Table of Contents

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 
ý
 
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2017.
Commission File Number: 001-35028
UFBANCORPLOGORGB3A15.JPG
United Financial Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Connecticut
 
27-3577029
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
45 Glastonbury Boulevard, Glastonbury, Connecticut
 
06033
(Address of principal executive offices)
 
(Zip Code)
(860) 291-3600
(Registrant’s telephone number, including area code)
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.     ý   Yes     ¨   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 (232.405 of this chapter) during the preceding 12 months (or for such shorter prior that the registrant was required to submit and post such files).    Yes   ý     No   ¨
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12B-2 of the Exchange Act. (Check one):
Large accelerated filer
¨
Accelerated filer
ý
 
 
 
 
Non-accelerated filer
¨   (Do not check if a smaller reporting company)
Smaller reporting company
¨
 
 
 
 
 
 
Emerging growth company
¨


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12B-2 of the Act).    Yes   ¨     No   ý
As of April 28, 2017 , there were 50,758,202 shares of Registrant’s no par value common stock outstanding.

 
Table of Contents

Table of Contents
 
 
 
Page
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
Exhibits
 


Table of Contents

Part 1 - FINANCIAL INFORMATION
Item 1 - Interim Financial Statements
United Financial Bancorp, Inc. and Subsidiaries
Consolidated Statements of Condition
(Unaudited)
 
March 31,
2017
 
December 31,
2016
 
(In thousands, except share data)
ASSETS
 
 
 
Cash and due from banks
$
45,279

 
$
47,248

Short-term investments
39,381

 
43,696

Total cash and cash equivalents
84,660

 
90,944

Available-for-sale securities - at fair value
1,075,729

 
1,043,411

Held-to-maturity securities - at amortized cost
13,937

 
14,038

Loans held for sale
87,031

 
62,517

Loans receivable (net of allowance for loan losses of $43,304
at March 31, 2017 and $42,798 at December 31, 2016)
4,913,953

 
4,870,552

Federal Home Loan Bank of Boston stock
52,707

 
53,476

Accrued interest receivable
19,126

 
18,771

Deferred tax asset, net
37,040

 
39,962

Premises and equipment, net
51,299

 
51,757

Goodwill
115,281

 
115,281

Core deposit intangible
5,517

 
5,902

Cash surrender value of bank-owned life insurance
169,007

 
167,823

Other assets
71,333

 
65,086

Total assets
$
6,696,620

 
$
6,599,520

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Liabilities:
 
 
 
Deposits:
 
 
 
Non-interest-bearing
$
690,516

 
$
708,050

Interest-bearing
4,099,843

 
4,003,122

Total deposits
4,790,359

 
4,711,172

Mortgagors’ and investors’ escrow accounts
10,925

 
13,354

Advances from the Federal Home Loan Bank
1,008,942

 
1,046,712

Other borrowings
171,111

 
122,907

Accrued expenses and other liabilities
49,300

 
49,509

Total liabilities
6,030,637

 
5,943,654

 

 

Stockholders’ equity:
 
 
 
Preferred stock (no par value; 2,000,000 authorized; no shares issued)
—

 
—

Common stock (no par value; authorized 120,000,000 shares; 50,738,221 and 50,786,671 shares issued and outstanding, at March 31, 2017 and December 31, 2016, respectively)
531,275

 
531,848

Additional paid-in capital
7,498

 
7,227

Unearned compensation - ESOP
(5,637
)
 
(5,694
)
Retained earnings
145,466

 
137,838

Accumulated other comprehensive loss, net of tax
(12,619
)
 
(15,353
)
Total stockholders’ equity
665,983

 
655,866

Total liabilities and stockholders’ equity
$
6,696,620

 
$
6,599,520


See accompanying notes to unaudited consolidated financial statements.
3
 
Table of Contents

United Financial Bancorp, Inc. and Subsidiaries
Consolidated Statements of Net Income
(Unaudited)
 
For the Three Months 
 Ended March 31,
 
2017
 
2016
 
(In thousands, except share and per share data)
Interest and dividend income:
 
 
 
Loans
$
46,493

 
$
45,472

Securities - taxable interest
5,510

 
5,096

Securities - non-taxable interest
2,254

 
2,010

Securities - dividends
808

 
923

Interest-bearing deposits
101

 
73

Total interest and dividend income
55,166

 
53,574

Interest expense:
 
 
 
Deposits
6,819

 
6,266

Borrowed funds
4,050

 
3,906

Total interest expense
10,869

 
10,172

Net interest income
44,297

 
43,402

Provision for loan losses
2,288

 
2,688

Net interest income after provision for loan losses
42,009

 
40,714

Non-interest income:
 
 
 
Service charges and fees
5,418

 
4,594

Gain on sales of securities, net
457

 
1,452

Income from mortgage banking activities
1,321

 
860

Bank-owned life insurance income
1,207

 
818

Net loss on limited partnership investments
(80
)
 
(936
)
Other income (loss)
182

 
(61
)
Total non-interest income
8,505

 
6,727

Non-interest expense:
 
 
 
Salaries and employee benefits
19,730

 
17,791

Service bureau fees
2,103

 
2,029

Occupancy and equipment
4,469

 
3,900

Professional fees
1,309

 
881

Marketing and promotions
712

 
592

FDIC insurance assessments
679

 
939

Core deposit intangible amortization
385

 
433

FHLBB prepayment penalties
—

 
1,454

Other
5,308

 
5,744

Total non-interest expense
34,695

 
33,763

Income before income taxes
15,819

 
13,678

Provision for income taxes
2,093

 
1,784

Net income
$
13,726

 
$
11,894

 
 
 
 
Net income per share:
 
 
 
Basic
$
0.27

 
$
0.24

Diluted
$
0.27

 
$
0.24

Weighted-average shares outstanding:
 
 
 
Basic
50,257,825

 
49,423,218

Diluted
51,029,795

 
49,652,632


See accompanying notes to unaudited consolidated financial statements.
4
 
Table of Contents

United Financial Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
 
For the Three Months 
 Ended March 31,
 
2017
 
2016
 
(In thousands)
Net income
$
13,726

 
$
11,894

Other comprehensive income:
 
 
 
Securities available for sale:
 
 
 
Unrealized holding gains
3,980

 
10,569

Reclassification adjustment for gains realized in operations (1)
(457
)
 
(1,452
)
Net unrealized gains
3,523

 
9,117

Tax effect - expense
(1,265
)
 
(3,284
)
Net-of-tax amount - securities available for sale
2,258

 
5,833

Interest rate swaps designated as cash flow hedges:
 
 
 
Unrealized gains (losses)
158

 
(9,535
)
Reclassification adjustment for expense realized in operations  (2)
440

 
619

Net unrealized gains (losses)
598

 
(8,916
)
Tax effect - (expense) benefit
(215
)
 
3,212

Net-of-tax amount - interest rate swaps
383

 
(5,704
)
Pension and Post-retirement plans:
 
 
 
Reclassification adjustment for prior service costs recognized in net periodic benefit cost (3)
2

 
—

Reclassification adjustment for losses recognized in net periodic benefit cost (4)
143

 
125

Net change in losses and prior service costs
145

 
125

Tax effect - benefit
(52
)
 
(45
)
Net-of-tax amount - pension and post-retirement plans
93

 
80

Total other comprehensive income
2,734

 
209

Comprehensive income
$
16,460

 
$
12,103

 
(1)
Amounts are included in gain on sales of securities, net in the unaudited Consolidated Statements of Net Income. Income tax expense associated with the reclassification adjustment was $165 and $523 for the three months ended March 31, 2017 and 2016 , respectively.
(2)
Amounts are included in borrowed funds expense in the unaudited Consolidated Statements of Net Income. Income tax benefit associated with the reclassification adjustment for the three months ended March 31, 2017 and 2016 was $159 and $223 , respectively.
(3)
Amounts are included in salaries and employee benefits expense in the unaudited Consolidated Statements of Net Income. Income tax benefit associated with the reclassification adjustment for prior service costs for the three months ended March 31, 2017 and 2016 was $1 and $0 , respectively.
(4)
Amounts are included in salaries and employee benefits expense in the unaudited Consolidated Statements of Net Income. Income tax benefit associated with the reclassification adjustment for losses recognized in net periodic benefit cost for the three months ended March 31, 2017 and 2016 was $51 and $45 , respectively.

See accompanying notes to unaudited consolidated financial statements.
5
 
Table of Contents

United Financial Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
 
Common Stock
 
Additional
Paid-in
Capital
 
Unearned
Compensation
 - ESOP
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders’
Equity
Shares
 
Amount
 
 
 
 
 
 
(In thousands, except share data)
Balance at December 31, 2016
50,786,671

 
$
531,848

 
$
7,227

 
$
(5,694
)
 
$
137,838

 
$
(15,353
)
 
$
655,866

Comprehensive income
—

 
—

 
—

 
—

 
13,726

 
2,734

 
16,460

Common stock repurchased
(80,000
)
 
(1,312
)
 
—

 
—

 
—

 
—

 
(1,312
)
Stock-based compensation expense
—

 
—

 
697

 
—

 
—

 
—

 
697

ESOP shares released or committed to be released
—

 
—

 
44

 
57

 
—

 
—

 
101

Shares issued for stock options exercised
38,068

 
694

 
(318
)
 
—

 
—

 
—

 
376

Shares issued for restricted stock grants
2,517

 
45

 
(45
)
 
—

 
—

 
—

 
—

Cancellation of shares for tax withholding
(9,035
)
 
—

 
(107
)
 
—

 
—

 
—

 
(107
)
Dividends paid ($0.12 per common share)
—

 
—

 
—

 
—

 
(6,098
)
 
—

 
(6,098
)
Balance at March 31, 2017
50,738,221

 
$
531,275

 
$
7,498

 
$
(5,637
)
 
$
145,466

 
$
(12,619
)
 
$
665,983

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
49,941,428

 
$
519,587

 
$
10,722

 
$
(5,922
)
 
$
112,013

 
$
(10,879
)
 
$
625,521

Comprehensive income
—

 
—

 
—

 
—

 
11,894

 
209

 
12,103

Stock-based compensation expense
—

 
—

 
500

 
—

 
—

 
—

 
500

ESOP shares released or committed to be released
—

 
—

 
9

 
57

 
—

 
—

 
66

Shares issued for stock options exercised and SARs
138,171

 
1,685

 
(609
)
 
—

 
—

 
—

 
1,076

Shares issued for restricted stock grants
30,973

 
350

 
(350
)
 
—

 
—

 
—

 
—

Cancellation of shares for tax withholding
(2,523
)
 
—

 
(29
)
 
—

 
—

 
—

 
(29
)
Tax benefit from stock-based awards
—

 
—

 
37

 
—

 
—

 
—

 
37

Dividends paid ($0.12 per common share)
—

 
—

 
—

 
—

 
(5,996
)
 
—

 
(5,996
)
Balance at March 31, 2016
50,108,049

 
$
521,622

 
$
10,280

 
$
(5,865
)
 
$
117,911

 
$
(10,670
)
 
$
633,278


See accompanying notes to unaudited consolidated financial statements.
6
 
Table of Contents

United Financial Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
 
For the Three Months 
 Ended March 31,
 
2017
 
2016
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income
$
13,726

 
$
11,894

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Amortization of premiums and discounts on investments, net
994

