Edgar Filing: United Financial Bancorp Inc

Form 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2006

[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______________ to _____________

Commission File Number 000-51369

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]

Accelerated filer [X]

Non-accelerated filer [ ]

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

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

Common stock, $0.01 par value

17,153,995 shares outstanding as of November 8, 2006

United Financial Bancorp, Inc.

INDEX

	Page

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (unaudited)	1

Consolidated Statements of Condition
September 30, 2006 and December 31, 2005	1

Consolidated Statements of Earnings
Three Months and Nine Months ended September 30, 2006 and 2005	2

Consolidated Statements of Stockholders’ Equity and Comprehensive Income
Nine Months ended September 30, 2006 and 2005	3

Consolidated Statements of Cash Flows
Nine Months ended September 30, 2006 and 2005	4

Notes to Consolidated Financial Statements	5

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3. Quantitative and Qualitative Disclosures About Market Risk	22

Item 4. Controls and Procedures	22

PART II. OTHER INFORMATION	23

Item 1. Legal Proceedings	23

Item 1A. Risk Factors	23

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 3. Defaults Upon Senior Securities	23

Item 4. Submission of Matters to a Vote of Security Holders	24

Item 5. Other Information	24

Item 6. Exhibits	24


SIGNATURES	26

Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	27

Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	28

Exhibit 32.1	Statement of Chief Executive Officer Furnished Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	29

Exhibit 32.2	Statement of Chief Financial Officer Furnished Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	30

Index

PART I. FINANCIAL INFORMATION

ITEM 1. Consolidated Financial Statements

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CONDITION

(Dollars in thousands, except per share amounts)

	September 30,			December 31,
	2006			2005
	(unaudited)
ASSETS

Cash and due from banks	$	15,340		$	15,841
Interest-bearing deposits		4,794			2
Total cash and cash equivalents		20,134			15,843

Securities available for sale, at fair value		196,127			226,465
Securities to be held to maturity, at amortized cost (fair value $3,254 at
September 30, 2006 and $3,298 at December 31, 2005)		3,293			3,325
Loans, net of allowance for loan losses of $6,880 at September 30, 2006 and
$6,382 at December 31, 2005		726,564			630,558
Other real estate owned		562			1,602
Accrued interest receivable		4,410			3,928
Stock in the Federal Home Loan Bank of Boston		8,740			6,588
Banking premises and equipment, net		8,556			8,236
Bank-owned life insurance		6,259			6,031
Other assets		6,049			3,937

TOTAL ASSETS	$	980,694		$	906,513

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Deposits:
Interest-bearing	$	595,280		$	560,310
Non-interest-bearing		97,341			93,301
Total deposits		692,621			653,611
Federal Home Loan Bank of Boston advances		137,412			101,880
Repurchase agreements		5,920			8,434
Escrow funds held for borrowers		1,324			1,129
Accrued expenses and other liabilities		7,093			4,454
Total liabilities		844,370			769,508

Stockholders’ 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;
17,205,995 shares issued at September 30, 2006 and at December 31, 2005		172			172
Paid-in capital		74,949			78,446
Retained earnings		70,007			66,944
Unearned compensation		(5,851	)		(6,092	)
Treasury stock, at cost (52,000 shares at September 30, 2006)		(669	)		-
Accumulated other comprehensive loss, net of taxes		(2,284	)		(2,465	)
Total stockholders’ equity		136,324			137,005

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	980,694		$	906,513

See notes to unaudited consolidated financial statements

Index

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(Amounts in thousands, except per share amount)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
Interest and dividend income:
Loans	$	11,043		$	8,868		$	30,719		$	25,268
Investments		2,195			2,266			6,761			5,653
Other interest-earning assets		256			323			786			579
Total interest and dividend income		13,494			11,457			38,266			31,500

Interest expense:
Deposits		4,885			3,171			13,590			8,653
Short-term borrowings		1,046			549			2,214			1,233
Long-term debt		619			527			1,845			1,551
Total interest expense		6,550			4,247			17,649			11,437

Net interest income before provision for loan losses		6,944			7,210			20,617			20,063

Provision for loan losses		165			275			627			825

Net interest income after provision for loan losses		6,779			6,935			19,990			19,238

Non-interest income:
Fee income on depositors’ accounts		1,146			1,006			3,128			2,751
(Loss) gain on sale of securities		(218	)		3			(218	)		3
Income from bank-owned life insurance		73			81			227			243
Other income		293			234			856			717
Total non-interest income		1,294			1,324			3,993			3,714

Non-interest expense:
Salaries and benefits		3,014			2,895			9,173			8,129
Occupancy expenses		455			349			1,268			1,088
Marketing expenses		329			239			1,093			919
Data processing expenses		622			571			1,813			1,800
Contributions and sponsorships		16			3,636			133			3,746
Professional fees		223			189			702			407
Other expenses		920			746			3,010			2,298
Total non-interest expense		5,579			8,625			17,192			18,387

Income (loss) before income taxes		2,494			(366	)		6,791			4,565

Income tax expense (benefit)		981			(193	)		2,633			1,772

NET INCOME (LOSS)	$	1,513		$	(173	)	$	4,158		$	2,793

Earnings per share:
Basic	$	0.09			NA		$	0.25			NA
Diluted	$	0.09			NA		$	0.25			NA

Weighted average shares outstanding:
Basic		16,382			NA			16,529			NA
Diluted		16,396			NA			16,534			NA

See notes to unaudited consolidated financial statements.

