Edgar Filing: United Financial Bancorp, Inc.

form10q-100742_ubnk.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2009

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

For the transition period from ______________ to _____________

Commission File Number 000-52947

United Financial Bancorp, Inc.

(Exact name of registrant as specified in its charter)

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

95 Elm Street, West Springfield, Massachusetts 01089

(Address of principal executive offices)

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

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

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨.

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

Large accelerated filer ¨

Accelerated filer x

Non-accelerated filer ¨

Smaller reporting company ¨

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

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

Common stock, $0.01 par value

16,435,070 shares outstanding as of May 4, 2009

United Financial Bancorp, Inc.

INDEX
		Page

PART I. FINANCIAL INFORMATION

Item 1	Consolidated Financial Statements (unaudited)

	Consolidated Statements of Condition
	March 31, 2009 and December 31, 2008	1

	Consolidated Statements of Earnings
	Three Months Ended March 31, 2009 and 2008	2

	Consolidated Statements of Stockholders’ Equity and Comprehensive Income
	Three Months Ended March 31, 2009 and 2008	3

	Consolidated Statements of Cash Flows
	Three Months Ended March 31, 2009 and 2008	4

	Notes to Unaudited Consolidated Financial Statements	5

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

Item 3	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4	Controls and Procedures	28

PART II. OTHER INFORMATION

Item 1	Legal Proceedings	28

Item 1A	Risk Factors	28

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 3	Defaults Upon Senior Securities	29

Item 4.	Submission of Matters to a Vote of Security Holders	29

Item 5.	Other Information	29

Item 6	Exhibits	30


SIGNATURES		31


Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	32

Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	33

Exhibit 32.1	Statement of Chief Executive Officer Furnished Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	34

Exhibit 32.2	Statement of Chief Financial Officer Furnished Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	35

Index

PART I. FINANCIAL INFORMATION

ITEM 1. Consolidated Financial Statements

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CONDITION

(Dollars in thousands, except share and per share amounts)

	March 31,			December 31,
	2009			2008
	(unaudited)
ASSETS

Cash and due from banks	$	10,703		$	10,356
Interest-bearing deposits		1,161			3,216
Total cash and cash equivalents		11,864			13,572

Short-term investments		1,079			1,071
Securities available for sale, at fair value		303,691			313,506
Securities held to maturity, at amortized cost (fair value of $5,323 at
March 31, 2009 and $3,238 at December 31, 2008)		5,233			3,191
Loans held for sale		2,710			-
Loans, net of allowance for loan losses of $8,728 at March 31, 2009
and $8,250 at December 31, 2008		852,183			864,421
Other real estate owned		739			998
Accrued interest receivable		4,575			4,706
Deferred tax asset, net		6,632			7,969
Stock in the Federal Home Loan Bank of Boston		12,223			12,223
Banking premises and equipment, net		12,012			12,125
Bank-owned life insurance		27,468			27,173
Other assets		2,785			2,179
TOTAL ASSETS	$	1,243,194		$	1,263,134

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Deposits:
Interest-bearing	$	682,880		$	668,485
Non-interest-bearing		112,441			114,178
Total deposits		795,321			782,663
Federal Home Loan Bank of Boston advances		186,847			208,564
Repurchase agreements		30,464			28,042
Escrow funds held for borrowers		2,152			1,667
Capitalized lease obligations		3,109			3,129
Accrued expenses and other liabilities		7,788			11,355
Total liabilities		1,025,681			1,035,420

Stockholders’ equity:
Preferred stock, par value $0.01 per share, authorized 50,000,000 shares;
none issued		-			-
Common stock, par value $0.01 per share, authorized 100,000,000 shares;
17,763,747 shares issued at March 31, 2009 and December 31, 2008		178			178
Paid-in capital		165,046			164,358
Retained earnings		76,920			75,888
Unearned compensation		(11,958	)		(12,144	)
Treasury stock, at cost (1,262,377 shares at March 31, 2009 and 261,798
shares at December 31, 2008)		(17,121	)		(3,497	)
Accumulated other comprehensive income, net of taxes		4,448			2,931
Total stockholders’ equity		217,513			227,714
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,243,194		$	1,263,134

See notes to unaudited consolidated financial statements

Index

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)

(Dollars in thousands, except share and per share amounts)

	Three Months Ended
	March 31,
	2009		2008
Interest and dividend income:
Loans	$	12,051	$	12,547
Investments		3,871		2,618
Other interest-earning assets		8		241
Total interest and dividend income		15,930		15,406

Interest expense:
Deposits		3,825		4,973
Borrowings		1,950		1,402
Total interest expense		5,775		6,375

Net interest income before provision for loan losses		10,155		9,031

Provision for loan losses		540		184

Net interest income after provision for loan losses		9,615		8,847

Non-interest income:
Fee income on depositors’ accounts		1,107		1,077
Net gain on sale of loans		125		-
Net gain on sale of securities		-		8
Wealth management income		132		150
Income from bank-owned life insurance		314		50
Other income		173		234
Total non-interest income		1,851		1,519

Non-interest expense:
Salaries and benefits		4,664		4,041
Occupancy expenses		665		509
Marketing expenses		342		358
Data processing expenses		844		719
Professional fees		423		443
FDIC insurance assessment		340		21
Other expenses		877		1,085
Total non-interest expense		8,155		7,176

Income before income taxes		3,311		3,190

Income tax expense		1,188		1,224

Net income	$	2,123	$	1,966

Earnings per share:
Basic	$	0.14	$	0.12
Diluted	$	0.14	$	0.12

Weighted average shares outstanding:
Basic		15,220,014		16,230,847
Diluted		15,366,790		16,271,404

See notes to unaudited consolidated financial statements.