 
1,284

Amortization (accretion) of intangible assets and purchase accounting marks, net
409

 
(1,462
)
Amortization of subordinated debt issuance costs
32

 
32

Stock-based compensation expense
697

 
500

ESOP expense
101

 
66

Loss on extinguishment of debt
—

 
1,454

Tax benefit from stock-based awards
—

 
37

Provision for loan losses
2,288

 
2,688

Gain on sales of securities, net
(457
)
 
(1,452
)
Loans originated for sale
(76,340
)
 
(87,182
)
Principal balance of loans sold
51,826

 
89,758

(Increase) decrease in mortgage servicing asset
(180
)
 
803

Gain on sales of other real estate owned
(27
)
 
(8
)
Net gain in mortgage banking fair value adjustments
(626
)
 
(441
)
Loss (gain) on disposal of equipment
20

 
(17
)
Write-downs of other real estate owned
32

 
—

Depreciation and amortization
1,391

 
1,351

Net loss on limited partnership investments
80

 
936

Deferred income tax expense
1,390

 
755

Increase in cash surrender value of bank-owned life insurance
(1,199
)
 
(818
)
Income recognized from death benefit on BOLI
(8
)
 
—

Net change in:
 
 
 
Deferred loan fees and premiums
(1,637
)
 
(594
)
Accrued interest receivable
(355
)
 
(1,182
)
Other assets
(6,425
)
 
(41,510
)
Accrued expenses and other liabilities
(58
)
 
15,893

Net cash used in operating activities
(14,326
)
 
(7,215
)
Cash flows from investing activities:
 
 
 
Proceeds from sales of available-for-sale securities
130,630

 
108,152

Proceeds from calls and maturities of available-for-sale securities
31,489

 
—

Principal payments on available-for-sale securities
16,927

 
15,302

Principal payments on held-to-maturity securities
92

 
124

Purchases of available-for-sale securities
(209,197
)
 
(145,435
)
Redemption of FHLBB and other stock
2,512

 
—

Purchase of FHLBB stock
(126
)
 
(4,793
)
Proceeds from sale of other real estate owned
340

 
509

Purchases of loans
(16,955
)
 
(25,454
)
Loan originations, net of principal repayments
(27,290
)
 
(10,437
)
Purchases of premises and equipment
(1,190
)
 
(263
)
Proceeds from sale of equipment
224

 
1

Net cash used in investing activities
(72,544
)
 
(62,294
)

(Continued)
See accompanying notes to unaudited consolidated financial statements.
7
 
Table of Contents

United Financial Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows - Concluded
(Unaudited)
 
For the Three Months 
 Ended March 31,
 
2017
 
2016
 
(In thousands)
Cash flows from financing activities:
 
 
 
Net (decrease) increase in non-interest-bearing deposits
(17,534
)
 
21,136

Net increase in interest-bearing deposits
96,916

 
76,197

Net decrease in mortgagors’ and investors’ escrow accounts
(2,429
)
 
(3,830
)
Net decrease in short-term FHLBB advances
(62,000
)
 
(45,000
)
Repayments of long-term FHLBB advances
(378
)
 
(1,024
)
Prepayments of long-term FHLBB borrowings and penalty
—

 
(37,796
)
Proceeds from long-term FHLBB advances
25,000

 
60,000

Net change in other borrowings
48,152

 
(3,204
)
Proceeds from exercise of stock options and SARs
376

 
1,076

Common stock repurchased
(1,312
)
 
—

Cancellation of shares for tax withholding
(107
)
 
(29
)
Tax benefit from stock-based awards
—

 
37

Cash dividend paid on common stock
(6,098
)
 
(5,996
)
Net cash provided by financing activities
80,586

 
61,567

Net decrease in cash and cash equivalents
(6,284
)
 
(7,942
)
Cash and cash equivalents, beginning of period
90,944

 
95,176

Cash and cash equivalents, end of period
$
84,660

 
$
87,234

 
 
 
 
Supplemental Disclosures of Cash Flow Information:
 
 
 
Cash paid during the year for:
 
 
 
Interest
$
10,385

 
$
9,809

Income taxes, net
2,740

 
1,445

Transfer of loans to other real estate owned
241

 
405

Decrease in due to broker, investment purchases
(6
)
 
—


See accompanying notes to unaudited consolidated financial statements.
8
 
Table of Contents

United Financial Bancorp, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 1.
Summary of Significant Accounting Policies
Nature of Operations
United Financial Bancorp, Inc. (the “Company” or “United”) is headquartered in Glastonbury, Connecticut, and through United Bank (the “Bank”) and various subsidiaries, delivers financial services to individuals, families and businesses primarily throughout Connecticut and Massachusetts through 53 banking offices, its commercial loan production offices, its mortgage loan production offices, 63 ATMs, telephone banking, mobile banking and online banking ( www.bankatunited.com ).
Basis of Presentation
The consolidated interim financial statements and the accompanying notes presented in this report include the accounts of the Company, the Bank and the Bank’s wholly-owned subsidiaries, United Bank Mortgage Company, United Bank Investment Corp., Inc., United Bank Commercial Properties, Inc., United Bank Residential Properties, Inc., United Northeast Financial Advisors, Inc., United Bank Investment Sub, Inc., UCB Securities, Inc. II, UB Properties, LLC, United Financial Realty HC, Inc. and United Financial Business Trust I.
The consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included in the interim unaudited consolidated financial statements. Interim results are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 or any future period. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s 2016 audited consolidated financial statements and notes thereto included in United Financial Bancorp, Inc.’s Annual Report on Form 10-K as of and for the year ended December 31, 2016 .
Common Share Repurchases
The Company is chartered in the state of Connecticut. Connecticut law does not provide for treasury shares, rather shares repurchased by the Company constitute authorized, but unissued shares. GAAP states that accounting for treasury stock shall conform to state law. Therefore, the cost of shares repurchased by the Company has been allocated to common stock balances.
Reclassifications
Certain reclassifications have been made in prior periods’ consolidated financial statements to conform to the 2017 presentation. These reclassifications had no impact on the Company’s consolidated financial position, results of operations or net change in cash equivalents.
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results in the future could vary from the amounts derived from management’s estimates and assumptions. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the realizability of deferred tax assets, the evaluation of securities for other-than-temporary impairment, the valuation of derivative instruments and hedging activities, and goodwill impairment valuations.
Note 2.
Recent Accounting Pronouncements
Receivables
In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-08 Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. Under the new guidance, the premium on bonds purchased at a premium will be amortized to the bond’s call date rather than the date of maturity to more closely align interest income recorded on bonds held at a premium or a discount with the economics of the underlying instrument. This ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. This ASU is expected to have an impact of reducing approximately $6.4 million of premiums to the Company’s Consolidated Financial Statements with an offset being a reduction in retained earnings upon initial adoption.


9
 

Compensation
In March 2017, the FASB issued ASU No. 2017-07 Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Under the new guidance, employers will present the service cost component of the net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers are required to include all other components of net benefit cost in a separate line item(s) that includes the service cost and outside of any subtotal of non-GAAP income, if one is presented. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. ASU 2017-07 is effective for public companies for fiscal years beginning after December 15, 2017. Early adoption is permitted in the first financial statements issued for a fiscal year, provided all provisions of the ASU are adopted. This ASU is not expected to have a significant impact on the Company’s Consolidated Financial Statements.
Note 3.
Securities
The amortized cost, gross unrealized gains, gross unrealized losses and fair value of investment securities at March 31, 2017 and December 31, 2016 are as follows:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
March 31, 2017
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
Government-sponsored residential mortgage-backed securities
$
225,266

 
$
309

 
$
(1,841
)
 
$
223,734

Government-sponsored residential collateralized debt obligations
204,406

 
912

 
(1,040
)
 
204,278

Government-sponsored commercial mortgage-backed securities
22,489

 
15

 
(280
)
 
22,224

Government-sponsored commercial collateralized debt obligations
142,786

 
179

 
(2,404
)
 
140,561

Asset-backed securities
154,215

 
2,221

 
(251
)
 
156,185

Corporate debt securities
87,969

 
514

 
(1,915
)
 
86,568

Obligations of states and political subdivisions
238,251

 
282

 
(6,959
)
 
231,574

Total debt securities
1,075,382

 
4,432

 
(14,690
)
 
1,065,124

Marketable equity securities, by sector:
 
 
 
 
 
 
 
Banks
9,428

 
807

 
—

 
10,235

Industrial
109

 
71

 
—

 
180

Oil and gas
132

 
58

 
—

 
190

Total marketable equity securities
9,669

 
936

 
—

 
10,605

Total available-for-sale securities
$
1,085,051

 
$
5,368

 
$
(14,690
)
 
$
1,075,729

Held to maturity:
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
12,311

 
$
775

 
$
(34
)
 
$
13,052

Government-sponsored residential mortgage-backed securities
1,626

 
161

 
—

 
1,787

Total held-to-maturity securities
$
13,937

 
$
936

 
$
(34
)
 
$
14,839




10
 

 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
December 31, 2016
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
Government-sponsored residential mortgage-backed securities
$
181,419

 
$
365

 
$
(2,236
)
 
$
179,548

Government-sponsored residential collateralized debt obligations
184,185

 
438

 
(1,363
)
 
183,260

Government-sponsored commercial mortgage-backed securities
26,949

 
23

 
(442
)
 
26,530

Government-sponsored commercial collateralized debt obligations
164,433

 
296

 
(1,802
)
 
162,927

Asset-backed securities
166,336

 
1,619

 
(988
)
 
166,967

Corporate debt securities
76,787

 
533

 
(2,305
)
 
75,015

Obligations of states and political subdivisions
223,733

 
127

 
(7,484
)
 
216,376

Total debt securities
1,023,842

 
3,401

 
(16,620
)
 
1,010,623

Marketable equity securities, by sector:
 
 
 
 
 
 
 
Banks
32,174

 
482

 
(243
)
 
32,413

Industrial
109

 
58

 
—

 
167

Oil and gas
131

 
77

 
—

 
208

Total marketable equity securities
32,414

 
617

 
(243
)
 
32,788

Total available-for-sale securities
$
1,056,256

 
$
4,018

 
$
(16,863
)
 
$
1,043,411

Held to maturity:
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
12,321

 
$
654

 
$
(35
)
 
$
12,940

Government-sponsored residential mortgage-backed securities
1,717

 
172

 
—

 
1,889

Total held-to-maturity securities
$
14,038

 
$
826

 
$
(35
)
 
$
14,829


At March 31, 2017 , the net unrealized loss on securities available for sale of $9.3 million , net of an income tax expense of $3.3 million , or $6.0 million , was included in accumulated other comprehensive loss in the unaudited Consolidated Statement of Condition.
The amortized cost and fair value of debt securities at March 31, 2017 by contractual maturities are presented below. Actual maturities may differ from contractual maturities because some securities may be called or repaid without any penalties. Also, because mortgage-backed securities require periodic principal paydowns, they are not included in the maturity categories in the following maturity summary.