Index

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005

(Dollars in thousands, except per share amount)

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

Balances at December 31, 2004		-		$	-	$	-		$	62,667		$	-		$	-		$	(412	)	$	62,255

Net income		-			-		-			2,793			-			-			-			2,793
Net unrealized loss on securities available for sale,
net of reclassification adjustments and taxes		-			-		-			-			-			-			(1,458	)		(1,458	)
Total comprehensive income																						1,335

Issuance of common stock, net of offering costs
of $1,900		7,671,973			77		74,745			-			-			-			-			74,822
Issuance of common stock to MHC		9,189,922			92		-			(92	)		-			-			-			-
Issuance of common stock to United
Charitable Foundation.		344,100			3		3,646			-			-			-			-			3,649
Shares purchased for ESOP		-			-		-			-			(6,413	)		-			-			(6,413	)
ESOP shares committed to be released		-			-		18			-			161			-			-			179

Balances at September 30, 2005		17,205,995		$	172	$	78,409		$	65,368		$	(6,252	)	$	-		$	(1,870	)	$	135,827


Balances at December 31, 2005		17,205,995		$	172	$	78,446		$	66,944		$	(6,092	)	$	-		$	(2,465	)	$	137,005

Net income		-			-		-			4,158			-			-			-			4,158
Net unrealized gain on securities available for sale,
net of reclassification adjustments and taxes		-			-		-			-			-			-			181			181
Total comprehensive income																						4,339

Cash dividends declared ($0.15 per share)		-			-		-			(1,095	)		-			-			-			(1,095	)
Treasury stock purchases		(340,000	)		-		-			-			-			(4,378	)		-			(4,378	)
Reissuance of treasury shares in connection with
restricted stock grants		288,000			-		(3,709	)								3,709						-
Stock-based compensation		-			-		159			-			-			-			-			159
ESOP shares committed to be released		-			-		53			-			241			-			-			294

Balances at September 30, 2006		17,153,995		$	172	$	74,949		$	70,007		$	(5,851	)	$	(669	)	$	(2,284	)	$	136,324

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

	Nine Months ended September 30,
	2006		2005

Change in unrealized holding gains (losses) on available for sale securities	$	90	$	(2,394	)
Reclassification adjustment for (gains) losses realized in income		218		(3	)
Net change in unrealized gains (losses)		308		(2,397	)

Tax effect		127		(939	)

Other comprehensive income (loss)	$	181	$	(1,458	)

See notes to unaudited consolidated financial statements.

Index

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005

(Dollars in thousands)

	Nine Months Ended
	September 30,
	2006			2005
Cash flows from operating activities:
Net income	$	4,158		$	2,793

Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		627			825
ESOP expense		294			178
Stock-based compensation		159			-
Stock contribution to United Charitable Foundation		-			3,441
Amortization of premiums and discounts		272			539
Depreciation and amortization		537			483
Net loss (gain) on sale of property and equipment		21			(4	)
Net loss (gain) on sale of securities		218			(3	)
Increase in bank-owned life insurance		(227	)		(243	)
Increase in accrued interest receivable		(482	)		(1,173	)
Increase in other assets		(2,024	)		(1,817	)
Increase in accrued expenses and other liabilities		2,437			272

Net cash provided by operating activities		5,990			5,291

Cash flows from investing activities:
Cash paid to acquire Levine Financial Group		(100	)		-
Purchases of securities available for sale		(30,318	)		(117,910	)
Proceeds from sales of securities available for sale		25,436			-
Proceeds from maturities and principal repayments of securities available for sale		35,127			35,882
Purchase of securities held to maturity		-			(909	)
Proceeds from maturities and principal repayments of securities held to maturity		25			25
Purchases of Federal Home Loan Bank of Boston stock		(2,152	)		(568	)
Proceeds from sales of other real estate owned		1,852			-
Net loan originations and principal repayments		(97,443	)		(41,912	)
Purchases of property and equipment		(877	)		(989	)
Proceeds from sale of property and equipment		-			16

Net cash used in investing activities		(68,450	)		(126,365	)

Cash flows from financing activities:
Net increase in deposits		39,011			34,560
Proceeds of Federal Home Loan Bank of Boston advances		357,203			140,824
Repayments of Federal Home Loan Bank of Boston advances		(321,671	)		(124,027	)
Proceeds from stock offering subscriptions		-			74,822
Net (decrease) increase in repurchase agreements		(2,514	)		702
Net increase in escrow funds held for borrowers		195			195
Treasury stock purchases		(4,378	)		-
Acquistion of common stock by ESOP		-			(6,413	)
Cash dividends paid		(1,095	)		-

Net cash provided by financing activities		66,751			120,663

Increase (decrease) in cash and cash equivalents		4,291			(411	)
Cash and cash equivalents at beginning of year		15,843			23,233
Cash and cash equivalents at end of period	$	20,134		$	22,822

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period:
Interest on deposits and other borrowings	$	18,416		$	12,533
Income taxes – net		2,062			1,943

See notes to unaudited consolidated financial statements.

Index

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2006

Dollars in Thousands (except per share amounts)

NOTE A - BASIS OF PRESENTATION

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

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with general practices within the banking industry. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which are necessary for the fair presentation of the Company’s financial condition as of September 30, 2006 and the results of operations for the three months and nine months ended September 30, 2006 and 2005. 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, 2005 included in the Company’s Annual Report on Form 10-K, which was filed by the Company at the Securities and Exchange Commission on March 30, 2006 and amended on April 28, 2006.

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.

NOTE B - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

On July 13, 2006, the Financial Accounting Standards Board (“FASB”) released FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the accounting and reporting for income taxes where interpretation of the tax law may be uncertain. FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of income tax uncertainties with respect to positions taken or expected to be taken in income tax returns. The Company will adopt FIN 48 on January 1, 2007. The cumulative effect, if any, of applying FIN 48 will be recorded as an adjustment to the beginning balance of Retained Earnings. Management is currently evaluating the effect of FIN 48 on the Company.

In September 2006, the SEC issued SAB 108 “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”. This standard addresses quantifying the financial statement effect of misstatements, specifically, how the effects of prior year uncorrected errors must be considered in quantifying misstatements in the current year financial statements. This standard is effective for fiscal years ending after November 15, 2006. The Company does not expect this standard to have a material effect on its financial position, results of operations or cash flows.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a GAAP framework for measuring fair value, and expands financial statement disclosures about fair value measurements. SFAS 157 is effective for the Company on January 1, 2008 and is not expected to have a significant impact on the Company's financial statements.

Index

NOTE C - CRITICAL ACCOUNTING POLICIES

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

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

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

NOTE D - EARNINGS PER SHARE

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

The calculation of earnings per common share and diluted earnings per common share for the three and nine month periods ended September 30, 2006 is presented below. Earnings per share is not applicable for the 2005 periods since the Company did not complete its initial public offering until July 12, 2005.