Index

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND

COMPREHENSIVE INCOME (unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2009 and 2008

(Dollars in thousands, except per share amounts)

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

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

Net income		-			-		-			1,966			-			-			-			1,966
Other comprehensive income		-			-		-			-			-			-			768			768
Total comprehensive income																						2,734

Net costs from issuance of common stock
pursuant to second-step conversion		-			-		(26	)		-			-			-			-			(26	)
Cash dividends paid ($0.06 per share)		-			-		-			(987	)		-			-			-			(987	)
Stock-based compensation		-			-		375			-			-			-			-			375
ESOP shares committed to be released		-			-		20			-			176			-			-			196

Balances at March 31, 2008		17,763,747		$	178	$	166,289		$	74,005		$	(12,659	)	$	-		$	599		$	228,412

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

Net income		-			-		-			2,123			-			-			-			2,123
Other comprehensive income		-			-		-			-			-			-			1,517			1,517
Total comprehensive income																						3,640

Cash dividends paid ($0.07 per share)		-			-		-			(1,091	)		-			-			-			(1,091	)
Treasury stock purchases		(1,000,579	)		-		-									(13,624	)					(13,624	)
Stock-based compensation		-			-		621			-			-			-			-			621
ESOP shares committed to be released		-			-		67			-			186			-			-			253

Balances at March 31, 2009		16,501,370		$	178	$	165,046		$	76,920		$	(11,958	)	$	(17,121	)	$	4,448		$	217,513

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

	Three Months Ended March 31,
	2009		2008

Change in unrealized holding gains on available-for-sale securities	$	2,461	$	1,225
Reclassification adjustment for gains realized in income		-		(8	)
Net change in unrealized gains		2,461		1,217

Tax effect		944		449

Other comprehensive income	$	1,517	$	768

See notes to unaudited consolidated financial statements.

Index

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2009 and 2008

(Dollars in thousands)

	2009			2008
Cash flows from operating activities:
Net income	$	2,123		$	1,966
Adjustments to reconcile net income to net cash used in operating activities:
Provision for loan losses		540			184
ESOP expense		253			196
Stock-based compensation		621			375
Amortization of premiums and discounts		93			32
Depreciation and amortization		250			194
Amortization of intangible assets		6			8
Net loss on sale of other real estate owned		7			-
Net gain on sale of securities		-			(8	)
Net gain on sale of loans		(125	)		-
Increase in cash surrender value of bank-owned life insurance		(295	)		(81	)
Decrease (increase) in accrued interest receivable		131			(103	)
Increase in other assets		(218	)		(2,104	)
Decrease in accrued expenses and other liabilities		(3,896	)		(2,887	)
Net cash used in operating activities		(510	)		(2,228	)
Cash flows from investing activities:
Purchases of securities available for sale		(4,599	)		(116,039	)
Proceeds from sales of securities available for sale		-			26,434
Proceeds from maturities, calls and principal repayments of securities available for sale		16,782			29,090
Purchases of securities held to maturity		(2,043	)		-
Investment in short term time deposits		(8	)		(13	)
Proceeds from sales of other real estate owned		268			-
Net loan originations and principal repayments		(1,830	)		(729	)
Proceeds from sales of loans		10,927			-
Purchases of property and equipment		(134	)		(170	)
Cash paid to acquire Levine Financial Group		(92	)		-
Net cash provided by (used in) investing activities		19,271			(61,427	)
Cash flows from financing activities:
Net increase in deposits		12,658			36,842
Net (decrease) increase in short-term borrowings from Federal Home Loan Bank of Boston		(19,000	)		11,145
Proceeds of Federal Home Loan Bank of Boston long-term advances		-			25,000
Repayments of Federal Home Loan Bank of Boston long-term advances		(2,717	)		(2,733	)
Net increase (decrease) in repurchase agreements		2,422			(4,178	)
Net increase in escrow funds held for borrowers		485			158
Treasury stock purchases		(13,163	)		-
Cash dividends paid		(1,091	)		(987	)
Costs from issuance of common stock pursuant to second-step conversion		-			(26	)
Payments on capitalized lease obligations		(63	)		(36	)
Net cash (used in) provided by financing activities		(20,469	)		65,185
(Decrease) increase in cash and cash equivalents		(1,708	)		1,530
Cash and cash equivalents at beginning of period		13,572			14,254
Cash and cash equivalents at end of period	$	11,864		$	15,784


Supplemental Disclosure of Cash Flow Information:
Cash paid during the period:
Interest on deposits, borrowings and other interest bearing liabilities	$	5,741		$	6,349
Income taxes – net		4,600			5,801
Non-cash items:
Transfer of loans to other real estate owned		-			150
Trade date accounting for securities purchased		-			8,410
Trade date accounting for treasury stock purchases		461			-

See notes to unaudited consolidated financial statements.

Index

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

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 March 31, 2009 and the results of operations for the three months ended March 31, 2009 and 2008. 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, 2008 included in the Company’s Annual Report on Form 10-K, which was filed by the Company with the Securities and Exchange Commission on March 13, 2009.

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

NOTE B – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) 157-2, “Effective Date of FASB Statement No. 157,” which permits a one-year deferral in applying the measurement provisions of Statement of Financial Accounting Standard (“SFAS”) No. 157 to non-financial assets and non-financial liabilities (non-financial items) that are not recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually). Therefore, if the change in fair value of a non-financial item is not required to be recognized or disclosed in the financial statements on an annual basis or more frequently, the effective date of application of SFAS No. 157 to that item is deferred until fiscal years beginning after November 15, 2008. The adoption of FSP 157-2 on January 1, 2009, had no material effect on the Company’s Consolidated Financial Statements.

In April 2009, the FASB issued FSP 157-4 “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP FAS 157-4”),” which provides additional guidance for estimating fair value in accordance with SFAS No. 157, “Fair Value Measurements”, when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. FSP FAS 157-4 is effective for interim periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company will adopt FSP FAS 157-4 in the second quarter of 2009 and is currently evaluating the impact, if any, it will have on its Consolidated Financial Statements.