11
 

 
Available for Sale
 
Held to Maturity
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
(In thousands)
Maturity:
 
 
 
 
 
 
 
Within 1 year
$
—

 
$
—

 
$
—

 
$
—

After 1 year through 5 years
16,689

 
16,784

 
1,178

 
1,199

After 5 years through 10 years
81,882

 
81,217

 
1,102

 
1,068

After 10 years
227,649

 
220,141

 
10,031

 
10,785

 
326,220

 
318,142

 
12,311

 
13,052

Government-sponsored residential mortgage-backed securities
225,266

 
223,734

 
1,626

 
1,787

Government-sponsored residential collateralized debt obligations
204,406

 
204,278

 
—

 
—

Government-sponsored commercial mortgage-backed securities
22,489

 
22,224

 
—

 
—

Government-sponsored commercial collateralized debt obligations
142,786

 
140,561

 
—

 
—

Asset-backed securities
154,215

 
156,185

 
—

 
—

Total debt securities
$
1,075,382

 
$
1,065,124

 
$
13,937

 
$
14,839


At March 31, 2017 , the Company had 109 securities with a fair value of $496.8 million pledged as derivative collateral, collateral for reverse repurchase borrowings and collateral for Federal Home Loan Bank of Boston (“FHLBB”) borrowing capacity. At December 31, 2016 , the Company had 115 securities with a fair value of $510.0 million pledged as derivative collateral, collateral for reverse repurchase borrowings, and collateral for FHLBB borrowing capacity.
For the three months ended March 31, 2017 and 2016 , gross gains of $1.7 million were realized on the sales of available-for-sale securities for both periods. There were gross losses of $ 1.3 million and $202,000 realized on the sale of available-for-sale securities for the three months ended March 31, 2017 and 2016 , respectively.
As of March 31, 2017 , the Company did not have any exposure to private-label mortgage-backed securities. The Company also did not own any single security with an aggregate book value in excess of 10% of the Company’s stockholders’ equity.
As of March 31, 2017 , the fair value of the obligations of states and political subdivisions portfolio was $244.6 million , with no significant geographic or issuer exposure concentrations. Of the total state and political obligations of $244.6 million , $106.0 million were representative of general obligation bonds for which $72.5 million are general obligations of political subdivisions of the respective state, rather than general obligations of the state itself. 
















12
 

The following table summarizes gross unrealized losses and fair value, aggregated by category and length of time the securities have been in a continuous unrealized loss position, as of March 31, 2017 and December 31, 2016 :
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
Fair
Value
 
Unrealized
Loss
 
(In thousands)
March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
 
 
Debt Securities:
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored residential mortgage-backed securities
$
155,665

 
$
(1,841
)
 
$
—

 
$
—

 
$
155,665

 
$
(1,841
)
Government-sponsored residential collateralized debt obligations
83,542

 
(730
)
 
6,664

 
(310
)
 
90,206

 
(1,040
)
Government-sponsored commercial mortgage-backed securities
18,250

 
(280
)
 
—

 
—

 
18,250

 
(280
)
Government-sponsored commercial collateralized debt obligations
119,514

 
(2,404
)
 
—

 
—

 
119,514

 
(2,404
)
Asset-backed securities
17,022

 
(123
)
 
2,290

 
(128
)
 
19,312

 
(251
)
Corporate debt securities
44,204

 
(791
)
 
1,605

 
(1,124
)
 
45,809

 
(1,915
)
Obligations of states and political subdivisions
146,298

 
(5,177
)
 
41,160

 
(1,782
)
 
187,458

 
(6,959
)
Total available-for-sale securities
$
584,495

 
$
(11,346
)
 
$
51,719

 
$
(3,344
)
 
$
636,214

 
$
(14,690
)
 
 
 
 
 
 
 
 
 
 
 
 
Held to Maturity:
 
 
 
 
 
 
 
 
 
 
 
Debt Securities:
 
 
 
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
—

 
$
—

 
$
1,068

 
$
(34
)
 
$
1,068

 
$
(34
)
Total held to maturity securities
$
—

 
$
—

 
$
1,068

 
$
(34
)
 
$
1,068

 
$
(34
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
 
 
Debt Securities:
 
 
 
 
 
 
 
 
 
 
 
Government-sponsored residential mortgage-backed securities
$
156,000

 
$
(2,236
)
 
$
—

 
$
—

 
$
156,000

 
$
(2,236
)
Government-sponsored residential collateralized debt obligations
109,468

 
(1,082
)
 
6,691

 
(281
)
 
116,159

 
(1,363
)
Government-sponsored commercial mortgage-backed securities
23,808

 
(442
)
 
—

 
—

 
23,808

 
(442
)
Government-sponsored commercial collateralized debt obligations
128,238

 
(1,802
)
 
—

 
—

 
128,238

 
(1,802
)
Asset-backed securities
23,415

 
(163
)
 
20,326

 
(825
)
 
43,741

 
(988
)
Corporate debt securities
43,990

 
(885
)
 
3,335

 
(1,420
)
 
47,325

 
(2,305
)
Obligations of states and political subdivisions
156,891

 
(5,620
)
 
41,136

 
(1,864
)
 
198,027

 
(7,484
)
Total debt securities
641,810

 
(12,230
)
 
71,488

 
(4,390
)
 
713,298

 
(16,620
)
Marketable equity securities
19,002

 
(243
)
 
—

 
—

 
19,002

 
(243
)
Total available-for-sale securities
$
660,812

 
$
(12,473
)
 
$
71,488

 
$
(4,390
)
 
$
732,300

 
$
(16,863
)
 
 
 
 
 
 
 
 
 
 
 
 
Held to Maturity:
 
 
 
 
 
 
 
 
 
 
 
Debt Securities:
 
 
 
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
—

 
$
—

 
$
1,070

 
$
(35
)
 
$
1,070

 
$
(35
)
Total held to maturity securities
$
—

 
$
—

 
$
1,070

 
$
(35
)
 
$
1,070

 
$
(35
)


13
 

Of the available-for-sale securities summarized above as of March 31, 2017 , 150 issues had unrealized losses equaling 1.9% of the amortized cost basis for less than twelve months and 23 issues had unrealized losses of 6.1% of the amortized cost basis for twelve months or more. There was one unrealized loss of $34,000 on a debt security held to maturity at March 31, 2017 . As of December 31, 2016 , 170 issues had unrealized losses equaling 1.9% of the cost basis for less than twelve months and 31 issues had unrealized losses equaling 5.8% of the amortized cost basis for twelve months or more.
Based on its detailed quarterly review of the securities portfolio, management believes that no individual unrealized loss as of March 31, 2017 represents an other-than-temporary impairment. Among other things, the other-than-temporary impairment review of the investment securities portfolio focuses on the combined factors of percentage and length of time by which an issue is below book value as well as consideration of issuer specific information (present value of cash flows expected to be collected, issuer rating changes and trends, credit worthiness and review of underlying collateral), broad market details and the Company’s intent to sell the security or if it is more likely than not that the Company will be required to sell the debt security before recovering its cost. The Company also considers whether the depreciation is due to interest rates, market changes, or credit risk.
The following paragraphs outline the Company’s position related to unrealized losses in its investment securities portfolio at March 31, 2017 .
Government-sponsored residential mortgage backed securities, residential collateralized debt obligations, commercial mortgage-backed securities, and commercial collateralized debt obligations.   The unrealized losses on certain securities within the Company’s government-sponsored mortgage-backed and collateralized debt obligation portfolios were caused by the continued pickup of prepayment speeds relative to original purchase expectations. The Company monitors this risk, and therefore, strives to minimize premiums within this security class. The Company does not expect these securities to settle at a price less than the par value of the securities.
Asset-backed securities .  The unrealized losses on certain securities within the Company’s asset-backed securities sleeve were largely driven by slight increases in the spreads of certain managers over comparable securities’ managers relative to the time of purchase.  Based on the credit profiles and asset qualities of the individual securities, management does not believe that the securities have suffered from any credit related losses at this time. The Company does not expect these securities to settle at a price less than the par value of the securities.
Corporate debt securities. The unrealized losses on corporate debt securities is primarily related to one pooled trust preferred security, Preferred Term Security XXVIII, Ltd (“PRETSL XXVIII”). The unrealized loss on this security is caused by the low interest rate environment, as the security reprices quarterly to the three month LIBOR and the security’s low spread as market spreads on similar newly issued securities have increased. No loss of principal is projected. Based on the existing credit profile, management does not believe that this security has suffered from any credit related losses. The unrealized loss on the remainder of the corporate credit portfolio has been driven primarily by a general widening in credit spreads across the curve.
Obligations of states and political subdivisions. The unrealized loss on obligations of states and political subdivisions relates to several securities, with no geographic concentration. The unrealized loss was largely due to an upward shift in the rates relative to the time of purchase of certain securities.
The Company will continue to review its entire portfolio for other-than-temporarily impaired securities.


14
 

Note 4.
Loans Receivable and Allowance for Loan Losses
A summary of the Company’s loan portfolio is as follows:
 
March 31, 2017
 
December 31, 2016
 
Amount
 
Percent
 
Amount
 
Percent
 
(Dollars in thousands)
Commercial real estate loans:
 
 
 
 
 
 
 
Owner-occupied
$
433,358

 
8.8
%
 
$
416,718

 
8.5
%
Investor non-owner occupied
1,697,414

 
34.3

 
1,705,319

 
34.8

Construction
85,533

 
1.7

 
98,794

 
2.0

Total commercial real estate loans
2,216,305

 
44.8

 
2,220,831

 
45.3

 
 
 
 
 
 
 
 
Commercial business loans
769,153

 
15.6

 
724,557

 
14.8

 
 
 
 
 
 
 
 
Consumer loans:
 
 
 
 
 
 
 
Residential real estate
1,167,428

 
23.6

 
1,156,227

 
23.6

Home equity
516,325

 
10.4

 
536,772

 
11.0

Residential construction
49,456

 
1.0

 
53,934

 
1.1

Other consumer
225,317

 
4.6

 
209,393

 
4.2

Total consumer loans
1,958,526

 
39.6

 
1,956,326

 
39.9

 
 
 
 
 
 
 
 
Total loans
4,943,984

 
100.0
%
 
4,901,714

 
100.0
%
Net deferred loan costs and premiums
13,273

 
 
 
11,636

 
 
Allowance for loan losses
(43,304
)
 
 
 
(42,798
)
 
 
Loans - net
$
4,913,953

 
 
 
$
4,870,552

 
 
Allowance for Loan Losses
Management has established a methodology to determine the adequacy of the allowance for loan losses (“ALL”) that assesses the risks and losses inherent in the loan portfolio. The ALL is established as embedded losses are estimated to have occurred through the provisions for losses charged against operations and is maintained at a level that management considers adequate to absorb losses in the loan portfolio. Management’s judgment in determining the adequacy of the allowance is inherently subjective and is based on past loan loss experience, known and inherent losses and size of the loan portfolios, an assessment of current economic and real estate market conditions, estimates of the current value of underlying collateral, review of regulatory authority examination reports and other relevant factors. An allowance is maintained for impaired loans to reflect the difference, if any, between the carrying value of the loan and the present value of the projected cash flows, observable fair value or collateral value. Loans are charged-off against the ALL when management believes that the uncollectibility of principal is confirmed. Any subsequent recoveries are credited to the ALL when received. In connection with the determination of the ALL, management obtains independent appraisals for significant properties, when considered necessary.
The ALL is maintained at a level estimated by management to provide for probable losses inherent within the loan portfolio. Probable losses are estimated based upon a quarterly review of the loan portfolio, which includes historic default and loss experience, specific problem loans, risk rating profile, economic conditions and other pertinent factors which, in management’s judgment, warrant current recognition in the loss estimation process.
The adequacy of the ALL is subject to considerable assumptions and judgment used in its determination. Therefore, actual losses could differ materially from management’s estimate if actual conditions differ significantly from the assumptions utilized. These conditions include economic factors in the Company’s market and nationally, industry trends and concentrations, real estate values and trends, and the financial condition and performance of individual borrowers.
The Company’s general practice is to identify problem credits early and recognize full or partial charge-offs as promptly as practicable when it is determined that the collection of loan principal is unlikely. The Company recognizes full or partial charge-offs on collateral dependent impaired loans when the collateral is deemed to be insufficient to support the carrying value of the loan. The Company does not recognize a recovery when an updated appraisal indicates a subsequent increase in value.