	Three Months		Nine Months
	Ended		Ended
	September 30, 2006		September 30, 2006

Net income	$	1,513	$	4,158

Weighted average common shares applicable to basic EPS		16,379,002		16,528,647
Effect of dilutive potential common shares (1, 2)		4,404		1,468

Weighted average common shares applicable to diluted EPS		16,383,406		16,530,115

Earnings per share:
Basic	$	0.09	$	0.25
Diluted	$	0.09	$	0.25

(1) For the three and nine months ended September 30, 2006 options to purchase 735,500 shares were outstanding but not included in the computation of earnings per share because they were antidulutive.
(2) Includes incremental shares related to stock options and restricted stock.

Index

NOTE E - STOCK-BASED INCENTIVE PLAN

The Company adopted Statement of Financial Accounting Standards No. 123R, Share-Based Payment (SFAS 123R), on January 1, 2006. SFAS 123R requires that the compensation cost associated with share-based payment transactions, such as stock options and restricted stock awards, be recognized in the financial statements over the requisite service (vesting) period.

The Company’s 2006 Stock-Based Incentive Plan (the “Incentive Plan”) was approved by shareholders at its Annual Meeting held on July 20, 2006. The stock plan will remain in effect for a period of ten years and authorizes 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. Employees and outside directors of the Company are eligible to receive awards under the 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 Incentive Plan, all stock options will become fully vested, and all stock awards then outstanding will vest free of restrictions.

Under the Incentive Plan, 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 compensation cost related to restricted stock awards is based upon the Company’s stock price at the grant date. Restricted stock awards 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. Dividends on unvested stock awards are also recognized as compensation cost.

The Company’s 2006 Incentive Plan is described more fully in the Company’s Proxy Statement for its 2006 Annual Meeting filed with the Securities and Exchange Commission on June 12, 2006.

A combined summary of activity in the Company’s Incentive Plan for the nine months ended September 30, 2006 is presented in the following table:

						Stock Options Outstanding
				Non-vested				Weighted-
	Shares			Stock				Average
	Available			Awards		Number of		Exercise
	for Grant			Outstanding		Shares		Price
Balance at December 31, 2005		-			-		-	$	-

New Incentive Plan		1,180,330			-		-		-
Granted		(1,023,500	)		288,000		735,500		12.85
Stock options exercised		-			-		-		-
Shares vested		-			-		-		-
Forfeited		-			-		-		-
Cancelled		-			-		-		-

Balance at September 30, 2006		156,830			288,000		735,500	$	12.85

On August 17, 2006 the Company granted 735,500 stock options and 288,000 restricted shares to certain directors and officers. The stock options were valued at $3.62 per share, with a total grant date fair value of $2.7

Index

million. The restricted shares were valued at $12.85 per share, with a total grant date fair value of $3.7 million. No stock options or awards have vested during the period.

The following table presents the fair value and related assumptions using the Black-Scholes option pricing model for stock options granted on August 17, 2006.

Weighted average fair value	$	3.62
Expected term		6.50 years
Volatility		25.00	%
Expected dividend yield		2.00	%
Risk-free interest rate		4.82	%

A summary of stock options outstanding at September 30, 2006 is as follows:

	Stock Options
	Outstanding		Exercisable

Total number of shares		735,500		-
Weighted average exercise price	$	12.85	$	-
Aggregate intrinsic value (in thousands)	$	59	$	-
Weighted average remaining contractual term		9.9 years		-

Stock-based compensation expense totaled $159,000 during the three and nine months ended September 30, 2006. Stock-based compensation expense is recognized ratably over the requisite service period for all awards. Unrecognized stock-based compensation expense related to stock options totaled $2.6 million at September 30, 2006. At such date, the weighted-average period over which this unrecognized expense is expected to be recognized was 4.7 years. Unrecognized stock-based compensation expense related to non-vested stock awards was $3.6 million at September 30, 2006. At such date, the weighted-average period over which this unrecognized expense was expected to be recognized was 4.7 years.

NOTE F - LOANS

The components of loans were as follows at September 30, 2006 and December 31, 2005:

	September 30,			December 31,
	2006			2005

One-to-four family residential real estate	$	306,796		$	285,236
Commercial real estate		171,136			150,099
Construction		46,970			28,872
Home equity loans		109,154			86,045
Commercial and industrial		67,495			59,591
Consumer		30,619			25,949
Total loans		732,170			635,792

Net deferred loan costs and fees		1,274			1,148
Allowance for loan losses		(6,880	)		(6,382	)
Loans, net	$	726,564		$	630,558

Index

NOTE G - NON-PERFORMING ASSETS

The table below sets forth the amounts and categories of non-performing assets at the dates indicated.

	At September 30,			At December 31,
	2006			2005

Non-accrual loans:
Residential mortgages (1)	$	773		$	1,016
Commercial mortgages		388			141
Construction		-			113
Commercial and industrial		852			447
Total non-accrual loans		2,013			1,717

Accruing loans 90 days or more past due		-			-

Total non-performing loans		2,013			1,717

Other real estate owned		562			1,602
Total non-performing assets	$	2,575		$	3,319

Ratios:
Total non-performing loans to total loans		0.27	%		0.27	%
Total non-performing assets to total assets		0.26	%		0.37	%
Allowance for loan losses to non-performing loans		341.78	%		371.69	%
_______________________________________

(1) Includes one- to four-family loans and home equity loans and lines of credit

NOTE H - ALLOWANCE FOR LOAN LOSSES

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

	For the Nine Months Ended September 30,
	2006			2005


Balance at beginning of period	$	6,382		$	5,750
Provision for loan losses		627			825
Charge-offs		(179	)		(273	)
Recoveries		50			168
Balance at end of period	$	6,880		$	6,470


Ratios:
Net charge-offs to average loans outstanding		0.03	%		0.02	%
Allowance for loan losses to non-performing
loans at end of period		341.78	%		246.29	%
Allowance for loan losses to total
loans at end of period		0.94	%		1.05	%

Index

NOTE I - COMMITMENTS

Financial instruments with off-balance sheet risk at September 30, 2006 and December 31, 2005 were as follows:

	September 30,		December 31,
	2006		2005

Unused lines of credit	$	130,631	$	114,016
Amounts due mortgagors		40,863		16,833
Standby letters of credit		1,129		1,383
Commitments to originate loans		35,760		14,494

NOTE J - DEPOSITS

Deposit accounts, by type, are summarized as follows at September 30, 2006 and December 31, 2005:

	September 30,		December 31,
	2006		2005

Demand	$	97,341	$	93,301
NOW		42,103		39,922
Regular savings		69,523		87,253
Money market		164,519		155,492
Certificates of deposit		319,135		277,643
	$	692,621	$	653,611

NOTE K - CONTINGENCIES

The Company is a defendant in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the condensed consolidated financial statements of the Company.

