:
Interest on deposits....................................... 2,579,978 2,235,637
Interest on short-term borrowings.......................... 108,637 70,648
Interest on long-term debt................................. 680,587 627,414
-------------- --------------
Total interest expense.................................. 3,369,202 2,933,699
-------------- --------------
Net interest income before provision for loan losses.... 6,406,030 6,024,232
Provision for loan losses.................................... 275,100 112,500
-------------- --------------
Net interest income after provision for loan losses..... 6,130,930 5,911,732
Non-interest income:
Fee income on depositors' accounts......................... 903,154 788,602
Gain on sale of loans...................................... -- 8,545
Net gain on sale of securities............................. -- 110,106
Income from bank-owned life insurance......................... 81,000 75,000
Other income............................................... 181,883 166,156
-------------- --------------
Total non-interest income............................... 1,166,037 1,148,409
-------------- --------------
Non-interest expense:
Salaries and employee benefits............................. 2,754,856 2,544,194
Occupancy expense.......................................... 339,565 410,754
Advertising expenses....................................... 345,465 224,731
Data processing expenses................................... 745,816 616,708
Professional fees.......................................... 111,187 93,100
Other expenses............................................. 730,361 1,079,318
-------------- --------------
Total non-interest expense.............................. 5,027,250 4,968,805
-------------- --------------
Income before income taxes.............................. 2,269,717 2,091,336
Income tax expense........................................... 903,444 830,100
-------------- --------------
NET INCOME.............................................. $ 1,366,273 $ 1,261,236
============== ==============
2
UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2005 and 2004
-------------------------------------------------------------------------------
Accumulated
Other
Comprehensive
Common Stock Paid-In Capital Retained Earnings Income (Loss) Total
------------ --------------- ----------------- ------------- --------
Balances at December 31, 2003........ $ -- $ -- $ 57,288,745 $ (238,538) $ 57,050,207
Net income........................... -- -- 1,261,236 -- 1,261,236
Net unrealized loss on securities
available for sale, net of
reclassification adjustment and tax
effects............................ -- -- -- 1,281,230 1,281,230
-------------
Total comprehensive income..... 2,542,466
-------------- -------------- -------------- -------------- -------------
Balances at March 31, 2004.......... $ -- $ -- $ 58,549,981 $ 1,042,692 $ 59,592,673
=============== =============== ============== ============== =============
Balances at December 31, 2004........ $ 1 $ 99 $ 62,666,577 $ (411,963) $ 62,254,714
Net income........................... -- -- 1,366,273 -- 1,366,273
Net unrealized loss on securities
available for sale, net of
reclassification adjustment and tax
effects............................ -- -- -- (1,156,288) (1,156,288)
-------------
Total comprehensive income..... 209,985
-------------- -------------- -------------- -------------- -------------
Balances at March 31, 2005........... $ 1 $ 99 $ 64,032,850 $ (1,568,251) 62,464,699
============== ============== ============== ============== =============
3
UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2005 and 2004
-------------------------------------------------------------------------------
Three Months Ended
March 31,
---------------------------------
2005 2004
Cash flows from operating activities: ------------- ---------------
Net income.................................................... $ 1,366,273 $ 1,261,236
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses.................................. 275,100 112,500
Provision (credit) for other real estate owned............. -- (51,765)
Depreciation and amortization.............................. 155,685 161,730
Deferred income tax expense (benefit)...................... (167,421) 161,400
Net gain on sale of available for sale securities.......... -- (110,106)
Gain on sale of loans...................................... -- (8,545)
(Increase) decrease in accrued interest receivable......... (273,965) 101,185
(Increase) decrease in other assets........................ (357,604) 57,710
Increase (decrease) in accrued expenses and other
liabilities................................................ (731,928) 631,978
--------------- --------------
Net cash provided by operating activities................ 266,140 2,317,323
Cash flows from investing activities:
Purchases of securities available for sale.................... (30,879,366) (22,462,829)
Proceeds from sales, maturities and principal repayments of
securities available for sale............................... 7,764,306 29,613,329
Proceeds from maturities and principal repayments of
securities to be held to maturity........................... 1,004 513
Purchases of Federal Home Loan Bank of Boston stock........... -- (1,813,900)
Increase in Bank-owned life insurance......................... (81,000) (75,000)
Proceeds from sales of other real estate owned................ -- 8,235
Net loan originations and principal collections............... 3,035,085 (11,267,275)
Proceeds from sales of loans.................................. -- 4,714,514
Purchases of property and equipment........................... (64,232) (24,366)
--------------- ---------------
Net cash used in investing activities.................... (20,224,203) (1,306,779)
4
UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) -Continued
FOR THE THREE MONTHS ENDED MARCH 31, 2005 and 2004
--------------------------------------------------------------------------------
Three Months Ended
March 31,
---------------------------------
2005 2004
Cash flows from financing activities: --------------- --------------
Net increase in deposits...................................... $ 24,389,437 $ 2,727,184
Net increase in repurchase agreements........................ 1,937,831 1,796,891
Net increase in escrow funds held for borrowers............... 222,618 97,101
Proceeds of FHLBB advances.................................... -- 6,500,000
Repayments of FHLBB advances.................................. (2,027,391) (1,743,640)
-------------- --------------
Net cash provided by financing activities................ 24,522,495 9,377,536
-------------- --------------
Increase in cash and cash equivalents........................... 4,564,432 10,388,080
Cash and cash equivalents at beginning of year.................. 23,232,624 16,144,428
-------------- --------------
Cash and cash equivalents at end of period..................... $ 27,797,056 $ 26,532,508
============== ==============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period:
Interest on deposits and other borrowings....................... $ 3,384,733 $ 2,943,957
Income taxes - net.............................................. 725,500 194,500
5
UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
--------------------------------------------------------------------------------
NOTE A - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of United Financial
Bancorp, Inc. and its wholly-owned subsidiary United Bank. The consolidated
financial statements also include the accounts of United Bank's wholly-owned
subsidiary, UCB Securities, Inc., which is engaged in buying, selling and
holding investment securities. These entities are collectively referred to
herein as "the Company". All significant intercompany accounts and transactions
have been eliminated in consolidation.
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America and
with general practices within the banking industry. In the opinion of
management, the accompanying unaudited interim consolidated financial statements
reflect all adjustments, consisting of normal recurring adjustments, which are
necessary for the fair presentation of the Company's financial condition as of
March 31, 2005 and the results of operations for the three months ended March
31, 2005 and 2004. The interim results of operations presented herein are not
necessarily indicative of the results to be expected for the entire year. These
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto for the year ended December 31, 2004
included in the Company's filing on Form S-1.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the balance
sheet as well as revenues and expenses for the reporting period. Actual results
could differ from these estimates. A material estimate that is susceptible to
change in the near term is the allowance for loan losses. While management uses
available information to recognize losses on loans, future additions to the
allowance for loans may be necessary based on changes in economic conditions.
NOTE B - REORGANIZATION AND CHANGE IN CORPORATE FORM
During 2004, the Company received both regulatory and depositor approval to
reorganize from a state-chartered cooperative bank to a multi-tier
federally-chartered holding company. As a result, United Financial Bancorp,
Inc., a stock holding company, was formed to be the parent company of United
Bank and United Mutual Holding Company, a mutual holding company, was formed to
be the parent company of United Financial Bancorp, Inc. In connection with the
reorganization and change in the Bank's name, the Company incurred costs of
$693,477 in 2004, of which $89,718 were incurred and expensed in the three month
period ended March 31, 2004.