15
 
Table of Contents

At March 31, 2017 , the Company had a loan loss allowance of $43.3 million , or 0.88% , of total loans as compared to a loan loss allowance of $42.8 million , or 0.87% , of total loans at December 31, 2016 . Management believes that the allowance for loan losses is adequate and consistent with asset quality indicators and that it represents the best estimate of probable losses inherent in the loan portfolio.
There are three components for the allowance for loan loss calculation:
General component

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: owner-occupied and investor non-owner occupied commercial real estate, commercial and residential construction, commercial, residential real estate, home equity, and other consumer. Management uses a rolling average of historical losses based on a three -year loss history to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: levels and trends in delinquencies; level and trend of charge-offs and recoveries; trends in volume and types of loans; effects of changes in risk selection and underwriting standards, changes in risk selection and underwriting standards; experience and depth of lending weighted average risk rating; and national and local economic trends and conditions. The general component of the allowance for loan losses also includes a reserve based upon historical loss experience for loans which were acquired and have subsequently evidenced measured credit deterioration following initial acquisition. Our acquired loan portfolio is comprised of purchased loans that show no evidence of deterioration subsequent to acquisition and therefore not part of the covered portfolio. Acquired impaired loans are loans with evidence of deterioration subsequent to acquisition and are considered in the covered portfolio in establishing the allowance for loan losses. There were no changes in the Company’s methodology pertaining to the general component of the allowance for loan losses during 2017.
The qualitative factors are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:
Residential real estate and home equity loans – The Bank establishes maximum loan-to-value and debt-to-income ratios and minimum credit scores as an integral component of the underwriting criteria. Loans in these segments are collateralized by owner-occupied residential real estate and repayment is dependent on the income and credit quality of the individual borrower. Within the qualitative allowance factors, national and local economic trends including unemployment rates and potential declines in property value, are key elements reviewed as a component of establishing the appropriate allocation. Overall economic conditions, unemployment rates and housing price trends will influence the underlying credit quality of these segments.
Owner-occupied and investor non-owner occupied commercial real estate (“Owner-occupied CRE” and “Investor CRE”) – Loans in these segments are primarily income-producing properties throughout Connecticut, western Massachusetts, and other select markets in the Northeast. The underlying cash flows generated by the properties could be adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment. Management obtains rent rolls annually, continually monitors the cash flows of these loans and performs stress testing.
Commercial and residential construction loans – Loans in this segment primarily include commercial real estate development and residential subdivision loans for which payment is derived from the sale of the property. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.
Commercial business loans – Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy and its effect on business profitability and cash flow could have an effect on the credit quality in this segment.
Other Consumer – Loans in this segment are secured or unsecured and repayment is dependent on the credit quality of the individual borrower. A significant portion of these loans are secured by boats.

For acquired loans accounted for under ASC 310-30, our accretable discount is estimated based upon our expected cash flows for these loans. To the extent that we experience a deterioration in borrower credit quality resulting in a decrease in our expected cash flows subsequent to the acquisition of the loans, an allowance for loan losses would be established through a provision based on our estimate of future credit losses over the remaining life of the loans.
Allocated component

The allocated component relates to loans that are classified as impaired. Impairment is measured on a loan by loan basis for commercial, commercial real estate and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the collateral if the loan is collateral dependent. An allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan. Updated


16
 
Table of Contents

property evaluations are obtained at the time of impairment and serve as the basis for the loss allocation if foreclosure is probable or the loan is collateral dependent.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Loans which are placed on non-accrual status, or deemed troubled debt restructures, are considered impaired by the Company and subject to impairment testing for possible partial or full charge-off when loss can be reasonably determined. Generally, when all contractual payments on a loan are not expected to be collected, or the loan has failed to make contractual payments for a period of 90 days or more, a loan is placed on non-accrual status. In accordance with the Company's loan policy, losses on open and closed end consumer loans are recognized within a period of 120 days past due. For commercial loans, there is no threshold in terms of days past due for losses to be recognized as a result of the complexity in reasonably determining losses within a set time frame. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due.

When a loan is determined to be impaired, the Company makes a determination if the repayment of the obligation is collateral dependent. As a majority of impaired loans are collateralized by real estate, appraisals on the underlying value of the property securing the obligation are utilized in determining the specific impairment amount that is allocated to the loan as a component of the allowance calculation. If the loan is collateral dependent, an updated appraisal is obtained within a short period of time from the date the loan is determined to be impaired; typically no longer than 30 days for a residential property and 90 days for a commercial real estate property. The appraisal and the appraised value are reviewed for adequacy and then further discounted for estimated disposition costs and the period of time until resolution, in order to determine the impairment amount. The Company updates the appraised value at least annually and on a more frequent basis if current market factors indicate a potential change in valuation.

The majority of the Company’s loans are collateralized by real estate located in central and eastern Connecticut and western Massachusetts in addition to a portion of the commercial real estate loan portfolio located in the Northeast region of the United States. Accordingly, the collateral value of a substantial portion of the Company’s loan portfolio and real estate acquired through foreclosure is susceptible to changes in market conditions in these areas.
Unallocated component
An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.
Credit Quality Information
The Company utilizes a nine -grade internal loan rating system for residential and commercial real estate, construction, commercial and other consumer loans as follows:
Loans rated 1 – 5: Loans in these categories are considered “pass” rated loans with low to average risk.
Loans rated 6: Loans in this category are considered “special mention.” These loans reflect signs of potential weakness and are being closely monitored by management.
Loans rated 7: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor and there is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.
Loans rated 8: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.
Loans rated 9: Loans in this category are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted.
At the time of loan origination, a risk rating based on this nine point grading system is assigned to each loan based on the loan officer’s assessment of risk. For residential real estate and other consumer loans, the Company considers factors such as updated FICO scores, employment status, home prices, loan to value and geography. Residential real estate and other consumer loans are pass rated unless their payment history reveals signs of deterioration, which may result in modifications to the original contractual terms. In situations which require modification to the loan terms, the internal loan grade will typically be reduced to substandard. More complex loans, such as commercial business loans and commercial real estate loans require that our internal credit area further evaluate the risk rating of the individual loan, with the credit area and Chief Credit Officer having final determination of


17
 
Table of Contents

the appropriate risk rating. These more complex loans and relationships receive an in-depth analysis and periodic review to assess the appropriate risk rating on a post-closing basis with changes made to the risk rating as the borrower’s and economic conditions warrant. The credit quality of the Company’s loan portfolio is reviewed by a third-party risk assessment firm throughout the year and by the Company’s internal credit management function. The internal and external analysis of the loan portfolio is utilized to identify and quantify loans with higher than normal risk. Loans having a higher risk profile are assigned a risk rating corresponding to the level of weakness identified in the loan. All loans risk rated Special Mention, Substandard or Doubtful are reviewed by management not less than on a quarterly basis to assess the level of risk and to ensure that appropriate actions are being taken to minimize potential loss exposure. Loans identified as being loss are normally fully charged off.
The following table presents the Company’s loans by risk rating at March 31, 2017 and December 31, 2016 :
 
Owner-Occupied CRE
 
Investor CRE
 
Construction
 
Commercial Business
 
Residential Real Estate
 
Home Equity
 
Other Consumer
 
(In thousands)
March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans rated 1-5
$
405,924

 
$
1,641,631

 
$
133,454

 
$
743,978

 
$
1,149,885

 
$
510,547

 
$
223,991

Loans rated 6
4,930

 
22,728

 
—

 
5,260

 
1,062

 
—

 
—

Loans rated 7
22,504

 
33,055

 
1,535

 
19,915

 
16,481

 
5,778

 
1,326

Loans rated 8
—

 
—

 
—

 
—

 
—

 
—

 
—

Loans rated 9
—

 
—

 
—

 
—

 
—

 
—

 
—

 
$
433,358

 
$
1,697,414

 
$
134,989

 
$
769,153

 
$
1,167,428

 
$
516,325

 
$
225,317

 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans rated 1-5
$
388,389

 
$
1,656,256

 
$
150,411

 
$
698,458

 
$
1,139,662

 
$
531,359

 
$
207,193

Loans rated 6
7,139

 
18,040

 
204

 
7,466

 
1,267

 
—

 
—

Loans rated 7
21,190

 
31,023

 
2,113

 
18,633

 
15,298

 
5,413

 
2,200

Loans rated 8
—

 
—

 
—

 
—

 
—

 
—

 
—

Loans rated 9
—

 
—

 
—

 
—

 
—

 
—

 
—

 
$
416,718

 
$
1,705,319

 
$
152,728

 
$
724,557

 
$
1,156,227

 
$
536,772

 
$
209,393



18
 
Table of Contents

Activity in the allowance for loan losses for the periods ended March 31, 2017 and 2016 were as follows:
 
Owner-Occupied CRE
 
Investor CRE
 
Construction
 
Commercial
Business
 
Residential Real Estate
 
Home Equity
 
Other Consumer
 
Unallocated
 
Total
 
(In thousands)
Three Months Ended March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
3,765

 
$
14,869

 
$
1,913

 
$
8,730

 
$
7,854

 
$
2,858

 
$
1,353

 
$
1,456

 
$
42,798

Provision (credit) for loan losses
53

 
79

 
76

 
1,041

 
(34
)
 
256

 
837

 
(20
)
 
2,288

Loans charged off
—

 
(242
)
 
(132
)
 
(703
)
 
(191
)
 
(219
)
 
(487
)
 
—

 
(1,974
)
Recoveries of loans previously charged off
—

 
9

 
—

 
83

 
—

 
15

 
85

 
—

 
192

Balance, end of period
$
3,818

 
$
14,715

 
$
1,857

 
$
9,151

 
$
7,629

 
$
2,910

 
$
1,788

 
$
1,436

 
$
43,304

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
2,174

 
$
12,859

 
$
1,895

 
$
5,827

 
$
7,801

 
$
2,391

 
$
146

 
$
794

 
$
33,887

Provision (credit) for loan losses
749

 
936

 
(57
)
 
640

 
99

 
177

 
113

 
31

 
2,688

Loans charged off
(82
)
 
(542
)
 
—

 
(221
)
 
(180
)
 
(191
)
 