NOTE L - SUBSEQUENT EVENT

On October 19, 2006, the Board of Directors declared a cash dividend of $0.05 per share. The dividend is payable on November 21, 2006 to stockholders of record as of November 7, 2006. United Mutual Holding Company intends to waive receipt of dividends paid on the shares it owns of the Company.

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

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that may cause actual results to differ materially from those projected in the forward-looking statements include, but are not limited to, general economic conditions that are less favorable than expected, changes in market interest rates that result in reduced interest margins, risks in the loan portfolio, including prepayments that are greater than expected, the enactment of legislation or regulatory changes that have a less than favorable impact on the business of the Company, and significant increases in competitive pressures. Forward-looking statements speak only as of the date they are made and the Company does not undertake to update forward- looking statements to reflect circumstances or events that occur after the date of the forward-looking statements or to reflect the occurrence of unanticipated events. Accordingly, past results and trends should not be used by investors to anticipate future results or trends.

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 the valuation of deferred income taxes.

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

Comparison of Financial Condition at September 30, 2006 and December 31, 2005

Total assets increased $74.2 million, or 8.2%, to $980.7 million at September 30, 2006 from $906.5 million at December 31, 2005 due in large part to strong growth in net loans and to a lesser extent an increase in cash and cash equivalents. Net loans increased $96.0 million, or 15.2%, to $726.6 million at September 30, 2006 from $630.6 million at December 31, 2005. Loan growth was solid in all categories reflecting a sound local economy, a stable real estate market, continued demand in our primary market areas for our products and successful business development efforts. The increase in loans was also attributable to the Company’s practice of originating residential loans for portfolio.

Cash and cash equivalents increased $4.3 million to $20.1 million at September 30, 2006 reflecting an intentional buildup of funds to support future growth in loans. Securities available for sale decreased $30.4 million, or 13.4%, to $196.1 million at September 30, 2006 from $226.5 million at December 31, 2005 due to sales and maturities of certain debt instruments and repayments of mortgage-backed securities, partially offset by purchases of mortgage-backed and agency securities. The cash flows from investment securities were used to support loan growth.

The growth in assets was funded by increases in deposits and Federal Home Loan Bank advances. Total deposits grew $39.0 million, or 6.0%, to $692.6 million at September 30, 2006 from $653.6 million at December 31, 2005 mainly due to an increase of $41.5 million in certificate of deposit balances. During the period, customer demand for deposits shifted from savings towards higher-yielding certificates of deposit accounts. Demand and NOW account balances grew $6.2 million, or 4.7%, for the first nine months of 2006 in

Index

connection with increased marketing and promotional activity in an effort to attract new customers and retain existing funds. At September 30, 2006, core deposits totaled $373.5 million, or 53.9% of deposits.

Federal Home Loan Bank advances increased $35.5 million, or 34.9%, to $137.4 million at September 30, 2006 from $101.9 million at December 31, 2005 to fund balance sheet growth. Repurchase agreements decreased $2.5 million to $5.9 million at September 30, 2006 from $8.4 million at December 31, 2005, reflecting routine fluctuations in these overnight accounts.

Total stockholders’ equity decreased $681,000, or 0.5%, to $136.3 million at September 30, 2006 from $137.0 million at December 31, 2005 in connection with share repurchases totaling $4.1 million and payment of cash dividends aggregating $1.2 million. These items were offset to a large extent by net income of $4.2 million for the nine months ended September 30, 2006.

Comparison of Operating Results for the Three Months Ended September 30, 2006 and 2005

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 and other interest-earning assets, and the interest paid on our interest-bearing liabilities, consisting primarily of deposits and Federal Home Loan Bank advances.

Our results of operations also are affected by our provisions 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 and miscellaneous other income. In 2006, the Company also recognized a loss from the sale of securities. Non-interest expense currently consists primarily of compensation and employee benefits, data processing, occupancy, marketing and public relations, professional services, postage, printing, office supplies, and other operating expenses. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

Net Income

The Company’s net income for the three months ended September 30, 2006 amounted to $1.5 million, or $0.09 per diluted share, compared to a $173,000 loss for the same period in 2005. The Company did not report earnings per share in the second quarter of 2005 since its initial public offering was not completed until July 2005. The earnings for the third quarter of 2006 increased $1.7 million from the prior year period primarily due to the impact of a $3.6 million contribution in the third quarter of 2005 to establish the United Charitable Foundation and the related tax benefit of $1.4 million. The third quarter 2006 results were also impacted by a $266,000 decrease in net interest income, a $218,000 loss on sales of investment securities and a $545,000 increase in non-interest expense, exclusive of the $3.6 million contribution in 2005.

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

Index

	Three Months Ended September 30,
	2006							2005
			Interest							Interest
	Average		and		Yield/			Average		and		Yield/
	Balance		Dividends		Cost			Balance		Dividends		Cost
	(Dollars in thousands)


Interest-earning assets:
Loans:
Residential real estate	$	421,447	$	6,177		5.86	%	$	368,640	$	5,171		5.61	%
Commercial real estate		197,146		3,312		6.72	%		160,013		2,508		6.27	%
Commercial and industrial		66,115		1,190		7.20	%		55,791		918		6.58	%
Consumer and other		30,209		364		4.82	%		21,602		271		5.02	%
Total loans		714,917		11,043		6.18	%		606,046		8,868		5.85	%
Investment securities		211,101		2,195		4.16	%		234,722		2,266		3.86	%
Other interest-earning assets		13,572		256		7.54	%		30,624		323		4.22	%
Total interest-earning assets		939,590		13,494		5.74	%		871,392		11,457		5.26	%
Noninterest-earning assets		30,372							38,339
Total assets	$	969,962						$	909,731