In December 2004, the Board of Directors of United Mutual Holding Company
adopted a plan pursuant to which United Financial Bancorp, Inc. intends to sell
up to 49% of its common stock to eligible Bank depositors and, if necessary, to
the general public. The Company's Form S-1, including the prospectus distributed
to interested parties, was declared effective by the Securities and Exchange
Commission on May 16, 2005. As of March 31, 2005, the Company has deferred
offering costs in connection with this initial public offering of common stock
of $208,824. These costs will be deducted from the proceeds upon the sale and
issuance of the common stock. In the event the stock offering is not completed,
such costs will be expensed.
6
UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2005
-------------------------------------------------------------------------------
NOTE B - REORGANIZATION AND CHANGE IN CORPORATE FORM - Continued
United Financial Bancorp, Inc. also intends to issue shares of common stock
equal to 4.5% of the number of shares of common stock sold in the offering to a
newly formed charitable foundation to further support its ongoing commitment to
the community. In addition, the Bank's Board of Directors has adopted an
Employee Stock Ownership Plan which will purchase 8% of the common stock sold in
connection with the offering and issued to the charitable foundation.
NOTE C - OTHER COMPREHENSIVE INCOME (LOSS)
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 the equity section of the
balance sheet, such items, along with net income, are components of
comprehensive income.
The components of other comprehensive income (loss) and related tax effects are
as follows for the three months ended March 31:
2005 2004
-------------- --------------
Change in unrealized holding (losses) gains on available for sale $ (1,898,988) $ 2,235,836
securities...............................................................
Reclassification adjustment for gains realized in income......... -- (110,106)
-------------- -------------
Net unrealized (losses) gains.................................... (1,898,988) 2,125,730
Tax effect....................................................... (742,700) 844,500
-------------- -------------
Other Comprehensive income (loss) $ (1,156,288) $ 1,281,230
============= =============
7
UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2005
-------------------------------------------------------------------------------
NOTE D - LOANS
The components of loans are as follows at March 31, 2005 and December 31, 2004:
March 31, December 31,
2005 2004
----------------- ----------------
Real estate- Residential (1-4 Family)........................... $ 334,666,875 $ 330,834,439
- Commercial......................................... 140,388,826 137,787,271
Construction.................................................... 26,773,432 29,835,755
Commercial and industrial....................................... 50,742,097 56,291,251
Consumer........................................................ 18,537,547 19,321,629
---------------- ----------------
571,108,777 574,070,345
Other Items:
Net deferred loan costs......................................... 929,810 922,856
Allowance for loan losses....................................... (6,105,513) (5,749,944)
---------------- ----------------
$ 565,933,074 $ 569,243,257
================ ================
Nonaccrual loans amounted to approximately $4,441,889 and $3,784,000 at March
31, 2005 and December 31, 2004, respectively.
NOTE E - DEPOSITS
Deposit accounts, by type, are summarized as follows at March 31, 2005 and
December 31, 2004:
March 31, December 31,
2005 2004
Type ---------------- -----------------
-----
Demand........................................... $ 85,324,530 $ 86,245,978
NOW.............................................. 37,656,581 39,916,712
Regular Savings.................................. 98,511,706 94,586,142
Money Market..................................... 142,538,933 139,754,016
Retirement....................................... 49,886,666 48,496,000
Term Certificates................................ 224,143,087 204,673,218
---------------- ----------------
$ 638,061,503 $ 613,672,066
================ ================
8
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
From time to time, the Company may publish forward looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, and similar matters. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward looking statements provided that the Company notes that a variety of
factors could cause the Company's actual results to differ materially from the
anticipated results expressed in the Company's forward looking statements.
Factors that may cause actual results to differ materially from those projected
in the forward looking statements include, but are not limited to, general
economic conditions that are less favorable than expected, changes in market
interest rates that result in reduced interest margins, risks in the loan
portfolio, including prepayments, that are greater than expected, legislation or
regulatory changes that have a less than favorable impact on the business of the
Company are enacted, and competitive pressures increase significantly. Forward
looking statements speak only as of the date they are made and the Company does
not undertake to update forward looking statements to reflect circumstances or
events that occur after the date of the forward looking statements or to reflect
the occurrence of unanticipated events. Accordingly, past results and trends
should not be used by investors to anticipate future results or trends.