(122
)
 
—

 
(1,338
)
Recoveries of loans previously charged off
—

 
4

 
—

 
128

 
53

 
36

 
42

 
—

 
263

Balance, end of period
$
2,841

 
$
13,257

 
$
1,838

 
$
6,374

 
$
7,773

 
$
2,413

 
$
179

 
$
825

 
$
35,500



19
 
Table of Contents

Further information pertaining to the allowance for loan losses and impaired loans at March 31, 2017 and December 31, 2016 follows:
 
Owner-Occupied CRE
 
Investor CRE
 
Construction
 
Commercial
Business
 
Residential Real Estate
 
Home Equity
 
Other Consumer
 
Unallocated
 
Total
 
(In thousands)
March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance related to loans individually evaluated and deemed impaired
$
—

 
$
—

 
$
—

 
$
512

 
$
67

 
$
—

 
$
—

 
$
—

 
$
579

Allowance related to loans collectively evaluated and not deemed impaired
3,818

 
14,715

 
1,857

 
8,417

 
7,562

 
2,910

 
1,788

 
1,436

 
42,503

Allowance related to loans acquired with deteriorated credit quality
—

 
—

 
—

 
222

 
—

 
—

 
—

 
—

 
222

Total allowance for loan losses
$
3,818

 
$
14,715

 
$
1,857

 
$
9,151

 
$
7,629

 
$
2,910

 
$
1,788

 
$
1,436

 
$
43,304

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans deemed impaired
$
2,990

 
$
9,674

 
$
2,693

 
$
8,302

 
$
18,076

 
$
7,438

 
$
1,328

 
$
—

 
$
50,501

Loans not deemed impaired
430,368

 
1,687,469

 
132,296

 
759,542

 
1,149,352

 
508,887

 
222,116

 
—

 
4,890,030

Loans acquired with deteriorated credit quality
—

 
271

 
—

 
1,309

 
—

 
—

 
1,873

 
—

 
3,453

Total loans
$
433,358

 
$
1,697,414

 
$
134,989

 
$
769,153

 
$
1,167,428

 
$
516,325

 
$
225,317

 
$
—

 
$
4,943,984

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance related to loans individually evaluated and deemed impaired
$
—

 
$
—

 
$
—

 
$
646

 
$
68

 
$
—

 
$
—

 
$
—

 
$
714

Allowance related to loans collectively evaluated and not deemed impaired
3,765

 
14,869

 
1,913

 
7,862

 
7,786

 
2,858

 
1,353

 
1,456

 
41,862

Allowance related to loans acquired with deteriorated credit quality
—

 
—

 
—

 
222

 
—

 
—

 
—

 
—

 
222

Total allowance for loan losses
$
3,765

 
$
14,869

 
$
1,913

 
$
8,730

 
$
7,854

 
$
2,858

 
$
1,353

 
$
1,456

 
$
42,798

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans deemed impaired
$
3,331

 
$
9,949

 
$
3,325

 
$
7,812

 
$
16,563

 
$
6,910

 
$
2,220

 
$
—

 
$
50,110

Loans not deemed impaired
413,387

 
1,694,190

 
149,403

 
715,436

 
1,139,664

 
529,862

 
205,136

 
—

 
4,847,078

Loans acquired with deteriorated credit quality
—

 
1,180

 
—

 
1,309

 
—

 
—

 
2,037

 
—

 
4,526

Total loans
$
416,718

 
$
1,705,319

 
$
152,728

 
$
724,557

 
$
1,156,227

 
$
536,772

 
$
209,393

 
$
—

 
$
4,901,714

Management has established the allowance for loan loss in accordance with GAAP at March 31, 2017 based on the current risk assessment and level of loss that is believed to exist within the portfolio. This level of reserve is deemed an appropriate estimate of probable loan losses inherent in the loan portfolio as of March 31, 2017 based upon the analysis conducted and given the portfolio composition, delinquencies, charge offs and risk rating changes experienced during the first three months of 2017 and the three -year evaluation period utilized in the analysis. Based on the qualitative assessment of the portfolio and in thorough consideration of non-performing loans, management believes that the allowance for loan losses properly supports the level of associated loss and risk.


20
 
Table of Contents

The following is a summary of past due and non-accrual loans at March 31, 2017 and December 31, 2016 , including purchased credit impaired loans:
 
30-59 Days Past Due
 
60-89 Days Past Due
 
Past Due 90
Days or More
 
Total Past Due
 
Past Due
90 Days or
More and
Still Accruing
 
Loans on
Non-accrual
 
(In thousands)
March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
Owner-occupied CRE
$
192

 
$
14

 
$
1,801

 
$
2,007

 
$
—

 
$
2,400

Investor CRE
1,054

 
463

 
3,105

 
4,622

 
—

 
5,056

Construction
—

 
—

 
1,355

 
1,355

 
—

 
1,355

Commercial business loans
6,778

 
113

 
2,129

 
9,020

 
—

 
3,188

Residential real estate
9,149

 
1,366

 
6,739

 
17,254

 
—

 
15,606

Home equity
2,024

 
540

 
2,755

 
5,319

 
—

 
5,697

Other consumer
625

 
145

 
1,646

 
2,416

 
320

 
1,326

Total
$
19,822

 
$
2,641

 
$
19,530

 
$
41,993

 
$
320

 
$
34,628

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
Owner-occupied CRE
$
482

 
$
15

 
$
1,667

 
$
2,164

 
$
—

 
$
2,733

Investor CRE
2,184

 
697

 
3,260

 
6,141

 
—

 
4,858

Construction
709

 
—

 
1,933

 
2,642

 
—

 
2,138

Commercial business loans
3,289

 
41

 
2,373

 
5,703

 
38

 
2,409

Residential real estate
2,826

 
22

 
7,863

 
10,711

 
308

 
14,393

Home equity
2,232

 
722

 
2,797

 
5,751

 
56

 
5,330

Other consumer
838

 
379

 
1,095

 
2,312

 
348

 
2,202

Total
$
12,560

 
$
1,876

 
$
20,988

 
$
35,424

 
$
750

 
$
34,063

Loans reported as past due 90 days or more and still accruing represent loans that were evaluated by management and maintained on accrual status based on an evaluation of the borrower. At March 31, 2017 and December 31, 2016, loans reported as past due 90 days or more and still accruing represent loans which carry a U.S. Government guarantee and therefore, the contractual balances have been determined to be collectible in full.


21
 
Table of Contents

The following is a summary of impaired loans with and without a valuation allowance as of March 31, 2017 and December 31, 2016 :
 
March 31, 2017
 
December 31, 2016
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
(In thousands)
Impaired loans without a valuation allowance:
 
 
 
 
 
 
 
 
 
 
 
Owner-occupied CRE
$
2,990

 
$
3,654

 
$
—

 
$
3,331

 
$
4,107

 
$
—

Investor CRE
9,674

 
10,244

 
—

 
9,949

 
10,601

 
—

Construction
2,693

 
2,759

 
—

 
3,325

 
5,051

 
—

Commercial business loans
6,186

 
7,491

 
—

 
3,742

 
4,856

 
—

Residential real estate
17,512

 
20,873

 
—

 
15,312

 
18,440

 
—

Home equity
7,438

 
8,517

 
—

 
6,910

 
7,864

 
—

Other consumer
1,328

 
1,331

 
—

 
2,220

 
2,220

 
—

Total
47,821

 
54,869

 
—

 
44,789

 
53,139

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Impaired loans with a valuation allowance:
 
 
 
 
 
 
 
 
 
 
 
Commercial business loans
2,116

 
2,400

 
512

 
4,070

 
4,168

 
646

Residential real estate
564

 
597

 
67

 
1,251

 
1,267

 
68

Total
2,680

 
2,997

 
579

 
5,321

 
5,435

 
714

Total impaired loans
$
50,501

 
$
57,866

 
$
579

 
$
50,110

 
$
58,574

 
$
714

The following is a summary of average recorded investment in impaired loans and interest income recognized on those loans for the periods indicated:
 
 
 
 
 
For the Three Months 
 Ended March 31, 2017
 
For the Three Months 
 Ended March 31, 2016
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
(In thousands)
Owner-occupied CRE
$
3,161

 
$
31

 
$
4,109

 
$
30

Investor CRE
9,812

 
88

 
12,697

 
81

Construction
3,009

 
12

 
4,986

 
18

Commercial business loans
8,057

 
144

 
13,361

 
107

Residential real estate
17,320

 
212

 
16,089

 
111

Home equity
7,174

 
58

 
5,193

 
30

Other consumer
1,774

 
—

 
16

 
—

Total
$
50,307

 
$
545

 
$
56,451

 
$
377

Troubled Debt Restructurings
The restructuring of a loan is considered a troubled debt restructuring (“TDR”) if both (i) the restructuring constitutes a concession by the creditor and (ii) the debtor is experiencing financial difficulties. A TDR may include (i) a transfer from the debtor to the creditor of receivables from third parties, real estate, or other assets to satisfy fully or partially a debt, (ii) issuance or other granting of an equity interest to the creditor by the debtor to satisfy fully or partially a debt unless the equity interest is granted pursuant to existing terms for converting debt into an equity interest, and (iii) modifications of terms of a debt.


22
 
Table of Contents

The following table provides detail of TDR balances for the periods presented:
 
At March 31,
2017
 
At December 31,
2016
 
(In thousands)
Recorded investment in TDRs:
 
 
 
Accrual status
$
15,873

 
$
16,048

Non-accrual status
8,252

 
7,304

Total recorded investment in TDRs
$
24,125

 
$
23,352

 
 
 
 
Accruing TDRs performing under modified terms more than one year
$
10,387

 
$
10,020

Specific reserves for TDRs included in the balance of allowance for loan losses
$
577

 
$
714

Additional funds committed to borrowers in TDR status
$
7

 
$
3

Loans restructured as TDRs during the three months ended March 31, 2017 and 2016 are set forth in the following table:
 
Three Months Ended
 
Number
of Contracts
 
Pre-Modification
Outstanding
Recorded Investment
 
Post-Modification
Outstanding
Recorded Investment
 
(Dollars in thousands)
March 31, 2017
 
 
 
 
 
Commercial business
2

 
$
247

 
$
247

Home equity
10

 
1,296

 
1,303

Total TDRs
12

 
$
1,543

 
$
1,550

 
 
 
 
 
 
March 31, 2016
 
 
 
 
 
Owner-occupied CRE
5

 
$
654

 
$
666

Construction
2

 
67

 
67

Commercial business
3

 
2,491

 
2,491

Residential real estate
4

 
394

 
394

Home equity
8

 
406

 
408

Total TDRs
22

 
$
4,012

 
$
4,026

The following table provides information on loan balances modified as TDRs during the period:
 
Three Months Ended March 31,
 
2017
 
2016
 
Extended
Maturity
 
Adjusted
Interest
Rates
 
Adjusted Rate and Extended Maturity
 
Payment Deferral
 
Other
 
Extended
Maturity
 
Adjusted
Interest
Rates
 
Adjusted Rate and Extended Maturity
 
Payment Deferral
 
Other
 
(In thousands)
Owner-occupied CRE
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
510