Index

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2 “Recognition and Presentation of Other-Than-Temporary Impairments (“FSP FAS 115-2”),” in which the objective of an other-than-temporary impairment analysis under existing U.S. GAAP is to determine whether the holder of an investment in a debt or equity security for which changes in fair value are not regularly recognized in earnings (such as securities classified as held-to-maturity or available-for-sale) should recognize a loss in earnings when the investment is impaired. An investment is impaired if the fair value of the investment is less than its amortized cost basis. This FSP amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP FAS 115-2 is effective for interim periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company will adopt FSP FAS 115-2 in the second quarter of 2009 and is currently evaluating the impact, if any, it will have on its Consolidated Financial Statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1 “Interim Disclosures about Fair Value of Financial Instruments (“FSP FAS 107”),” which amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in summarized financial information at interim reporting periods and is effective for interim periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company will adopt FSP FAS 107-1 in the second quarter of 2009 and is currently evaluating the impact, if any, it will have on its Consolidated Financial Statements.

NOTE C – 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 evaluation of the investment portfolio for other-than-temporary impairment (“OTTI”).

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

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

Index

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

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

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

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

Index

NOTE D – EARNINGS PER SHARE

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

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

	Three Months Ended
	March 31,
	2009		2008
Net income	$	2,123	$	1,966
Weighted average common shares applicable to
basic EPS		15,220,014		16,230,847
Effect of dilutive potential common shares (1, 2)		146,776		40,557
Weighted average common shares applicable to
diluted EPS		15,366,790		16,271,404

Earnings per share:
Basic	$	0.14	$	0.12
Diluted	$	0.14	$	0.12


(1) For the three months ended March 31, 2009 and March 31, 2008, options to purchase 1,295,863 and 785,275 shares, respectively, were outstanding but not included in the computation of earnings per share because they were antidilutive.
(2) Includes incremental shares related to stock options and restricted stock.

Index

NOTE E – INVESTMENT SECURITIES

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

	Amortized		Unrealized
	Cost		Gain		Losses			Fair Value
Securities Available for Sale
March 31, 2009:
Debt Securities:
Government-sponsored enterprises	$	444	$	-	$	(2	)	$	442
Mortgage-backed securities		282,574		9,376		(67	)		291,883
Municipal bonds		10,504		98		(246	)		10,356
Corporate bonds		1,536		-		(526	)		1,010
Total securities available for sale	$	295,058	$	9,474	$	(841	)	$	303,691

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


	Amortized		Unrealized
	Cost		Gain		Losses			Fair Value
Securities Held to Maturity
March 31, 2009:
Mortgage-backed securities	$	2,043	$	31	$	-		$	2,074
IRB		1,122		-		-			1,122
Municipal bonds		2,068		59		-			2,127
Total	$	5,233	$	90	$	-		$	5,323

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

The Company’s portfolio of mortgage-backed securities, which represent interests in pools of residential mortgage loans, consists solely of securities issued by the Federal Home Loan Mortgage Corporation (Freddie Mac), the Federal National Mortgage Association (Fannie Mae), and the Government National Mortgage Association (Ginnie Mae), all of which are federal government owned or sponsored enterprises.

Management has determined that no declines in the fair value of its securities portfolio are deemed to be other-than temporary for the first quarter of 2009. In its evaluation, management considered the types of securities, including if the securities were U.S. Government issued, the credit rating on the securities, credit outlook, payment status and financial condition, the length of time the bond has been in a loss position, the size of the loss position and other meaningful information. The Company has the ability to hold these securities until the earlier of maturity or a market price recovery and currently has no plans to dispose of any of these securities.

Index

At March 31, 2009, the Company’s available for sale municipal bond portfolio had a net unrealized loss of $148,000, or 1.4% of amortized cost. Management believes that these unrealized losses are primarily due to the current credit and liquidity crises, which have led to a significant widening in spreads. Management believes that these market conditions will not affect the expected cash flows of the issuer. All of the Company’s municipal bonds are rated upper medium grade or higher by one of the rating agencies, with the exception of two securities, and continue to perform in accordance with contractual terms. Although conditions in the insurance market have deteriorated, management also considers the underlying guarantee of its municipal bonds based upon the insurer’s rating and current financial condition. Because the Company has the ability and intent to hold these securities to the forecasted maturity or recovery date and expects to collect all amounts due according to the contractual terms, no additional declines since December 31, 2008 were deemed to be other than temporary.

The Company’s variable rate trust preferred securities portfolio has an unrealized loss of $526,000, equal to 34.2% of amortized cost, at March 31, 2009. The Company holds two securities issued by large national banks, both of which have investment-grade credit ratings, and have received investments from the U.S. Treasury’s Troubled Asset Relief Program Capital Purchase Program. The Company also holds a pooled trust preferred security with an investment-grade credit rating. The pool is well diversified geographically and the largest single issuer within the pool represents less than 4% of total holdings. The Company owns the AA tranche, which maintains significant coverage for principal defaults and temporary interest shortfalls. Because the Company has the ability and intent to hold these securities to the forecasted maturity or recovery date and expects to collect all amounts due according to the contractual terms, no additional declines since December 31, 2008 are deemed to be other than temporary.

NOTE F – LOANS

The components of loans held for investment were as follows at March 31, 2009 and December 31, 2008:

	March 31,			December 31,
	2009			2008

Residential mortgages	$	346,590		$	356,428
Commercial real estate		256,248			248,457
Construction		27,905			32,082
Home equity		119,024			120,724
Commercial and industrial		82,674			84,919
Automobile		16,204			17,332
Consumer		10,034			10,334
Total loans		858,679			870,276

Net deferred loan costs and fees		2,232			2,395
Allowance for loan losses		(8,728	)		(8,250	)
Loans, net	$	852,183		$	864,421

Index

NOTE G – NON-PERFORMING ASSETS

The table below sets forth the amounts and categories of non-performing assets at March 31, 2009 and December 31, 2008:

	March 31,			December 31,
	2009			2008

Non-accrual loans:
Residential mortgages	$	952		$	1,244
Commercial mortgages		2,083			2,544
Construction		634			444
Home equity		3			-
Commercial and industrial		521			425
Other consumer		140			140
Total non-accrual loans		4,333			4,797