Comparison of Financial Condition at March 31, 2005 and December 31, 2004
Total assets increased $24.0 million, or 3.1%, to $796.0 million at
March 31, 2005 from $772.0 million at December 31, 2004. The increase reflected
growth of $22.0 million in securities available for sale, partially offset by a
$3.3 million, or 0.6%, decrease in net loans. The growth in assets was funded by
a $24.4 million, or 4.0%, increase in deposits.
Net loans decreased to $565.9 million at March 31, 2005 from $569.2
million at December 31, 2004. One- to four-family residential mortgage loans
increased $3.8 million, or 1.2%, to $334.7 million at March 31, 2005 from $330.8
million at December 31, 2004, reflecting continued demand in our primary market
area for residential mortgage loans.
Commercial real estate loans increased $2.6 million, or 1.9%, while
commercial and industrial loans decreased $5.5 million, or 9.9%. The increase in
commercial real estate loans reflected our continued efforts to diversify our
lending activities and improve our interest rate spread by increasing our
origination of these generally higher-yielding loans. The decrease in commercial
and industrial loans resulted from a payoff of a participation loan.
Construction loans decreased $3.1 million, or 10.3%, to $26.8 million at March
31, 2005, reflecting completion of construction projects.
Securities available for sale increased $22.0 million, or 14.4%, to
$174.3 million at March 31, 2005 from $152.3 million at December 31, 2004. The
increase reflected the deployment of funds provided by deposit growth.
Total cash and cash equivalents increased $4.6 million, or 19.6%, to
$27.8 million at March 31, 2005 from $23.2 million at December 31, 2004,
reflecting routine fluctuations in cash balances.
Total deposits increased $24.4 million, or 4.0%, to $638.1 million at
March 31, 2005 from $613.7 million at December 31, 2004. The increase primarily
reflected continued growth in certificate of deposit accounts, which increased
to $224.1 million at March 31, 2005, from $204.7 million at December 31, 2004.
Federal Home Loan Bank advances decreased $2.0 million, or 2.3%, to $84.7
9
million at March 31, 2005 from $86.7 million at December 31, 2004. The slight
decrease in advances reflected the growth of deposits as our primary funding
source. Repurchase agreements increased to $6.3 million at March 31, 2005 from
$4.3 million at December 31, 2004, reflecting routine fluctuations in these
overnight accounts.
Total stockholder's equity increased $210,000, or 0.3%, to $62.5
million at March 31, 2005 from $62.3 million at December 31, 2004. The increase
reflected net income of $1.4 million for the three months ended March 31, 2005
partially offset by an increase in the accumulated other comprehensive loss of
$1.2 million caused by an increase in intermediate-term interest rates in the
debt securities markets.
Comparison of Operating Results for the Three Months Ended March 31, 2005 and
2004
Net Income. Net income increased $105,000, or 8.3%, to $1.4 million for
the three months ended March 31, 2005 from $1.3 million for the three months
ended March 31, 2004. The increase primarily resulted from increased net
interest income and noninterest income, partially offset by a higher provision
for loan losses and higher noninterest expense.
Net Interest Income Before Provision for Loan Losses. Net interest
income before provision for loan losses increased $382,000, or 6.3%, to $6.4
million for the three months ended March 31, 2005. The increase reflected a
$38.7 million, or 5.4%, increase in the average balance of total interest
earning assets to $759.2 million for the three months ended March 31, 2005,
which more than offset an 8 basis point decrease in our interest rate spread to
3.03% from 3.11%.