 
$
—

 
$
86

 
$
—

 
$
58

Construction
—

 
—

 
—

 
—

 
—

 
23

 
—

 
44

 
—

 
—

Commercial business
—

 
—

 
—

 
—

 
247

 
2,000

 
—

 
143

 
348

 
—

Residential real estate
—

 
—

 
—

 
—

 
—

 
—

 
—

 
21

 
373

 
—

Home equity
312

 
—

 
297

 
687

 
—

 
—

 
—

 
336

 
70

 
—

 
$
312

 
$
—

 
$
297

 
$
687

 
$
247

 
$
2,533

 
$
—

 
$
630

 
$
791

 
$
58



23
 
Table of Contents

The following table provides information on loans modified as TDRs within the previous 12 months and for which there was a payment default during the periods presented:
 
March 31, 2017
 
March 31, 2016
 
Number of
Loans
 
Recorded
Investment
 
Number of
Loans
 
Recorded
Investment
 
(In thousands)
Commercial business
—

 
$
—

 
3

 
$
1,201

Residential real estate
—

 
—

 
7

 
1,157

Home equity
4

 
232

 
—

 
—

Total
4

 
$
232

 
10

 
$
2,358

The majority of restructured loans were on accrual status as of March 31, 2017 and December 31, 2016 . Typically, residential loans are restructured with a modification and extension of the loan amortization and maturity at substantially the same interest rate as contained in the original credit extension. As part of the TDR process, the current value of the property is compared to the general ledger loan balance and if not fully supported, a charge-off is processed through the allowance for loan losses. Commercial real estate loans, commercial construction loans and commercial business loans also contain payment modification agreements and a like assessment of the underlying collateral value if the borrower’s cash flow may be inadequate to service the entire obligation.
Loan Servicing
The Company services certain loans for third parties. The aggregate balance of loans serviced for others was $1.07 billion and $1.05 billion as of March 31, 2017 and December 31, 2016 , respectively. The balances of these loans are not included on the accompanying Consolidated Statements of Condition.
The risks inherent in mortgage servicing rights relate primarily to changes in prepayments that result from shifts in mortgage interest rates. The fair value of mortgage servicing rights at March 31, 2017 and December 31, 2016 was determined using pretax internal rates of return ranging from 9.5% to 11.5% and the Public Securities Association Standard Prepayment model to estimate prepayments on the portfolio with an average prepayment speed of 163 and 183 , respectively. The fair value of mortgage servicing rights is obtained from a third party provider.
During the three months ended March 31, 2017 and 2016 , the Company received servicing income of $ 552,000 and $440,000 , respectively. This income is included in income from mortgage banking activities in the Consolidated Statements of Net Income.
Mortgage servicing rights are included in other assets on the Consolidated Statements of Condition. Changes in the fair value of mortgage servicing rights are included in income from mortgage banking activities in the Consolidated Statements of Net Income. The following table summarizes mortgage servicing rights activity for the three months ended March 31, 2017 and 2016 .
 
For the Three Months 
 Ended March 31,
 
2017
 
2016
 
(In thousands)
Mortgage servicing rights:
 
 
 
Balance at beginning of period
$
10,104

 
$
7,074

Change in fair value recognized in net income
(260
)
 
(1,315
)
Issuances
440

 
512

Fair value of mortgage servicing rights at end of period
$
10,284

 
$
6,271



24
 
Table of Contents

Note 5.
Goodwill and Core Deposit Intangibles
The changes in the carrying amount of goodwill and core deposit intangible assets are summarized as follows:
 
 
Goodwill
 
Core Deposit Intangibles
 
 
(In thousands)
Balance at December 31, 2015
 
$
115,281

 
$
7,506

Amortization expense
 
—

 
(1,604
)
Balance at December 31, 2016
 
$
115,281

 
$
5,902

Amortization expense
 
—

 
(385
)
Balance at March 31, 2017
 
$
115,281

 
$
5,517

 
 
 
 
 
Estimated amortization expense for the years ending December 31,
 
 
 
 
2017 (remaining nine months)
 
 
 
$
1,026

2018
 
 
 
1,219

2019
 
 
 
1,026

2020
 
 
 
834

2021
 
 
 
642

2022 and thereafter
 
 
 
770

Total remaining
 
 
 
$
5,517

On April 30, 2014, Rockville Financial, Inc. completed its merger with United Financial Bancorp, Inc. (“Legacy United”). Discussions throughout this report related to the merger with Legacy United are referred to as the “Merger”. The goodwill associated with the Merger is not tax deductible. In accordance with ASC 350, Intangibles – Goodwill and Other, goodwill is not amortized, but will be subject to an annual review of qualitative factors to determine if an impairment test is required. The amortizing intangible asset associated with the acquisition consists of the core deposit intangible. The core deposit intangible is being amortized using the sum of the years’ digits method over its estimated life of 10 years. Amortization expense of the core deposit intangible was $385,000 and $433,000 for the three months ended March 31, 2017 and 2016 , respectively.
Note 6.
Borrowings
Federal Home Loan Bank of Boston (“FHLBB”) Advances
The Company is a member of the FHLBB. Contractual maturities and weighted-average rates of outstanding advances from the FHLBB as of March 31, 2017 and December 31, 2016 are summarized below:
 
March 31, 2017
 
December 31, 2016
 
Amount
 
Weighted-
Average
Rate
 
Amount
 
Weighted-
Average
Rate
 
(Dollars in thousands)
2017
$
721,000

 
1.08
%
 
$
803,000

 
0.94
%
2018
174,539

 
1.42

 
139,792

 
1.48

2019
30,000

 
1.51

 
20,000

 
1.45

2020
33,000

 
1.79

 
33,000

 
0.86

2021
30,000

 
0.59

 
30,000

 
0.59

Thereafter
19,058

 
0.88

 
19,182

 
0.89

 
$
1,007,597

 
1.16
%
 
$
1,044,974

 
1.01
%
The total carrying value of FHLBB advances at March 31, 2017 was $1.01 billion , which includes a remaining fair value adjustment of $1.3 million on acquired advances. At December 31, 2016 , the total carrying value of FHLBB advances was $1.05 billion , with a remaining fair value adjustment of $1.7 million .
At March 31, 2017 , eight advances totaling $183.0 million with interest rates ranging from 0.49% to 4.39% , which are scheduled to mature between 2017 and 2031 , are callable by the FHLBB. Advances are collateralized by first mortgage loans and investment


25
 
Table of Contents

securities with an estimated eligible collateral value of $1.56 billion and $1.41 billion at March 31, 2017 and December 31, 2016 , respectively.
In addition to the outstanding advances, the Company has access to an unused line of credit with the FHLBB amounting to $10.0 million at March 31, 2017 and December 31, 2016 . In accordance with an agreement with the FHLBB, the qualified collateral must be free and clear of liens, pledges and have a discounted value equal to the aggregate amount of the line of credit and outstanding advances. At March 31, 2017 , the Company could borrow immediately an additional $463.9 million from the FHLBB, inclusive of the line of credit.
Other Borrowings
The following table presents other borrowings by category as of the dates indicated:
 
March 31, 2017
 
December 31, 2016
 
(In thousands)
Subordinated debentures
$
79,775

 
$
79,716

Wholesale repurchase agreements
70,000

 
20,000

Customer repurchase agreements
17,102

 
18,897

Other
4,234

 
4,294

Total other borrowings
$
171,111

 
$
122,907

Subordinated Debentures
At March 31, 2017 and December 31, 2016 , the carrying value of the Company’s subordinated debentures totaled $79.8 million and $79.7 million , respectively.
On September 23, 2014, the Company closed its public offering of $75.0 million of its 5.75% Subordinated Notes due October 1, 2024 (the “Notes”). The Notes were offered to the public at par. Interest on the Notes is payable semi-annually in arrears on April 1 and October 1 of each year, commencing on April 1, 2015. Issuance costs totaled $1.3 million and are being amortized over the life of the Notes as a component of interest expense.
In connection with the Merger, the Company has assumed junior subordinated debt in the form of trust preferred securities issued through a private placement offering with a face amount of $7.7 million . The Company recorded a fair value acquisition discount of $2.3 million on May 1, 2014. The remaining unamortized discount was $2.0 million at March 31, 2017 . This issue has a maturity date of March 15, 2036 and bears a floating rate of interest that reprices quarterly at the 3-month LIBOR rate plus 1.85% . A special redemption provision allows the Company to redeem this issue at par on March 15, June 15, September 15, or December 15 of any year subsequent to March 15, 2011.
Repurchase Agreements
The following table presents the Company’s outstanding borrowings under repurchase agreements as of March 31, 2017 and December 31, 2016 :
 
 
Remaining Contractual Maturity of the Agreements
 
 
Overnight
 
Up to 1 Year
 
1 - 3 Years
 
Greater than 3 Years
 
Total
 
 
(In thousands)
March 31, 2017
 
 
 
 
 
 
 
 
 
 
Repurchase Agreements
 
 
 
 
 
 
 
 
 
 
U.S. Agency Securities
 
$
17,102

 
$
—

 
$
70,000

 
$
—

 
$
87,102

 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
Repurchase Agreements
 
 
 
 
 
 
 
 
 
 
U.S. Agency Securities
 
$
18,897

 
$
—

 
$
20,000

 
$
—

 
$
38,897

As of March 31, 2017 and December 31, 2016 , advances outstanding under wholesale reverse repurchase agreements totaled $70.0 million and $20.0 million , respectively. The outstanding advances at March 31, 2017 consisted of three individual borrowings with remaining terms of three years or less and a weighted average cost of 1.49% . The outstanding advances at December 31,


26
 
Table of Contents

2016 consisted of two individual borrowings with remaining terms of three years or less and had a weighted average cost of 2.59% . The Company pledged investment securities with a market value of $77.8 million and $23.8 million as collateral for these borrowings at March 31, 2017 and December 31, 2016 , respectively.
Retail repurchase agreements primarily consist of transactions with commercial and municipal customers, are for a term of one day and are backed by the purchasers’ interest in certain U.S. Government Agency securities or government-sponsored securities. As of March 31, 2017 and December 31, 2016 , retail repurchase agreements totaled $17.1 million and $18.9 million , respectively. The Company pledged investment securities with a market value of $31.1 million and $28.5 million as collateral for these borrowings at March 31, 2017 and December 31, 2016 , respectively.
Given that the repurchase agreements are secured by investment securities valued at market value, the collateral position is susceptible to change based upon variation in the market value of the securities that can arise due to fluctuations in interest rates, among other things. In the event that the interest rate changes result in a decrease in the value of the pledged securities, additional securities will be required to be pledged in order to secure the borrowings. Due to the short term nature of the majority of the repurchase agreements, Management believes the risk of further encumbered securities pose a minimal impact to the Company’s liquidity position.
Other
At March 31, 2017 and December 31, 2016 other borrowings consist of capital lease obligations. The Company has capital lease obligations for three of its leased banking branches.
Other Sources of Wholesale Funding
The Company has relationships with brokered sweep deposit providers by which funds are deposited by the counterparties at the Company’s request. Amounts outstanding under these agreements are reported as interest-bearing deposits and totaled $356.4 million at a cost of 0.83% at March 31, 2017 and $367.4 million at a cost of 0.58% at December 31, 2016 . The Company maintains open dialogue with the brokered sweep providers and has the ability to increase the deposit balances upon request, up to certain limits based upon internal policy requirements.
Additionally, the Company has unused federal funds lines of credit with four counterparties totaling $107.5 million at March 31, 2017 .
Note 7.
Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposure to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings. The Company also has interest rate derivatives that result from a service provided to certain qualifying customers. The Company manages a matched book with respect to these derivative instruments in order to minimize its net risk exposure resulting from such transactions.