Other real estate owned		739			998
Total non-performing assets	$	5,072		$	5,795

Ratios:
Total non-performing loans to total loans		0.50	%		0.55	%
Total non-performing assets to total assets		0.41	%		0.46	%

NOTE H – ALLOWANCE FOR LOAN LOSSES

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

	For the Three Months Ended March 31,
	2009			2008

Balance at beginning of period	$	8,250		$	7,714
Provision for loan losses		540			184
Charge-offs:
Commercial mortgages		-			(6	)
Construction		(65	)		(90	)
Home equity		-			(42	)
Commercial and industrial		(39	)		(114	)
Automobile		(5	)		-
Other consumer		(1	)		(1	)
Total charge-offs		(110	)		(253	)
Recoveries:
Commercial and industrial		47			-
Automobile		1			1
Total recoveries		48			1
Net charge-offs		(62	)		(252	)
Balance at end of period	$	8,728		$	7,646
Ratios:
Net charge-offs to average loans
outstanding (annualized)		0.03	%		0.12	%
Allowance for loan losses to non-performing
loans at end of period		201.43	%		285.41	%
Allowance for loan losses to total
loans at end of period		1.01	%		0.93	%

Index

NOTE I – COMMITMENTS

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

	March 31,		December 31,
	2009		2008

Unused lines of credit	$	159,003	$	155,448
Amounts due mortgagors		23,209		14,479
Standby letters of credit		1,082		1,156
Commitments to originate loans		14,386		10,458

The Company has a commitment to invest up to $1.0 million in a venture capital fund. As of March 31, 2009 the Company has contributed $150,000 to the fund.

NOTE J – DEPOSITS

Deposit accounts, by type, are summarized as follows at March 31, 2009 and December 31, 2008:

	March 31,		December 31,
	2009		2008

Demand	$	112,441	$	114,178
NOW		33,990		32,390
Savings		114,341		99,492
Money market		173,717		160,736
Certificates of deposit		360,832		375,867
	$	795,321	$	782,663

NOTE K – CONTINGENCIES

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

NOTE L - FAIR VALUES OF ASSETS AND LIABILITIES

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

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

Index

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

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

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

							Total
	Level 1		Level 2		Level 3		Fair Value
At March 31, 2009
Securities available for sale	$	442	$	301,947	$	1,302	$	303,691
Mortgage servicing rights		-		-		184		184

Total	$	442	$	301,947	$	1,486	$	303,875

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

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

The Company had no liabilities measured at fair value on a recurring basis at March 31, 2009.

The table below presents the changes in Level 3 assets measured at fair value on a recurring basis for the three months ended March 31, 2009.

Balance at December 31, 2008	$	1,956
Total realized/unrealized losses included in net income		(13	)
Change in unrealized loss		(530	)
Purchases, sales, issuances and settlements		73
Transfers in and out of Level 3		-
Balance at March 31, 2009	$	1,486

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. If a quoted market price is available for an instrument, the fair value to be disclosed for that instrument is the product of the number of trading units of the instrument times that market price.

Index

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

							Three Months Ended
							March 31, 2009
	At March 31, 2009						Total
	Level 1		Level 2		Level 3		Gains/(Losses)
Assets:
Loans	$	-	$	4,333	$	-	$	(213	)
Other real estate owned		-		739		-		(7	)
Other assets		-		-		1,370		-

Total assets	$	-	$	5,072	$	1,370	$	(220	)

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

NOTE M – PENSION AND POSTRETIREMENT BENEFIT PLANS

The Company maintains a Senior Executive Retirement Plan and a Director Retirement Plan. These plans had no assets at March 31, 2009 and 2008. The following table presents the components of the net periodic benefit cost:

	For the Three Months Ended March 31,
	2009				2008
			Director				Director
			Retirement				Retirement
	SERP		Plan		SERP		Plan
Periodic benefit cost:
Service cost	$	69	$	15	$	76	$	14
Interest cost		35		9		34		8
Total pension cost		104		24		110		22
Prior service cost amortization		19		9		19		9
Net loss amortization		-		-		6		-
Net periodic benefit cost	$	123	$	33	$	135	$	31

Benefits expected to be paid over the next five years as presented in the 2008 10K have not changed. As these Plans are not funded, the Company does not expect to contribute assets to these plans in 2009.

NOTE N – SUBSEQUENT EVENT

On April 16, 2009, the Board of Directors declared a cash dividend of $0.07 per share. The dividend is payable on June 1, 2009 to stockholders of record as of May 8, 2009.

Index

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

Forward-Looking Statements

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

Comparison of Financial Condition at March 31, 2009 and December 31, 2008

Total assets decreased $19.9 million, or 1.6%, to $1.24 billion at March 31, 2009 from $1.26 billion at December 31, 2008 due to decreases in securities available for sale and loans. Securities available for sale decreased $9.8 million, or 3.1%, to $303.7 million at March 31, 2009 from $313.5 million at December 31, 2008, mainly due to principal repayments of existing securities. Total loans decreased $8.9 million, or 1.0%, to $861.4 million at March 31, 2009 from $870.3 million at December 31, 2008, due to prepayment and refinancing activity, slower origination volume and the impact of the sales of $10.8 million of lower-coupon, fixed-rate residential mortgages during the quarter. The cash flows received from the investment and loan portfolios were used to pay down Federal Home Loan Bank advances and to fund the repurchase of the Company’s common stock.

Total deposits increased $12.7 million, or 1.6%, to $795.3 million at March 31, 2009 compared to $782.7 million at December 31, 2008 mainly due to growth in core account balances, partially offset by runoff in certificates of deposit. Core deposit balances grew $27.7 million, or 6.8%, to $434.5 million at March 31, 2009 from $406.8 million at December 31, 2008 reflecting competitive products and pricing, excellent customer service, and targeted promotional activities. The increase in core deposits were partially offset by a decrease in certificates of deposit of $15.0 million, or 4.0%, to $360.8 at March 31, 2009 compared to $375.9 million at December 31, 2008. Federal Home Loan Bank advances were reduced by $21.7 million, or 10.4%, to $186.8 million at March 31, 2009 from $208.6 million at December 31, 2008 reflecting pay downs of overnight borrowings utilizing cash flows from the investment and loan portfolios.