Interest-bearing liabilities:
Savings accounts	$	73,567		154		0.84	%	$	92,805		212		0.91	%
Money market		167,031		1,322		3.17	%		146,440		799		2.18	%
NOW accounts		36,682		25		0.27	%		37,982		24		0.25	%
Certificates of deposit		316,793		3,384		4.27	%		273,683		2,136		3.12	%
Total interest-bearing deposits		594,073		4,885		3.29	%		550,910		3,171		2.30	%
FHLB advances		134,833		1,582		4.69	%		103,722		1,014		3.91	%
Other interest-bearing liabilities		7,367		83		4.51	%		8,091		62		3.07	%
Total interest-bearing liabilities		736,273		6,550		3.56	%		662,723		4,247		2.56	%
Demand deposits		89,543							93,002
Other noninterest-bearing liabilities		7,867							26,032
Total liabilities		833,683							781,757
Stockholders' equity		136,279							127,974
Total liabilities and stockholders' equity	$	969,962						$	909,731

Net interest income			$	6,944						$	7,210
Interest rate spread⁽¹⁾						2.19	%						2.70	%
Net interest-earning assets⁽²⁾	$	203,317						$	208,669
Net interest margin⁽³⁾						2.96	%						3.31	%
Average interest-earning assets to
average interest-bearing liabilities						127.61	%						131.49	%

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

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

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

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

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	Three months ended September 30
	2006 vs. 2005
	Increase (Decrease) Due to
	Volume			Rate			Net
	(In thousands)

Interest-earning assets:
Loans:
Residential real estate	$	766		$	240		$	1,006
Commercial real estate		614			190			804
Commercial and industrial		180			92			272
Consumer and other		105			(12	)		93
Total loans		1,666			509			2,175
Investment securities		(238	)		167			(71	)
Other interest-earning assets		(239	)		172			(67	)
Total interest-earning assets		1,189			848			2,037

Interest-bearing liabilities:
Savings accounts		(38	)		(20	)		(58	)
Money market accounts		124			399			523
NOW accounts		(1	)		2			1
Certificates of deposit		374			874			1,248
Total interest-bearing deposits		459			1,255			1,714
FHLB Advances		341			227			568
Other interest-bearing liabilities		(6	)		27			21
Total interest-bearing liabilities		794			1,509			2,303

Change in net interest income	$	395		$	(661	)	$	(266	)

Net Interest Income Before Provision for Loan Losses. Net interest income before provision for loan losses decreased $266,000, or 3.7%, to $6.9 million for the three months ended September 30, 2006 reflecting net interest margin compression, substantially offset by growth in average earning assets. Net interest margin contracted 35 basis points to 2.96% for the three-month period ended September 30, 2006 compared to 3.31% for the same period in 2005. Net interest margin was affected by the flat yield curve, the increasingly competitive pricing conditions for loans and deposits, a shift in deposit demand towards higher-yielding money market and time deposit accounts and the impact of increased short-term market interest rates on the cost to fund earning assets.

Interest Income. Interest income increased $2.0 million, or 17.8%, to $13.5 million for the three months ended September 30, 2006 from $11.5 million for the prior year period reflecting expansion in total average interest-earning asset balances and an increase in the yield on average interest-earning assets. Total average interest-earning asset balances increased $68.2 million, or 7.8%, to $939.6 million for the three months ended September 30, 2006 due in large part to strong loan growth, funded largely by proceeds from the Company’s initial public offering in July 2005, deposit growth and additional FHLB advances. Total average loans increased $108.9 million, or 18.0%, to $714.9 million for the third quarter of 2006 as a result of solid origination activity, partially offset by prepayments and normal amortization. Total average investment securities decreased by $23.6 million, or 10.1%, to $211.1 million due to maturities and principal repayments in the existing portfolio, partially offset by purchases of securities. The yield on average interest-earning assets increased 48 basis points to 5.74% for the third quarter of 2006 in connection with the higher interest rate environment. The expansion in market rates contributed to the repricing of a portion of the Company’s existing assets and to higher rates for new assets. Since a significant amount of the Company’s average interest-earning assets are fixed rate and the impact of Federal Reserve Board actions was less pronounced on the long end of the yield curve, the effect of the expansion in market rates was limited.

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Interest Expense. Interest expense increased $2.4 million, or 54.2%, to $6.6 million for the three months ended September 30, 2006 from $4.2 million for the prior year period due to an increase in the rate paid for interest-bearing liabilities and, to a lesser extent, expansion in the average balance of such liabilities. The average rate paid on interest-bearing liabilities rose 100 basis points to 3.56% for the three months ended September 30, 2006 reflecting the impact of higher market rates related to interest rate increases initiated by the Federal Reserve Board. Since a large portion of the Company’s interest-bearing liabilities are short-term, the impact of the expansion in market rates was significant. Average interest-bearing liabilities increased $73.6 million, or 11.1%, to $736.3 million for the three months ended September 30, 2006 from $662.7 million for the prior year period reflecting growth in interest-bearing deposits and FHLB advances. Total average interest-bearing deposits increased $43.2 million, or 7.8%, to $594.1 million for the third quarter of 2006 mainly attributable to an increase in money market and certificates of deposit balances, partially offset by a reduction in savings deposits. The decline in savings account balances reflected a shift in deposit demand towards money market and certificates of deposit products to take advantage of more attractive rates. Total average FHLB advances increased $31.1 million, or 30.0%, to $134.8 million to support loan growth.

Provision for Loan Losses. The provision for loan losses was $165,000 for the three months ended September 30, 2006 as compared to $275,000 for the three months ended September 30, 2005. The allowance for loan losses is based on management’s estimate of the probable losses inherent in the portfolio, considering the impact of certain factors. Among the factors management may consider are prior loss experience, current economic conditions and their effect on borrowers, the character and size of the portfolio, trends in nonperforming loans and delinquency rates and the performance of individual loans in relation to contractual terms. The provision for loan losses reflects adjustments to the allowance based on management’s review of the loan portfolio in light of those conditions. The allowance for loan losses was $6.8 million, or 0.94%, of loans outstanding at September 30, 2006.

Non-interest Income. Non-interest income decreased $30,000, or 2.3%, to $1.3 million for the three months ended September 30, 2006 due to a $218,000 loss from sales of investment securities in 2006, offset in large part by growth in fee income on depositors’ accounts and financial services income. These sales were consummated to improve the yield on the portfolio and provide additional liquidity. Fee income on depositors’ accounts rose $140,000 as a result of growth in transaction account balances and activity. Financial services income expanded $54,000 in connection with the purchase of the Levine business in the first quarter of 2006 and new accounts opened due to successful business development efforts.