27
 
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Information about interest rate swap agreements and non-hedging derivative assets and liabilities as of March 31, 2017 and December 31, 2016 is as follows:
 
Notional Amount
 
Weighted-Average Remaining Maturity
 
Weighted-Average Rate
 
Estimated Fair Value, Net Asset (Liability)
 
 
 
Received
 
Paid
 
 
(In thousands)
 
(In years)
 
 
 
 
 
(In thousands)
March 31, 2017
 
 
 
 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
 
 
 
 
Forward starting interest rate swaps on future borrowings
$
100,000

 
7.11
 
TBD

(1) 
2.43
%
 
$
(2,365
)
Interest rate swaps
240,000

 
3.00
 
1.06
%
 
1.74
%
 
(239
)
Fair value hedges:
 
 
 
 
 
 
 
 
 
Interest rate swaps
35,000

 
0.47
 
1.04
%
 
1.05
%
(2) 
(36
)
Non-hedging derivatives:
 
 
 
 
 
 
 
 
 
Forward loan sale commitments
122,434

 
0.00
 
 
 
 
 
(685
)
Derivative loan commitments
37,297

 
0.00
 
 
 
 
 
759

Interest rate swap
7,500

 
9.29
 


 


 
(668
)
Loan level swaps - dealer(3)
497,532

 
7.34
 
2.49
%
 
3.70
%
 
(3,802
)
Loan level swaps - borrowers(3)
497,532

 
7.34
 
3.70
%
 
2.49
%
 
3,785

Total
$
1,537,295

 
 
 
 
 
 
 
$
(3,251
)
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
 
 
 
 
Forward starting interest rate swaps on future borrowings
$
100,000

 
7.36
 
TBD

(1) 
2.43
%
 
$
(483
)
Interest rate swaps
240,000

 
3.24
 
0.91
%
 
1.74
%
 
(2,719
)
Fair value hedges:
 
 
 
 
 
 
 
 
 
Interest rate swaps
35,000

 
0.72
 
1.04
%
 
0.82
%
(2) 
1

Non-hedging derivatives:
 
 
 
 
 
 
 
 
 
Forward loan sale commitments
61,991

 
0.00
 
 
 
 
 
153

Derivative loan commitments
30,239

 
0.00
 
 
 
 
 
421

Interest rate swap
7,500

 
9.54
 
 
 
 
 
(660
)
Loan level swaps - dealer(3)
468,417

 
7.75
 
2.42
%
 
3.84
%
 
(4,888
)
Loan level swaps - borrowers(3)
468,417

 
7.75
 
3.84
%
 
2.42
%
 
4,869

Total
$
1,411,564

 
 
 
 
 
 
 
$
(3,306
)
(1)
The receiver leg of the cash flow hedges is floating rate and indexed to the 3-month USD-LIBOR-BBA, as determined two London banking days prior to the first day of each calendar quarter, commencing with the earliest effective trade. The earliest effective trade date for these forward starting cash flow hedges is October 16, 2017 .
(2)
The paying leg is one month LIBOR plus a fixed spread; above rate in effect as of the date indicated.
(3)
The Company offers a loan level hedging product to qualifying commercial borrowers that seek to mitigate risk to rising interest rates. As such, the Company enters into equal and offsetting trades with dealer counterparties. The Company may also enter into risk participation agreements with counterparties related to credit enhancements provided to the borrowers.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.


28
 
Table of Contents

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three months ended March 31, 2017 , the Company did not record any hedge ineffectiveness.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The Company expects to reclassify $1.3 million from accumulated other comprehensive loss to interest expense during the next 12 months.
The Company is hedging its exposure to the variability in future cash flows for forecasted transactions over a period of approximately 60 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).
As of March 31, 2017 , the Company had nine outstanding interest rate derivatives with a notional value of $340.0 million that were designated as cash flow hedges of interest rate risk.
Fair Value Hedges of Interest Rate Risk
The Company is exposed to changes in the fair value of certain of its fixed rate obligations due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the benchmark interest rate. Interest rate swaps designated as fair value hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable rate payments over the life of the agreements without the exchange of the underlying notional amount.
For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in earnings. The Company includes the gain or loss on the hedged items in the same line item as the offsetting gain or loss on the related derivatives. For the three months ended March 31, 2017 and 2016 , the Company recognized a negligible net reduction to interest expense.
As of March 31, 2017 , the Company had three outstanding interest rate derivatives with a notional amount of $35.0 million that were designated as a fair value hedge of interest rate risk.
Non-Designated Hedges
Loan Level Interest Rate Swaps
Qualifying derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate derivatives with commercial banking customers to facilitate their respective risk management strategies. Those interest rate derivatives are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.
As of March 31, 2017 , the Company had seventy-two borrower-facing interest rate derivatives with an aggregate notional amount of $497.5 million and seventy-two broker derivatives with an aggregate notional value amount of $497.5 million related to this program.
As of March 31, 2017 , the Company had four risk participation agreements with three counterparties related to a loan level interest rate swap with four of its commercial banking customers. Of these agreements, three were entered into in conjunction with credit enhancements provided to the borrowers by the counterparties; therefore, if the borrowers default, the counterparties are responsible for a percentage of the exposure. One agreement has credit enhancements provided to the borrower by the Company, whereby the Company is responsible for a percentage of the exposure to the counterparty. At March 31, 2017 , the notional amount of this risk participation agreement was $6.1 million , reflecting the counterparty participation of 33.1% . The risk participation agreements are a guarantee of performance on a derivative and accordingly, are recorded at fair value on the Company’s Consolidated Statements of Condition. At March 31, 2017 , the notional amount of the remaining three risk participation agreements was $25.1 million , reflecting the counterparty participation level of 36.74% .

Mortgage Servicing Rights Interest Rate Swap
As of March 31, 2017 , the Company had one receive-fixed interest rate derivative with a notional amount of $7.5 million and a maturity date in July 2026. The derivative was executed to protect against a portion of the devaluation of the Company’s mortgage servicing right asset that occurs in a falling rate environment. The instrument is marked to market through the Company’s Consolidated Statements of Net Income.


29
 
Table of Contents

Derivative Loan Commitments
Additionally, the Company enters into mortgage loan commitments that are also referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. The Company enters into commitments to fund residential mortgage loans at specified rates and times in the future, with the intention that these loans will subsequently be sold in the secondary market.
Outstanding derivative loan commitments expose the Company to the risk that the price of the loans arising from exercise of the loan commitment might decline from inception of the rate lock to funding of the loan due to increases in mortgage interest rates. If interest rates increase, the value of these loan commitments decreases. Conversely, if interest rates decrease, the value of these loan commitments increases.
Forward Loan Sale Commitments
To protect against the price risk inherent in derivative loan commitments, the Company utilizes To Be Announced (“TBA”) as well as cash (“mandatory delivery” and “best efforts”) forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments.
With TBA and mandatory cash contracts, the Company commits to deliver a certain principal amount of mortgage loans to an investor/counterparty at a specified price on or before a specified date. If the market improves (rate decline) and the Company fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay a “pair-off” fee, based on then-current market prices, to the investor/counterparty to compensate the investor for the shortfall. Conversely if the market declines (rates worsen) the investor/counterparty is obligated to pay a “pair-off” fee to the Company based on then-current market prices. The Company expects that these forward loan sale commitments, TBA and mandatory, will experience changes in fair value opposite to the change in fair value of derivative loan commitments.
With best effort cash contracts, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. Generally best efforts cash contracts have no pair off risk regardless of market movement. The price the investor will pay the seller for an individual loan is specified prior to the loan being funded (e.g., on the same day the lender commits to lend funds to a potential borrower). The Company expects that these forward loan sale commitments, best efforts, will experience a net neutral shift in fair value of derivative loan commitments.
Fair Values of Derivative Instruments on the Statement of Condition
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statements of Condition as of March 31, 2017 and December 31, 2016 :
 
Derivative Assets
 
Derivative Liabilities
 
 
 
Fair Value
 
 
 
Fair Value
 
Balance Sheet Location
 
Mar 31, 2017
 
Dec 31,
2016
 
Balance Sheet Location
 
Mar 31, 2017
 
Dec 31,
2016
 
(In thousands)
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap - cash flow hedge
Other Assets
 
$
295

 
$
246

 
Other Liabilities
 
$
2,899

 
$
3,448

Interest rate swap - fair value hedge
Other Assets
 
2

 
18

 
Other Liabilities
 
38

 
17

Total derivatives designated as hedging instruments
 
 
$
297

 
$
264

 
 
 
$
2,937

 
$
3,465

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
Forward loan sale commitments
Other Assets
 
$
4

 
$
204

 
Other Liabilities
 
$
689

 
$
51

Derivative loan commitments
Other Assets
 
759

 
421

 
 
 
—

 
—

Interest rate swap

 
—

 
—

 
Other Liabilities
 
668

 
660

Interest rate swap - with customers
Other Assets
 
7,202

 
7,864

 
Other Liabilities
 
3,417

 
2,995

Interest rate swap - with counterparties
Other Assets
 
3,417

 
2,981

 
Other Liabilities
 
7,219

 
7,869

Total derivatives not designated as hedging
 
 
$
11,382

 
$
11,470

 
 
 
$
11,993

 
$
11,575






30
 
Table of Contents

Effect of Derivative Instruments in the Company’s Consolidated Statements of Net Income and Changes in Stockholders’ Equity
The tables below presents the effect of derivative instruments in the Company’s Statements of Changes in Stockholders’ Equity designated as hedging instruments for the three months ended March 31, 2017 and 2016 :

Cash Flow Hedges
 
 
 
 
Amount of Gain (Loss) Recognized in AOCI  (Effective Portion)
Derivatives Designated as Cash Flow Hedging Instruments
Three Months Ended March 31,
 
2017
 
2016
 
(In thousands)
Interest rate swaps
$
158

 
$
(9,535
)

 
Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Derivatives Designated as Cash Flow Hedging Instruments
Three Months Ended March 31,
 
2017
 
2016
 
(In thousands)
Interest rate swaps
$
440

 
$
619


The tables below present information pertaining to the Company’s derivatives in the Consolidated Statements of Net Income designated as hedging instruments for the three months ended March 31, 2017 and 2016 :
Fair Value Hedges
 
 
 
 
 
 
 
 
Amount of Gain (Loss) Recognized in Income from Derivatives
Derivatives Designated as Fair Value
Hedging Instruments
Location of Gain (Loss) Recognized in Income
 
Three Months Ended March 31,
 
2017
 
2016
 
 
 
(In thousands)
Interest Rate Swaps
Interest income
 
$
(36
)
 
$
149

 
 
 
 
 
 
 
 
 
Amount of Gain (Loss) Recognized in Income from Hedged Items
 
 
 
Three Months Ended March 31,
 
 
 
2017
 
2016
 
 
 
(In thousands)
Interest Rate Swaps
Interest income
 
$
37

 
$
(149
)

The table below presents information pertaining to the Company’s derivatives not designated as hedging instruments in the Consolidated Statements of Net Income as of March 31, 2017 and 2016 :
 
Amount of Gain (Loss) Recognized in Income
 
Three Months Ended March 31,
 
2017
 
2016
 
(In thousands)
Derivatives not designated as hedging instruments:
 
 
 
Derivative loan commitments
$
338

 
$
680

Mortgage servicing rights derivative
(8
)
 
—

Forward loan sale commitments
(838
)
 
(269
)
Interest rate swaps
2

 
138

 
$
(506
)
 
$
549

Credit-risk-related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision where if the counterparty defaults on any of its indebtedness or fails to maintain a well-capitalized rating, then the counterparty could also be declared in default on its derivative obligations and could be required to terminate its derivative positions with the counterparty.