Total stockholders’ equity decreased $10.2 million, or 4.5%, to $217.5 million at March 31, 2009 from $227.7 million at December 31, 2008 as a result of repurchases of our common stock totaling $13.6 million and cash dividend payments amounting to $1.1 million. These decreases were partially offset by net income of $2.1 million for the three months ended March 31, 2009, an increase of $1.5 million in net unrealized gains on securities available for sale, stock-based compensation expense totaling $621,000 and ESOP compensation expense of $253,000.

Index

Credit Quality

The Company actively manages credit risk through its underwriting practices and collection operations and it does not offer nor has it historically offered residential mortgage loans to subprime or Alt-A borrowers. Non-performing assets totaled $5.1 million, or 0.41% of total assets, at March 31, 2009 compared to $5.8 million, or 0.46% of total assets, at December 31, 2008.

Delinquent Loans. The following table sets forth our loan delinquencies by type and by amount at the dates indicated.

	Loans Delinquent For
	60 - 89 Days				90 Days and Over				Total
	Number		Amount		Number		Amount		Number		Amount
	(Dollars in thousands)
At March 31, 2009
Residential mortgages		4	$	1,009		6	$	952		10	$	1,961
Commercial mortgages		7		1,763		10		2,083		17		3,846
Construction		2		168		4		634		6		802
Home equity		3		137		1		3		4		140
Commercial and industrial		7		278		18		521		25		799
Automobile		-		-		-		-		-		-
Other consumer		1		40		2		140		3		180
Total		24	$	3,395		41	$	4,333		65	$	7,728

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

Classified Assets. The following table shows the aggregate amount of our classified assets at the date indicated for both loans and foreclosed assets. The total amount of loans in the table below at March 31, 2009 includes twelve relationships which represent 65% of the classified asset total.

	At March 31,			At December 31,
	2009			2008
	(In thousands)
Residential Real Estate (1):
Special mention	$	374		$	379
Substandard		1,632	(2)		1,552
All Other Loans (3):
Special mention		24,826			17,984
Substandard		23,914			22,975
Doubtful		293			894
Loss		-			-

Foreclosed Assets:
Other real estate owned		739			998

Total classified assets	$	51,778		$	44,782

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

Index

Comparison of Operating Results for the Three Months Ended March 31, 2009 and 2008

Overview

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

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

Net Income. The Company’s net income was $2.1 million, or $0.14 per diluted share, for the first quarter of 2009 compared to net income of $2.0 million, or $0.12 per diluted share, for the same period in 2008. The Company’s improved results were largely due to a significant increase in net interest income, driven by growth in average earning assets, and an expansion in non-interest income, mainly attributable to net gains realized from loan sales and an increase in income from bank-owned life insurance. The quarterly operating performance was also affected by higher provisions for loan losses and an increase in non-interest expenses.

Index

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

	Three Months Ended March 31,
	2009							2008
			Interest							Interest
	Average		and		Yield/			Average		and		Yield/
	Balance		Dividends		Cost			Balance		Dividends		Cost
	(Dollars in thousands)

Interest-earning assets:
Loans:
Residential real estate	$	355,060	$	4,943		5.57	%	$	348,753	$	4,921		5.64	%
Commercial real estate		282,593		4,187		5.93	%		248,963		4,021		6.46	%
Home equity		121,371		1,418		4.67	%		117,254		1,794		6.12	%
Commercial and industrial		82,804		1,113		5.38	%		82,382		1,389		6.74	%
Consumer and other		27,752		390		5.62	%		30,950		422		5.45	%
Total loans		869,580		12,051		5.54	%		828,302		12,547		6.06	%
Investment securities		313,799		3,871		4.93	%		211,880		2,618		4.94	%
Other interest-earning assets		14,661		8		0.22	%		21,796		241		4.42	%
Total interest-earning assets		1,198,040		15,930		5.32	%		1,061,978		15,406		5.80	%
Noninterest-earning assets(4)		53,185							33,888
Total assets	$	1,251,225						$	1,095,866

Interest-bearing liabilities:
Savings accounts	$	105,664		288		1.09	%	$	67,550		166		0.98	%
Money market accounts		171,175		626		1.46	%		174,802		1,009		2.31	%
NOW accounts		30,344		35		0.46	%		31,926		41		0.51	%
Certificates of deposit		367,031		2,876		3.13	%		354,031		3,757		4.24	%
Total interest-bearing deposits		674,214		3,825		2.27	%		628,309		4,973		3.17	%
FHLB advances		204,501		1,737		3.40	%		116,519		1,301		4.47	%
Other interest-bearing liabilities		31,780		213		2.68	%		11,592		101		3.49	%
Total interest-bearing liabilities		910,495		5,775		2.54	%		756,420		6,375		3.37	%
Demand deposits		111,099							101,785
Other noninterest-bearing liabilities		8,948							10,248
Total liabilities		1,030,542							868,453
Stockholders' equity		220,683							227,413
Total liabilities and stockholders' equity	$	1,251,225						$	1,095,866

Net interest income			$	10,155						$	9,031
Interest rate spread(1)						2.78	%						2.43	%
Net interest-earning assets(2)	$	287,545						$	305,558
Net interest margin(3)						3.39	%						3.40	%
Average interest-earning assets to
average interest-bearing liabilities						131.58	%						140.40	%

(1)

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

(2)

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

(3)

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

(4)

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

Index

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

	Three Months Ended March 31,
	2009 vs. 2008
	Increase (Decrease) Due to
	Volume			Rate			Net
	(In thousands)

Interest-earning assets:
Loans:
Residential real estate	$	88		$	(66	)	$	22
Commercial real estate		515			(349	)		166
Home equity		61			(437	)		(376	)
Commercial and industrial		7			(283	)		(276	)
Consumer and other		(45	)		13			(32	)
Total loans		626			(1,122	)		(496	)
Investment securities		1,257			(4	)		1,253
Other interest-earning assets		(60	)		(173	)		(233	)
Total interest-earning assets		1,823			(1,299	)		524