Non-interest Expense. Non-interest expense decreased $3.0 million to $5.6 million for the three months ended September 30, 2006 from $8.6 million for the prior year period largely reflecting the $3.6 million contribution to fund the United Charitable Foundation in the third quarter of 2005. Excluding this item, non-interest expense would have increased $545,000, or 10.8%. Total salaries and benefits increased $119,000, or 4.1% mainly due to new employees hired for a new branch opened in 2006 and to support the growth of the Company, the cost of the Company’s Stock Based Incentive and Employee Stock Ownership Plans and annual wage increases. Occupancy costs grew $106,000, or 30.4%, principally attributable to the new branch opened in the second quarter of 2006 and new office space leased in connection with the acquisition of the Levine financial services business in the first quarter of 2006. Marketing expenses rose $90,000, or 37.6%, to promote the new branch opened in 2006, to attract new customers and to retain existing relationships. Other non-interest expense expanded $174,000, or 23.3%, primarily due to increased costs associated with a larger loan, deposit and financials services account base, the new branch opened in 2006, equipment maintenance contracts and other real estate owned.

Index

Income Tax Expense. Excluding the income tax benefit of $1.4 million related to the 2005 contribution to fund the United Charitable Foundation, income tax expense would have decreased $226,000 to $981,000 for three months ended September 30, 2006 from $1.2 million for the comparable 2005 period. This decrease was mainly due to lower income before income taxes, adjusted for the $3.6 million contribution in 2005. The effective tax rate was 39.3% for the third quarter of 2006 compared to 36.9% (adjusted for the impact of the contribution) for the same period last year.

Comparison of Operating Results for the Nine Months Ended September 30, 2006 and 2005

Net Income. The Company’s net income for the nine months ended September 30, 2006 amounted to $4.2 million, or $0.25 per diluted share, compared to $2.8 million for the same period in 2005. The Company did not report earnings per share for the first nine months of 2005 since its initial public offering was not completed until July 2005. The 2006 results were largely influenced by growth in average earning assets, net interest margin contraction and an increase in non-interest expenses. The net loss in the third quarter of 2005 included the impact of a $3.6 million contribution to establish the United Charitable Foundation and the related tax benefit of $1.4 million.

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	Nine Months Ended September 30,
	2006							2005
			Interest							Interest
	Average		and		Yield/			Average		and		Yield/
	Balance		Dividends		Cost			Balance		Dividends		Cost
	(Dollars in thousands)


Interest-earning assets:
Loans:
Residential real estate	$	401,344	$	17,386		5.78	%	$	356,650	$	14,810		5.54	%
Commercial real estate		182,813		8,974		6.55	%		157,081		7,184		6.10	%
Commercial and industrial		62,649		3,335		7.10	%		53,488		2,513		6.26	%
Consumer and other		28,518		1,024		4.79	%		19,802		761		5.12	%
Total loans		675,324		30,719		6.07	%		587,021		25,268		5.74	%
Investment securities		219,713		6,761		4.10	%		198,819		5,653		3.79	%
Other interest-earning assets		19,989		786		5.24	%		25,774		579		3.00	%
Total interest-earning assets		915,026		38,266		5.58	%		811,614		31,500		5.17	%
Noninterest-earning assets		30,613							31,991
Total assets	$	945,639						$	843,605

Interest-bearing liabilities:
Savings accounts	$	79,922		498		0.83	%	$	95,168		514		0.72	%
Money market		163,015		3,760		3.08	%		144,822		2,038		1.88	%
NOW accounts		35,969		69		0.26	%		37,547		71		0.25	%
Certificates of deposit		306,763		9,263		4.03	%		272,899		6,030		2.95	%
Total interest-bearing deposits		585,669		13,590		3.09	%		550,436		8,653		2.10	%
FHLB advances		119,678		3,822		4.26	%		94,968		2,613		3.67	%
Other interest-bearing liabilities		7,708		237		4.10	%		7,956		171		2.87	%
Total interest-bearing liabilities		713,055		17,649		3.30	%		653,360		11,437		2.33	%
Demand deposits		88,053							86,797
Other noninterest-bearing liabilities		7,307							18,237
Total liabilities		808,415							758,394
Stockholders' equity		137,224							85,211
Total liabilities and stockholders' equity	$	945,639						$	843,605

Net interest income			$	20,617						$	20,063
Interest rate spread⁽¹⁾						2.28	%						2.84	%
Net interest-earning assets⁽²⁾	$	201,971						$	158,254
Net interest margin⁽³⁾						3.00	%						3.30	%
Average interest-bearing assets to
average interest-bearing liabilities						128.32	%						124.22	%

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

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

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

Rate/Volume Analysis

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

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	Nine months ended September 30
	2006 vs. 2005
	Increase (Decrease) Due to
	Volume			Rate			Net
	(In thousands)

Interest-earning assets:
Loans:
Residential real estate	$	1,916		$	660		$	2,576
Commercial real estate		1,236			554			1,790
Commercial and industrial		463			359			822
Consumer and other		309			(46	)		263
Total loans		3,924			1,527			5,451
Investment securities		621			487			1,108
Other interest-earning assets		(88	)		295			207
Total interest-earning assets		4,457			2,309			6,766

Interest-bearing liabilities:
Savings accounts		(89	)		73			(16	)
Money market accounts		216			1,506			1,722
NOW accounts		(3	)		1			(2	)
Certificates of deposit		608			2,625			3,233
Total interest-bearing deposits		732			4,205			4,937
FHLB Advances		747			462			1,209
Other interest-bearing liabilities		(5	)		71			66
Total interest-bearing liabilities		1,474			4,738			6,212

Change in net interest income	$	2,983		$	(2,429	)	$	554

Net Interest Income Before Provision for Loan Losses. Net interest income before provision for loan losses increased $554,000, or 2.8%, to $20.6 million for the nine months ended September 30, 2006 from $20.1 million for the comparable 2005 period reflecting growth in average earning assets, substantially offset by net interest margin compression. Net interest margin contracted 30 basis points to 3.00% for the nine-month period ended September 30, 2006 compared to 3.30% for the same period in 2005. Net interest margin was affected by the flat yield curve, the increasingly competitive pricing conditions for loans and deposits, a shift in deposit demand towards higher-yielding money market and time deposit accounts and the impact of increased short-term market interest rates on the cost to fund earning assets.