Interest Income. Interest income increased $817,000, or 9.1%, to $9.8
million for the three months ended March 31, 2005 from $9.0 million for the
prior year period. The increase resulted from a $47.9 million, or 6.7%, increase
in the average balance of total interest-earning assets, as well as an 11 basis
point increase in the average yield on such assets to 5.15% for the three months
ended March 31, 2005 from 5.04% for the prior year period. Interest income
attributable to loans increased $1.0 million, or 14.6%, to $8.1 million for the
three months ended March 31, 2005 from $7.1 million for the prior year period.
The increase in interest earned on loans was due to a $68.8 million, or 13.6%,
increase in the average balance of loans, coupled with a 5 basis point increase
in the yield earned on such loans to 5.65% from 5.60%, as the continued low
market interest rate environment combined with strong demand for residential
financing in our primary market area resulted in our loan originations more than
offsetting loan prepayments. Interest earned on investment securities, including
mortgage-backed securities, decreased $313,000, or 17.0%, to $1.5 million for
the three months ended March 31, 2005, from $1.8 million for the prior year
period. The decrease reflected the lower average balance of such securities of
$33.5 million, or 17.0%.
Interest Expense. Interest expense increased $436,000, or 14.8%, to
$3.4 million for the three months ended March 31, 2005 from $2.9 million for the
prior year period. The increase in interest expense was due to a $28.3 million,
or 4.7%, increase in the average balance of interest-bearing liabilities to
$636.6 million for the three months ended March 31, 2005 from $608.2 million for
the prior year period, coupled with the increase in the average cost of such
liabilities to 2.12% for the three months ended March 31, 2005 from 1.93% for
the prior year period. The interest paid on deposits increased by $344,000, or
15.4%, reflecting an increase in the average cost of such deposits to 1.90% from
1.71%, while the average balance of such deposits increased by $21.9 million, or
4.2%, as we continued to expand deposit balances to fund loan growth. The
interest paid on savings accounts, money market and NOW accounts, and
certificates of deposit all increased. Interest paid on Federal Home Loan Bank
advances and repurchase agreements increased by $91,000, or 13.8%, reflecting an
increase in the average balance of such advances to $85.4 million for the three
months ended March 31, 2005 from $79.3 million for the prior year period,
coupled with an increase in the average cost of such advances to 3.48% from
3.29%.
10
Provision for Loan Losses. The provision for loan losses was $275,000
for the three months ended March 31, 2005 as compared to $113,000 for the three
months ended March 31, 2004. The increase in the provision was due to a higher
proportion in our loan portfolio of commercial real estate loans and commercial
and industrial loans, and higher adversely classified loans (up 8.0%) and higher
nonperforming loans (up 376.2%) in 2005 as compared to 2004.
While non-performing loans have gradually increased from 0.21% of total
loans at December 31, 2002 to 0.78% of total loans at March 31, 2005, the
increase in non-performing loans during the quarter ended March 31, 2005 was
primarily due to three delinquent loans, all of which are collateralized by
either residential real estate, commercial real estate or non-real estate
assets. We expect that the collateral for these loans as well as the
implementation of our normal collection procedures will result in a resolution
of these delinquencies without loss to the Company. The allowance for loan
losses was $6.1 million, or 1.07% of loans outstanding on March 31, 2005.
Noninterest Income. Noninterest income increased $18,000, or 1.6%, to
$1.2 million for the three months ended March 31, 2005. Fee income on
depositors' accounts increased $115,000 to $903,000 for the three months ended
March 31, 2005, reflecting growth in deposits to $638.1 million at March 31,
2005. This increase was partially offset by a $110,000 decrease in gains on the
sale of securities for the three months ended March 31, 2005 compared to the
earlier year period.
Noninterest Expense. Noninterest expense increased 1.2% to $5.03
million for the three months ended March 31, 2005 from $4.97 million for the
prior year period. The increase reflected salary and employee benefits increases
as well as increased staffing, which was partially offset by higher expenses in
the 2004 period related to the conversion of United Bank to a federal charter.