Interest-bearing liabilities:
Savings accounts		102			20			122
Money market accounts		(21	)		(362	)		(383	)
NOW accounts		(2	)		(4	)		(6	)
Certificates of deposit		134			(1,015	)		(881	)
Total interest-bearing deposits		213			(1,361	)		(1,148	)
FHLB advances		804			(368	)		436
Other interest-bearing liabilities		140			(28	)		112
Total interest-bearing liabilities		1,157			(1,757	)		(600	)

Change in net interest income	$	666		$	458		$	1,124

Net Interest Income Before Provision for Loan Losses. Net interest income before provision for loan losses increased $1.1 million, or 12.4%, to $10.2 million for the three months ended March 31, 2009 from the same period in 2008 as a result of growth in average earning assets. Average earning assets expanded $136.1 million, or 12.8%, to $1.2 billion, mainly due to loan growth and purchases of mortgage-backed securities. Net interest margin decreased 1 basis point to 3.39% for the three-month period ended March 31, 2009 compared to 3.40% for the same period in 2008.

Index

Interest Income. Interest income increased $524,000, or 3.4%, to $15.9 million for the three months ended March 31, 2009 from $15.4 million for the prior year period, reflecting an increase in total average interest-earning asset balances, partially offset by a lower yield on average interest-earning assets. Total average interest-earning asset balances increased $136.1 million, or 12.8%, to $1.2 billion for the three months ended March 31, 2009 mainly due to purchases of mortgage-backed securities and loan growth. Total average investment securities increased by $101.9 million, or 48.1%, to $313.8 million due to the purchases of mortgage-backed securities, partially offset by maturities, calls, sales and principal repayments of existing securities. Total average loans increased $41.3 million, or 5.0%, to $869.6 million for the first quarter of 2009 as a result of origination activity, partially offset by scheduled amortization, prepayments of existing loans and residential real estate loan sales during the first quarter of 2009. The yield on average interest-earning assets decreased by 48 basis points to 5.32% for the first quarter of 2009 in connection with the lower interest rate environment. The decrease in market rates contributed to the downward repricing of a portion of the Company’s existing assets and to lower rates for new assets. Since a significant amount of the Company’s average interest-earning assets are fixed rate and the impact of Federal Reserve Board actions was less pronounced on the long end of the yield curve, the effect of the decrease in market rates was primarily limited to home equity, commercial loans and commercial real estate loans due to the significant number of loans tied to the prime rate or a shorter-term index. The lower yield on earning assets was also due to the suspension of the Federal Home Loan Bank of Boston stock dividend for the first quarter of 2009 and most likely the remainder of the year. In the comparible 2008 period, we received $153,000 in stock dividends from the Federal Home Loan Bank of Boston

Interest Expense. Interest expense decreased $600,000, or 9.41%, to $5.8 million for the three months ended March 31, 2009 from $6.4 million for the prior year period reflecting a decrease in the average rate paid on interest-bearing liabilities, partially offset by an increase in average interest-bearing liabilities. The average rate paid on interest-bearing liabilities declined 83 basis points to 2.54% for the three months ended March 31, 2009 reflecting the repricing of money market and certificate of deposit balances in response to interest rate cuts initiated by the Federal Reserve Board. The Company also benefitted from the impact of lower market interest rates on the cost of FHLB advances and other interest-bearing liabilities. Average interest-bearing liabilities increased $154.1 million, or 20.4%, to $910.5 million for the three months ended March 31, 2009 from $756.4 million for the prior year period reflecting growth in interest-bearing deposits, FHLB advances and other interest-bearing liabilities. Total average interest-bearing deposits increased $45.9 million, or 7.3%, to $674.2 million for the first quarter of 2009 as compared to $628.3 million for the three months ended March 31, 2008, mainly attributable to an increase in savings account and certificate of deposit balances. Total average FHLB advances increased $88.0 million, or 75.5%, to $204.5 million to fund asset growth and to take advantage of the lower interest rates. Total other interest-bearing liabilities increased $20.2 million, or 174.2%, to $31.8 million reflecting the use of longer-term repurchase agreements to support balance sheet expansion and lengthen the duration of borrowings at attractive rates.

Provision for Loan Losses. The provision for loan losses increased $356,000 to $540,000 for the three months ended March 31, 2009 as compared to $184,000 for the same period in 2008 mainly resulting from an increase in reserves for non-performing and classified loans. The allowance for loan losses is based on management’s estimate of the probable losses inherent in the portfolio, considering the impact of certain factors. Among the factors management may consider are prior loss experience, current economic conditions and their effect on borrowers, the character and size of the portfolio, trends in nonperforming loans and delinquency rates and the performance of individual loans in relation to contractual terms. The provision for loan losses reflects adjustments to the allowance based on management’s review of the loan portfolio in light of those conditions. The allowance for loan losses was $8.7 million, or 1.01%, of loans outstanding at March 31, 2009.

Index

Non-interest Income. Non-interest income increased $332,000, or 21.9%, to $1.9 million for the three months ended March 31, 2009 from $1.5 million for the comparable period in 2008 due to an increase of $264,000 in income from bank-owned life insurance reflecting the purchase of an additional $20 million of cash surrender value life insurance in November of 2008 and net gains of $125,000 realized from loan sales.