Interest Income. Interest income increased $6.8 million, or 21.5%, to $38.3 million for the nine months ended September 30, 2006 from $31.5 million for the prior year period reflecting expansion in total average interest-earning asset balances and an increase in the yield on average interest-earning assets. Total average interest-earning asset balances increased $103.4 million, or 12.7%, to $915.0 million for the nine months ended September 30, 2006 due in large part to strong loan growth and purchases of investment securities, funded largely by proceeds from the Company’s initial public offering in July 2005, deposit growth and additional FHLB advances. Total average loans increased $88.3 million, or 15.0%, to $675.3 million for the first nine months of 2006 as a result of solid origination activity, partially offset by prepayments and normal amortization. Total average investment securities expanded $20.9 million, or 10.5%, to $219.7 million primarily due to purchases, offset to some extent by maturities and principal repayments. The yield on average interest-earning assets increased 41 basis points to 5.58% for the nine months ended September 30, 2006 in connection with the higher interest rate environment. The expansion in market rates contributed to the

Index

repricing of a portion of the Company’s existing assets and to increased rates for new assets. Since a significant amount of the Company’s average interest earning assets are fixed rate and the impact of Federal Reserve Board actions was less pronounced on the long end of the yield curve, the effect of the expansion in market rates was constrained.

Interest Expense. Interest expense increased $6.2 million, or 54.3%, to $17.6 million for the nine months ended September 30, 2006 from $11.4 million for the prior year period due to expansion in average interest-bearing liabilities and an increase in the rate paid for such liabilities. Average interest-bearing liabilities increased $59.7 million, or 9.1%, to $713.1 million for the nine months ended September 30, 2006 reflecting growth in interest-bearing deposits and FHLB advances. Total average interest-bearing deposits increased $35.2 million, or 6.4%, to $585.7 million for the first nine months of 2006 mainly attributable to growth in money market and certificate of deposit balances, partially offset by a reduction in savings balances. The decline in savings deposits was mainly attributable to a shift in market demand to money market and certificates of deposit products to take advantage of more attractive rates. Total average FHLB advances increased $24.7 million, or 26.0%, to $119.7 million to support loan growth. The average rate paid on interest-bearing liabilities rose 97 basis points to 3.30% for the nine months ended September 30, 2006 reflecting interest rate increases initiated by the Federal Reserve Board. Since a large portion of the Company’s interest-bearing liabilities are short-term, the impact of the expansion in market rates was significant.

Provision for Loan Losses. The provision for loan losses was $627,000 for the nine months ended September 30, 2006 as compared to $825,000 for the same period in 2005. The allowance for loan losses is based on management’s estimate of the probable losses inherent in the portfolio, considering the impact of certain factors. Among the factors management may consider are prior loss experience, current economic conditions and their effect on borrowers, the character and size of the portfolio, trends in nonperforming loans and delinquency rates and the performance of individual loans in relation to contractual terms. The provision for loan losses reflects adjustments to the allowance based on management’s review of the loan portfolio in light of those conditions. The allowance for loan losses was $6.9 million, or 0.94%, of loans outstanding at September 30, 2006.

Non-interest Income. Non-interest income increased $279,000, or 7.5%, to $4.0 million for the nine months ended September 30, 2006 reflecting growth in fee income on depositors’ accounts and financial services income, partially offset by a $218,000 loss from sales of investment securities in 2006. Fee income on depositors’ accounts rose $377,000 as a result of growth in transaction account balances and activity. Financial services income expanded $105,000 in connection with the purchase of the Levine business in the first quarter of 2006 and new accounts opened due to successful business development efforts. The sales of securities in the third quarter of 2006 were consummated to improve the yield on the portfolio and provide additional liquidity.

Non-interest Expense. Excluding the $3.6 million contribution to fund the United Charitable Foundation, non-interest expense increased $2.4 million, or 16.5%, to $17.2 million for the nine months ended September 30, 2006 from $14.8 million for the prior year period. Total salaries and benefits increased $1.0 million, or 12.8%, reflecting costs aggregating $198,000 incurred in connection with the separation package for the Company’s former Chief Financial Officer, new employees hired to support the growth of the Company and the new branch opened in 2006, the cost of the Company’s Stock Based Incentive and Employee Stock Ownership Plans and annual wage increases. Occupancy costs grew $180,000, or 16.5%, principally attributable to the new branch opened in the second quarter of 2006 and new office space leased in connection with the acquisition of the Levine financial services business in the first quarter of 2006. Marketing expenses rose $174,000, or 18.9%, to promote the new branch opened in 2006, to attract new customers and to retain existing relationships. Professional services costs increased $295,000, or 72.5%, mainly due to expenses incurred in connection with being a public company, including compliance with the Sarbanes Oxley Act, audit and accounting, legal, consulting, investor-relations and NASDAQ. Other non-interest expense expanded $712,000, or 31.0%, primarily due to increased costs associated with a larger loan, deposit and financials services account base, the new branch opened in 2006, equipment maintenance contracts and other real estate owned.

Index

Income Tax Expense. Income tax expense increased $861,000 to $2.6 million for the nine months ended September 30, 2006 as compared to $1.8 million for the same period in 2005. This increase was due to the $1.4 million tax benefit related to the $3.6 million contribution in 2005, somewhat mitigated by lower income before taxes, adjusted for the impact of the 2005 contribution. The effective tax rate for the nine months ended September 30, 2006 and 2005 was 38.8%.

Market Risk, Liquidity and Capital Resources

Market Risk

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

We have sought to manage our IRR in order to minimize the exposure of our earnings and capital to changes in interest rates. As part of our ongoing asset-liability management, we currently use the following strategies to manage our IRR: (i) using alternative funding sources, such as advances from the Federal Home Loan Bank of Boston, to “match fund” 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 home equity loans, commercial real estate loans, construction 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 NII 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.

Net interest income at-risk measures the risk of a decline in earnings due to potential short-term and long term changes in interest rates. The table below represents an analysis of our IRR as measured by the estimated changes in NII over the following twelve months, resulting from an instantaneous and sustained parallel shift in the yield curve (+200 and -200 basis points) at September 30, 2006 and December 31, 2005.