Income Tax Expense. Income tax expense increased to $903,000 for the
three months ended March 31, 2005 from $830,000 for the prior year. The
effective tax rate was 39.8% and 39.7% for the three months ended March 31, 2005
and 2004, respectively.
Liquidity, Market Risk, and Capital Resources
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.
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) investing
in variable-rate mortgage-backed securities; (iii) continued emphasis on
increasing core deposits; (iv) offering adjustable rate and shorter-term
11
commercial real estate loans and commercial and industrial loans; and (v)
offering a variety of consumer loans, which typically have shorter-terms.
Shortening the average maturity of our interest-earning assets by increasing our
investments in shorter-term loans and securities, as well as loans and
securities with variable rates of interest, helps to better match the maturities
and interest rates of our assets and liabilities, thereby reducing the exposure
of our net interest income to changes in market interest rates. By following
these strategies, we believe that we are well-positioned to react to increases
in market interest rates.
The table below, sets forth, as of March 31, 2005, 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.
Change in Interest NPV as a Percentage of
Rates (basis Estimated Estimated Increase Present Value of Assets (3)
points) (1) NPV (2) (Decrease) in NPV Increase
(Decrease)
--------------
Amount Percent NPV Ratio (4) (basis points)
------------------------------------------------------------------------------------------------
(Dollars in thousands)
+300 $ 53,371 $ (39,595) (43)% 6.90% (438)
+200 66,758 (26,207) (28) 8.45 (284)
+100 80,283 (12,683) (14) 9.94 (134)
0 92,965 -- -- 11.28 --
-100 101,848 8,882 10 12.17 89
-200 103,096 10,131 11 12.23 95
--------------------
(1) Assumes an instantaneous uniform change in interest rates at all
maturities.
(2) NPV is the discounted present value of expected cash flows from assets,
liabilities and off-balance sheet contracts.
(3) Present value of assets represents the discounted present value of incoming
cash flows on interest-earning assets.
(4) NPV Ratio represents NPV divided by the present value of assets.
The table above indicates that at March 31, 2005, in the event of a 200
basis point decrease in interest rates, we would experience a 11% increase in
net portfolio value. In the event of a 200 basis point increase in interest
rates, we would experience a 28% decrease in net portfolio value. These changes
in net portfolio value are within the limitations established in our asset and
liability management policies.
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 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.
12
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 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. For the quarter ended March 31, 2005, our
liquidity ratio averaged 21.56%.
United Bank is subject to various regulatory capital requirements,
including a risk-based capital measure. The risk-based capital guidelines
include both a definition of capital and a framework for calculating
risk-weighted assets by assigning balance sheet assets and off-balance sheet
items to broad risk categories. At March 31, 2005, United Bank exceeded all
regulatory capital requirements. United Bank is considered "well capitalized"
under regulatory guidelines.
For Capital To Be Well Capitalized Under
Actual Adequacy Purposes Regulatory Framework
------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------------------------------------------
As of March 31, 2005:
Risk-based capital............ $ 70,041,099 13.0% > $ 43,018,719 > 8.0% > $ 53,773,399 > 10.0%
- - - -
Core capital.................. 63,935,586 8.0% > 31,906,593 > 4.0% > 47,859,889 > 6.0%
- - - -
Tangible capital.............. 63,935,586 8.0% > 11,964,972 > 1.5% > 39,883,241 > 5.0%
- - - -
As of December 31, 2004:
Risk-based capital............ $ 68,284,831 12.8% > $ 42,878,575 > 8.0% > $ 53,598,222 > 10.0%
- - - -
Core capital.................. 62,534,887 8.1% > 30,900,719 > 4.0% > 46,351,078 > 6.0%
- - - -
Tangible capital.............. 62,534,887 8.1% > 11,621,520 > 1.5% > 38,625,900 > 5.0%
- - - -
13
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is included above in Item 2,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, under the caption "Liquidity, Market Risk, and Capital Resources."