Non-interest Expense. Non-interest expense increased $979,000, or 13.6%, to $8.2 million for the three months ended March 31, 2009 from $7.2 million for the prior year period. Total salaries and benefits increased $623,000, or 15.4%, mainly due to staffing costs for new branches opened in 2008, new employees hired to support and facilitate the growth of the Company, a higher cash incentive accrual associated with improved financial performance, an increase in stock-based compensation as a result of stock options and restricted stock granted in the second quarter of 2008 and annual wage increases. Occupancy costs expanded $156,000, or 30.6%, mainly due to new branches opened in 2008. Data processing expenses increased $125,000, or 17.4%, as a result of growth in the total number of loan and deposit accounts serviced, new branches opened in 2008 and costs for the branch imaging process introduced in all branches beginning in 2008. The Federal Deposit Insurance Corporation insurance assessment increased $319,000 in connection with a higher quarterly insurance premium. Since June 2007, the Company’s insurance premiums have been substantially reduced by a special one-time credit, which was exhausted in June 2008. The Federal Deposit Insurance Corporation issued an interim final rule that would impose a special assessment on all insured deposits as of June 30, 2009, which would be collected on September 30, 2009. Other expenses decreased $208,000 of which $168,000 was due to interest accrued in the first quarter of 2008 related to proposed IRS adjustments associated with an examination of the Company’s 2005 and 2006 tax returns.

Income Tax Expense. Income tax expense decreased $36,000 to $1.2 million for three months ended March 31, 2009 from the comparable 2008 period as a result of a decrease in the effective tax rate partially offset by higher pretax income. The effective tax rate declined to 35.9% in the first quarter of 2009 compared to 38.4% for the same period in 2008 primarily attributable to an increase of $264,000 in non-taxable income from bank-owned life insurance.

Index

Market Risk, Liquidity and Capital Resources

Market Risk

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

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

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

Net Interest Income At-Risk

	Estimated Increase (Decrease)	Estimated Increase (Decrease)
Change in Interest Rates	in NII	in NII
(Basis Points)	(March 31, 2009)	(December 31, 2008)

-100	NA	NA
Stable	0.0%	0.0%
+200	0.8%	(3.3)%

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

Index

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

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

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

+300		$ 130,665		$ (51,254)	(28)%	11.24%	(316)
+200		155,006		(26,914)	(15)	12.90	(150)
+100		172,318		(9,602)	(5)	13.95	(45)
0		181,920				14.40

Index


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

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



(1)	Assumes an instantaneous uniform change in interest rates at all maturities.
(2)	NPV is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.
(3)	Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.
(4)	NPV ratio represents NPV divided by the present value of assets.

The tables above indicate that at March 31, 2009 and December 31, 2008, in the event of a 300 basis point increase in interest rates, we would experience a 28% and 35%, respectively, decrease in net portfolio value. We did not prepare a net portfolio value calculation for interest rate decreases at the dates indicated due to the historically low interest rate environment.

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

Liquidity

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, advances from the Federal Home Loan Bank of Boston, loan and mortgage-backed securities repayments and maturities and sales of loans and other investment securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, economic conditions and competition. Our Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs of our customers as well as unanticipated contingencies. We seek to maintain a liquidity ratio of 10% or greater. At March 31, 2009 our liquidity ratio was 34.40%, compared to 35.02% at December 31, 2008.

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

Index

Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At March 31, 2009, cash and cash equivalents totaled $11.9 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $303.7 million at March 31, 2009. In addition, at March 31, 2009, we had the ability to borrow a total of approximately $463.8 million from the Federal Home Loan Bank of Boston. On that date, we had $186.8 million in advances outstanding.

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

At March 31, 2009, we had $14.4 million in loan commitments outstanding. In addition to commitments to originate loans, we had $159.0 million in unused lines of credit to borrowers and $23.2 million to be disbursed under existing construction loan commitments. Certificates of deposit due within one year of March 31, 2009 totaled $249.5 million, or 31.4% 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 March 31, 2010. We believe however, based on past experience, that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Our primary investing activities are the origination of loans and the purchase of securities. For the three months ended March 31, 2009, we originated $60.0 million of loans and purchased $6.6 million of securities. In the comparable 2008 period, we originated $59.9 million of loans and purchased $124.4 million of securities.

Financing activities consist primarily of activity in deposit accounts and Federal Home Loan Bank advances. We experienced a net increase in total deposits of $12.7 million and $36.8 million for the three months ended March 31, 2009 and 2008, respectively. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors.

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank, which provides an additional source of funds. Federal Home Loan Bank advances decreased by $21.7 million during the three months ended March 31, 2009 reflecting the use of cash flows received from the loan and investment portfolios to pay down short term Federal Home Loan Bank advances. For the same period in 2008, Federal Home Loan Bank advances increased $33.4 million. Federal Home Loan Bank advances have primarily been used to fund loan demand and to purchase securities. We have also used Federal Home Loan Bank advances to “match-fund” certain longer-term one- to four-family residential mortgage loans and commercial real estate loans. The Bank’s unused borrowing capacity with the FHLBB, excluding its $12.4 million line of credit, was approximately $264.0 at March 31, 2009 and $282.1 at December 31, 2008. At March 31, 2009 and December 31, 2008, the Bank had no borrowing against the line of credit. We also have access to funding through the repurchase agreement and brokered CD markets and have received approval from the Federal Reserve Bank to access its discount window. The Bank and the Company also applied for and received approval from the FDIC to issue guaranteed debt through the Temporary Liquidity Guarantee Program (“TLGP”). The FDIC has created this program to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued senior unsecured debt of banks, thrifts, and certain holding companies, and by providing full FDIC insurance coverage of non-interest bearing deposit transaction accounts, regardless of dollar amount.

Index

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Commitments

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

Contractual Obligations

In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include operating leases for premises and equipment. The following table summarizes our significant fixed and determinable contractual obligations and other funding needs by payment date at March 31, 2009. The payment amounts represent those amounts due to the recipient and do not include any unamortized premiums or discounts or other similar carrying amount adjustments.

	Payments Due by Period (in thousands)
	Less Than		One to Three		Three to Five		More than
	One Year		Years		Years		Five Years		Total
Contractual Obligations:
Certificates of deposit	$	249,514	$	85,702	$	25,616	$	-	$	360,832
Federal Home Loan Bank advances		36,000		73,214		49,084		28,549		186,847
Repurchase agreements		10,464		-		-		20,000		30,464
Standby letters of credit		1,082		-		-		-		1,082
Operating leases		596		936		711		2,834		5,077
Capitalized leases		252		504		503		3,948		5,207
Future benefits to be paid under
retirement plans		198		3,064		1,037		760		5,059
Total	$	298,106	$	163,420	$	76,951	$	56,091	$	594,568
Commitments:
Commitments to extend credit	$	197,680	$	-	$	-	$	-	$	197,680
Commitment to invest in venture
capital fund		850		-		-		-		850
Total	$	198,530	$	-	$	-	$	-	$	198,530

Index

Capital Resources

United Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At March 31, 2009, the Bank exceeded all regulatory capital requirements. United Bank is considered “well capitalized” under regulatory requirements.