Net Interest Income At-Risk

	Estimated Increase	Estimated Increase
Change in Interest Rates	(Decrease) in NII	(Decrease) in NII
(Basis Points)	(September 30, 2006)	(December 31, 2005)
-200	11.9%	0.4%
Stable	0.0%	0.0%
+200	-10.7%	-3.4%

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

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Liquidity

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, 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. For the quarter ended September 30, 2006 our liquidity ratio was 26.2%, compared to 32.7% at December 31, 2005.

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

Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At September 30, 2006, cash and cash equivalents totaled $20.1 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $196.1 million at September 30, 2006. In addition, at September 30, 2006, we had the ability to borrow a total of approximately $236.8 million from the Federal Home Loan Bank of Boston. On that date, we had $137.4 million in advances outstanding.

At September 30, 2006, we had $35.8 million in loan commitments outstanding. In addition to commitments to originate loans, we had $130.6 million in unused lines of credit to borrowers. Certificates of deposit due within one year of September 30, 2006 totaled $271.9 million, or 39.3% 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 and Federal Home Loan Bank advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before September 30, 2007. We believe however, based on past experience, that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Capital Resources

United Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At September 30, 2006, the Bank exceeded all regulatory capital requirements. United Bank is considered “well capitalized” under regulatory requirements.

Index

As of September 30, 2006:

Risk-based capital	16.09	%

Core capital	10.73	%

Tangible capital	10.73	%

As of December 31, 2005:

Risk-based capital	18.28	%

Core capital	11.63	%

Tangible capital	11.63	%

Off-Balance Sheet Arrangements

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. For additional information, see Note I, “Commitments,” to our Consolidated Financial Statements.

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

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

ITEM 4.

Controls and Procedures

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

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

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PART II. OTHER INFORMATION

ITEM 1.

Legal Proceedings

At September 30, 2006, the Company was not involved in any legal proceedings, the outcome of which would be material to the Company’s financial condition or results of operations.

ITEM 1A. Risk Factors

As of September 30, 2006, there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2005.

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(a) No Company unregistered securities were sold by the Company during the quarter ended September 30, 2006.

(b) Not applicable

(c) The following table provides certain information with regard to shares repurchased by the Company in the third quarter of 2006.

(c)

(d)

Total Number of

Maximum Number

(or Approximate

(a)

(b)

(or Units)

Dollar Value) of

Total Number

Average Price

Purchased as Part

Shares (or Units) that

of Shares

Paid Per

of Publicly

May Yet Be

(or Units)

Announced Plans

Purchased Under the

Period

Purchased

(or Unit)

or Programs (1)

Plans or Programs

July 1 -31, 2006

August 1 - 31, 2006

197,770

12.93

197,770

142,230

September 1 -30, 2006

142,230

12.81

142,230

Total

340,000

12.87

340,000

ITEM 3.

Defaults Upon Senior Securities

Not applicable.

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ITEM 4.

Submission of Matters to a Vote of Security Holders


	The annual meeting of the stockholders of the company was held on July 20, 2006.

1.	The following individuals were elected as directors, each for a three-year term by the following vote:

		FOR	WITHHELD
	Kevin E. Ross	16,149,965	84,639
	Robert A. Stewart, Jr.	16,152,289	82,315
	Thomas H. Themistos	16,182,835	51,769

	The terms of office of the following directors continued after the annual meeting of stockholders:

		TERM EXPIRING
	Robert W. Bozenhard, Jr.	2007
	Michael F. Crowley	2007
	Carol Moore Cutting	2007
	Carol A. Leary	2007
	Richard B. Collins	2008
	G. Todd Marchant	2008
	Michael F. Werenski	2008

2.	The appointment of Grant Thornton LLP as independent registered public accounting firm for the fiscal year ending December 31, 2006 was ratified by the stockholders by the following vote:

	FOR	AGAINST	ABSTENTIONS
	16,041,931	172,971	19,702

3.	The approval of the 2006 United Financial Bancorp, Inc. Stock-Based Incentive Plan.

	FOR	AGAINST	ABSTENTIONS	NON-VOTE
	13,328,733	957,015	46,310	1,902,546

ITEM 5.

Other Information

Not applicable.

ITEM 6.

Exhibits.

3.1

Charter of United Financial Bancorp, Inc. (1)

3.2

Resolution and Consent of Sole Stockholder Amending the Charter of United Financial Bancorp, Inc. (1)

3.3

Bylaws of United Financial Bancorp, Inc. (2)

Form of Common Stock Certificate of United Financial Bancorp, Inc. (1)

10.1

Form of Employee Stock Ownership Plan (1)

10.2

Executive Supplemental Compensation Agreement by and between United Bank and Richard B. Collins (1)

10.3

Executive Supplemental Compensation Agreement by and between United Bank and Keith E. Harvey (1)

10.4

Executive Supplemental Compensation Agreement by and between United Bank and John J. Patterson (1)

10.5

United Bank 2004 and 2005 Incentive Plans (1)

10.6

Deferred Income Agreement by and between United Bank and Donald G. Helliwell (1)

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10.7

Deferred Income Agreement by and between United Bank and Robert W. Bozenhard, Jr. (1)

10.8

Deferred Income Agreement by and between United Bank and George W. Jones (1)

10.9

Directors Fee Continuation Plan (1)

10.10

Form of Employment Agreement by and between United Bank and Richard B. Collins (1)

10.11

Form of Change in Control Agreement by and between United Bank and certain executive officers (1)

10.12

United Bank 2006 Stock-Based Incentive Plan (3)

Statement Regarding Computation of Per Share Earnings

Subsidiaries of Registrant (1)

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

_______________________

(1) Incorporated by reference to the Registration Statement on Form S-1 of United Financial Bancorp, Inc. (file no. 333-123371), originally filed with the Securities and Exchange Commission on March 16, 2005.

(2) Incorporated by reference to the Form 10-Q of United Financial Bancorp, Inc. filed with the Securities and Exchange Commission on August 9, 2006.

(3) Incorporated by reference to Appendix B of the Registrant’s definitive Proxy Statement for the Company’s 2006 Annual Meeting filed with the Securities and Exchange Commission on June 12, 2006.

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SIGNATURES

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

	United Financial Bancorp, Inc.


Date: November 9, 2006	By:	/s/ Richard B. Collins
		Richard B. Collins
		President and Chief Executive Officer


Date: November 9, 2006	By:	/s/ Mark A. Roberts
		Mark A. Roberts
		Executive Vice President and Chief
		Financial Officer

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