ITEM 4. Controls and Procedures
Under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, the Company has evaluated the effectiveness of the design and operation
of its disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Exchange Act) as of the end of the period covered by this
report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of the end of the period covered by this
report, the Company's disclosure controls and procedures were effective to
ensure that information required to be disclosed in the reports that the Company
files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms and in
a timely manner alerting them to material information relating to the Company
(or its consolidated subsidiary) required to be filed in its periodic SEC
filings.
There has been no change in the Company's internal control over
financial reporting identified in connection with the quarterly evaluation that
occurred during the Company's last fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
At March 31, 2005, the Company was not involved in any legal
proceedings, the outcome of which would be material to the Company's financial
condition or results of operations.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5. Other Information
Not applicable.
14
ITEM 6. Exhibits.
Exhibits:
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Written statement of Chief Executive Officer furnished pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32.2 Written statement of Chief Financial Officer furnished pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
United Financial Bancorp, Inc.
Date: June 23, 2005 By: /s/ Richard B. Collins
-------------------------------------------
Richard B. Collins
President and Chief Executive Officer
Date: June 23, 2005 By: /s/ Donald F. X. Lynch
------------------------------------------
Donald F.X. Lynch
Executive Vice President and Chief Financial
Officer
16
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Richard B. Collins, President and Chief Executive Officer, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of United Financial
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this quarterly report based on
such evaluation; and
(c) Disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: June 23, 2005 /s/ Richard B. Collins
---------------- -------------------------------------
Richard B. Collins
President and Chief Executive Officer
17
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Donald F. X. Lynch, Chief Financial Officer, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of United Financial
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this quarterly report based on
such evaluation; and
(c) Disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: June 23, 2005 /s/ Donald F. X. Lynch
--------------- -------------------------------
Donald F. X. Lynch
Chief Financial Officer
18
Exhibit 32.1
Statement of Chief Executive Officer Furnished
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The undersigned, Richard B. Collins, is the President and Chief Executive
Officer of United Financial Bancorp, Inc. (the "Company").
This statement is being furnished in connection with the filing by the
Company of the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2005 (the "Report").
By execution of this statement, I certify that to the best of my knowledge:
A) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or
78o(d)) and
B) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company as of the dates and for the periods covered by the
Report.
This statement is authorized to be attached as an exhibit to the Report so
that this statement will accompany the Report at such time as the Report is
filed with the Securities and Exchange Commission pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. It is not intended that this
statement be deemed to be filed for purposes of the Securities Exchange Act of
1934, as amended.
A signed original of this written statement required by Section 906 has
been provided to United Financial Bancorp, Inc. and will be retained by United
Financial Bancorp, Inc. and furnished to the Securities and Exchange Commission
or its staff upon request.
June 23, 2005 /s/ Richard B. Collins
-------------- -----------------------------------
Dated Richard B. Collins
President and Chief Executive Officer
19
Exhibit 32.2
Statement of Chief Financial Officer Furnished
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The undersigned, Donald F. X. Lynch, is the Chief Financial Officer of
United Financial Bancorp, Inc. (the "Company").
This statement is being furnished in connection with the filing by the
Company of the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2005 (the "Report").
By execution of this statement, I certify that to the best of my knowledge:
A) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or
78o(d)) and
B) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company as of the dates and for the periods covered by the
Report.
This statement is authorized to be attached as an exhibit to the Report so
that this statement will accompany the Report at such time as the Report is
filed with the Securities and Exchange Commission pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. It is not intended that this
statement be deemed to be filed for purposes of the Securities Exchange Act of
1934, as amended.
A signed original of this written statement required by Section 906 has
been provided to United Financial Bancorp, Inc. and will be retained by United
Financial Bancorp, Inc. and furnished to the Securities and Exchange Commission
or its staff upon request.
June 23, 2005 /s/ Donald F. X. Lynch
-------------- ------------------------
Dated Donald F. X. Lynch
Chief Financial Officer