			To Be Well Capitalized
		For Capital	Under Regulatory
	Actual	Adequacy Purposes	Framework
As of March 31, 2009:

Total risk-based capital	19.72%	8.00%	10.00%

Tier 1 risk-based capital	18.68%	4.00%	6.00%

Tier 1 (core) capital	12.80%	4.00%	5.00%

Tangible equity	12.80%	1.50%	N/A

As of December 31, 2008:

Total risk-based capital	18.71%	8.00%	10.00%

Tier 1 risk-based capital	17.76%	4.00%	6.00%

Tier 1 (core) capital	12.31%	4.00%	5.00%

Tangible equity	12.31%	1.50%	N/A

Index

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

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

ITEM 4. Controls and Procedures

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

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

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

At March 31, 2009, the Company was not involved in any legal proceedings, the outcome of which would be material to the Company’s Consolidated Financial Statements.

ITEM 1A. Risk Factors

As of March 31, 2009, 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, 2008.

Index

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

(a) No unregistered securities were sold by the Company during the quarter ended March 31, 2009.

(b) Not applicable

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

(c)

(d)

Total Number of

Maximum Number

(or Approximate

(a)

(b)

(or Units)

Dollar Value) of

Total Number

Average Price

Purchased as Part

Shares (or Units) that

of Shares

Paid Per

of Publicly

May Yet Be

(or Units)

Announced Plans

Purchased Under the

Period

Purchased

(or Unit)

or Programs

Plans or Programs

January 1 - 31, 2009

679,100

14.05

679,100

February 1 - 28, 2009

22,779

12.91

22,779

818,438

March 1 - 31, 2009

298,700

12.69

298,700

519,738

Total

1,000,579

13.62

1,000,579

ITEM 3. Defaults Upon Senior Securities

Not applicable.

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

Not applicable.

ITEM 5. Other Information

Not applicable.

Index

ITEM 6. Exhibits.

3.1	Articles of Incorporation of United Financial Bancorp, Inc. (1)
3.2	Amended and Restated Bylaws of United Financial Bancorp, Inc. (2)
4	Form of Common Stock Certificate of United Financial Bancorp, Inc. (1)
10.1	Form of Employee Stock Ownership Plan (3)
10.2	Employment Agreement by and between United Bank and Richard B. Collins (4)
10.3	Change in Control Agreement by and between United Bank and Keith E. Harvey (4)
10.4	Change in Control Agreement by and between United Bank and J. Jeffrey Sullivan (4)
10.5	Change in Control Agreement by and between United Bank and Mark A. Roberts (4)
10.6	United Bank 2007 Supplemental Retirement Plan for Senior Executives (4)
10.7	Split Dollar Life Insurance Agreement by and between United Bank and Richard B. Collins (5)
10.8	Split Dollar Life Insurance Agreement by and between United Bank and Keith E. Harvey (5)
10.9	Split Dollar Life Insurance Agreement by and between United Bank and John J. Patterson (5)
10.10	United Bank 2006 Stock-Based Incentive Plan (6)
10.11	United Bank 2009 Annual Incentive Plan
10.12	United Bank 2007 Director Retirement Plan (7)
10.13	Directors Fee Continuation Plan (3)
10.14	Deferred Income Agreement by and between United Bank and Donald G. Helliwell (3)
10.15	Deferred Income Agreement by and between United Bank and Robert W. Bozenhard, Jr. (3)
10.16	Deferred Income Agreement by and between United Bank and George W. Jones (3)
10.17	United Financial Bancorp, Inc. 2008 Equity Incentive Plan (8)
11	Statement Regarding Computation of Per Share Earnings (refer to Note D of Part I,
	Item 1- Consolidated Financial Statements
21	Subsidiaries of Registrant (1)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


(1)	Incorporated by reference to the Registration Statement on Form S-1 of United Financial Bancorp, Inc. (File No. 333-144245), originally filed with the Securities and Exchange Commission on June 29, 2007.
(2)	Incorporated by reference to the Form 10-K of United Financial Bancorp, Inc. filed with the Securities and Exchange Commission on March 13, 2009.
(3)	Incorporated by reference to the Registration Statement on Form S-1 of United Financial Bancorp, Inc. (File No. 333-123371), originally filed with the Securities and Exchange Commission on March 16, 2005.
(4)	Incorporated by reference to the Form 8-K of United Financial Bancorp, Inc. filed with the Securities and Exchange Commission on November 29, 2007.
(5)	Incorporated by reference to the Form 8-K of United Financial Bancorp, Inc. filed with the Securities and Exchange Commission on January 2, 2008.
(6)	Incorporated by reference to Appendix B to the proxy statement for the 2006 Annual Meeting of Stockholders of United Financial Bancorp, Inc. (File No. 000-51369), filed by United Financial Bancorp, Inc. under the Securities Exchange Act of 1934, on June 12, 2006.
(7)	Incorporated by reference to the Form 8-K of United Financial Bancorp, Inc. filed with the Securities and Exchange Commission on November 21, 2007.
(8)	Incorporated by reference to Appendix A of the Company's Definitive Proxy Statement for the Annual Meeting of Stockholders (File No. 000-52947), as filed with the SEC on April 29, 2008.

Index

SIGNATURES

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

	United Financial Bancorp, Inc.


Date: May 8, 2009	By:	/s/ Richard B. Collins
		Richard B. Collins
		Chairman, President and Chief Executive Officer


Date: May 8, 2009	By:	/s/ Mark A. Roberts
		Mark A. Roberts
		Executive Vice President and Chief Financial Officer