31
 
Table of Contents

As of March 31, 2017 , the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $11.7 million . As of March 31, 2017 , the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of $1.7 million against its obligations under these agreements. A degree of netting occurs on occasions where the Company has exposure to a counterparty and the counterparty has exposure to the Company. If the Company had breached any of these provisions at March 31, 2017 , it could have been required to settle its obligations under the agreements at the termination value and would have been required to pay any additional amounts due in excess of amounts previously posted as collateral with the respective counterparty.
Note 8.
Stock-Based Compensation Plans
The Company maintains and operates several stock incentive award plans to attract, retain and reward performance of qualified employees and directors who contribute to the success of the Company. These plans include those assumed by the Company in 2014 as a result of merger activity. Active plans, as of January 1, 2017 are:
• Rockville Financial, Inc. 2006 Stock Incentive Award Plan (the “2006 Plan”);
• Rockville Financial, Inc. 2012 Stock Incentive Plan (the “2012 Plan”);
• United Financial Bancorp, Inc. 2008 Equity Incentive Plan; and
• 2015 Omnibus Stock Incentive Plan (the “2015 Plan”).
The 2015 Plan became effective on October 29, 2015 upon approval by the Company’s Shareholders. As of the effective date of the 2015 Plan, no other awards may be granted from the previously approved or assumed plans. The 2015 Plan allows the Company to use stock options, stock awards, and performance awards to attract, retain and reward performance of qualified employees and others who contribute to the success of the Company. The 2015 Plan reserves a total of up to 4,050,000 shares (the “Cap”) of Company common stock for issuance upon the grant or exercise of awards made pursuant to the 2015 Plan. Of these shares, the Company may grant shares in the form of restricted stock, performance shares and other share-based awards and may grant stock options. However, the number of shares issuable will be adjusted by a “fungible ratio” of 2.35 . This means that for each share award other than a stock option share or a stock appreciation right share, each 1 share awarded shall be deemed to be 2.35 shares awarded. As of March 31, 2017 , there were 2,910,144 shares available for future grants under the 2015 Plan.
For the three-month period ended March 31, 2017 , total employee and Director stock-based compensation expense recognized for stock options and restricted stock was $37,000 with a related tax benefit of $13,000 and $ 660,000 with a related tax benefit of $238,000 , respectively. Of the total expense amount for the three -month period, the amount for Director stock-based compensation expense recognized (in the Consolidated Statements of Net Income as other non-interest expense) was $104,000 , and the amount for officer stock-based compensation expense recognized (in the Consolidated Statements of Net Income as salaries and employee benefit expense) was $593,000 . For the three-month period ended March 31, 2016 , total employee and Director stock-based compensation expense recognized for stock options and restricted stock was $31,000 with a related tax benefit of $11,000 and $469,000 with a related tax benefit of $169,000 , respectively.
The fair values of stock option and restricted stock awards, measured at grant date, are amortized to compensation expense on a straight-line basis over the vesting period.
Stock Options
The following table presents the activity related to stock options outstanding, including options that have stock appreciation rights (“SARs”), under the Plans for the three months ended March 31, 2017 :
 
Number of
Stock
Options
 
Weighted-
Average
Exercise Price
 
Weighted-Average
Remaining
Contractual Term
(in years)
 
Aggregate
Intrinsic
Value
(in millions)
Outstanding at December 31, 2016
1,936,453

 
$
11.21

 
 
 
 
Granted
—

 
—

 
 
 
 
Exercised
(38,068
)
 
9.87

 
 
 
 
Forfeited or expired
—

 
—

 
 
 
 
Outstanding at March 31, 2017
1,898,385

 
$
11.24

 
5.0
 
$
11.0

Stock options vested and exercisable at March 31, 2017
1,802,218

 
$
11.10

 
4.8
 
$
10.6

As of March 31, 2017 , the unrecognized cost related to outstanding stock options was $70,000 and will be recognized over a weighted-average period of 1.4 years .
There were no stock options granted during the three months ended March 31, 2017 and 2016 .
Options exercised may include awards that were originally granted as tandem SARs. Therefore, if the SAR component is exercised, it will not equate to the number of shares issued due to the conversion of the SAR option value to the actual share value


32
 
Table of Contents

at exercise date. There were no options with a SAR component included in total options exercised during the three months ended March 31, 2017 .
Restricted Stock
Restricted stock provides grantees with rights to shares of common stock upon completion of a service period. During the restriction period, all shares are considered outstanding and dividends are paid on the restricted stock. During the three months ended March 31, 2017 , the Company issued 2,517 shares of restricted stock from shares available under the Company’s 2015 Plan to certain employees. During the three months ended March 31, 2017 , the weighted-average grant date fair value was $17.86 per share and the restricted stock awards vest in equal annual installments on the anniversary date over a 3 year period. The following table presents the activity for restricted stock for the three months ended March 31, 2017 :
 
Number
of Shares
 
Weighted-Average
Grant-Date
Fair Value
Unvested as of December 31, 2016
438,806

 
$
14.23

Granted
2,517

 
17.86

Vested
(16,115
)
 
12.28

Forfeited
—

 
—

Unvested as of March 31, 2017
425,208

 
$
14.33

As of March 31, 2017 , there was $4.2 million of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 2.2 years .
Employee Stock Ownership Plan
As part of the second-step conversion and stock offering completed in 2011, the Employee Stock Ownership Plan (“ESOP”)borrowed an additional $7.1 million from the Company to purchase 684,395 shares of common stock during the initial public offering and in the open market. The outstanding loan balance of $6.2 million at March 31, 2017 will be repaid principally from the Bank’s discretionary contributions to the ESOP over a remaining period of 24 years . The loan bears an interest rate of prime plus plus one percent . The unallocated ESOP shares are pledged as collateral on the loans. As the loans are repaid to the Company, shares will be released from collateral and will be allocated to the accounts of the participants. For the three months ended March 31, 2017 and 2016 , ESOP compensation expense was $101,000 and $66,000 , respectively.
The Company accounts for its ESOP in accordance with FASB ASC 718-40, Compensation – Stock Compensation . Under this guidance, unearned ESOP shares are not considered outstanding and are shown as a reduction of stockholders’ equity as unearned compensation. The Company will recognize compensation cost equal to the fair value of the ESOP shares during the periods in which they are committed to be allocated. To the extent that the fair value of the Company’s ESOP shares differs from the cost of such shares, this difference will be credited or debited to equity. As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a liability in the Company’s consolidated financial statements. Dividends on unallocated shares are used to pay the ESOP debt.
The ESOP shares as of the period indicated below were as follows:
 
March 31, 2017
Allocated shares
1,198,052

Shares allocated for release
5,703

Unreleased shares
541,813

Total ESOP shares
1,745,568

Market value of unreleased shares (in thousands)
$
9,313

Note 9.
Regulatory Matters

Minimum regulatory capital requirements
The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve qualitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are


33
 
Table of Contents

also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.
Federal banking regulators include minimum capital ratios as displayed in the following table. Additionally, community banking institutions must maintain a capital conservation buffer of common equity Tier I capital in an amount greater than 2.5% of total risk-weighted assets to avoid being subject to limitations on capital distributions and discretionary bonuses. The capital conservation buffer is being phased in over three years, beginning on January 1, 2016, with an initial phase-in of 0.625%. Also, certain deductions from and adjustments to regulatory capital are being phased in over several years. Management believes that the Company capital levels will remain characterized as “well capitalized” throughout the phase in periods.
As of March 31, 2017 , the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework from prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum ratios as set forth in the following tables. There are no conditions or events since the notification that management believes have changed the Bank’s category. Management believes, as of March 31, 2017 and December 31, 2016 , that the Company and the Bank meet all capital adequacy requirements to which they are subject. The Company’s and the Bank’s actual capital amounts and ratios as of March 31, 2017 and December 31, 2016 are also presented in the following table:
 
Actual
 
Minimum For
Capital
Adequacy
Purposes
 
Minimum To Be
Well-Capitalized Under Prompt Corrective
Action Provisions
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
 
(Dollars in thousands)
United Bank
 
 
 
 
 
 
 
 
 
 
 
March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
Total capital to risk weighted assets
$
623,890

 
12.2
%
 
$
409,108

 
8.0
%
 
$
511,385

 
10.0
%
Common equity tier 1 capital to risk weighted assets
578,990

 
11.3

 
230,571

 
4.5

 
333,047

 
6.5

Tier 1 capital to risk weighted assets
578,990

 
11.3

 
307,428

 
6.0

 
409,904

 
8.0

Tier 1 capital to total average assets
578,990

 
9.0

 
257,329

 
4.0

 
321,661

 
5.0

December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
Total capital to risk weighted assets
$
619,020

 
12.1
%
 
$
409,269

 
8.0
%
 
$
511,587

 
10.0
%
Common equity tier 1 capital to risk weighted assets
574,632

 
11.2

 
230,879

 
4.5

 
333,492

 
6.5

Tier 1 capital to risk weighted assets
574,632

 
11.2

 
307,839

 
6.0

 
410,451

 
8.0

Tier 1 capital to total average assets
574,632

 
9.0

 
255,392

 
4.0

 
319,240

 
5.0

 
 
 
 
 
 
 
 
 
 
 
 
United Financial Bancorp, Inc.
 
 
 
 
 
 
 
 
 
 
 
March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
Total capital to risk weighted assets
$
674,770

 
13.1
%
 
$
412,073

 
8.0
%
 
N/A

 
N/A

Common equity tier 1 capital to risk weighted assets
554,870

 
10.8

 
231,196

 
4.5

 
N/A

 
N/A

Tier 1 capital to risk weighted assets
554,870

 
10.8

 
308,261

 
6.0

 
N/A

 
N/A

Tier 1 capital to total average assets
554,870

 
8.6

 
258,079

 
4.0

 
N/A

 
N/A

December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
Total capital to risk weighted assets
$
668,816

 
13.0
%
 
$
411,579

 
8.0
%
 
N/A

 
N/A

Common equity tier 1 capital to risk weighted assets
549,428

 
10.7

 
231,068

 
4.5

 
N/A

 
N/A

Tier 1 capital to risk weighted assets
549,428

 
10.7

 
308,090

 
6.0

 
N/A

 
N/A

Tier 1 capital to total average assets
549,428

 
8.6

 
255,548

 
4.0

 
N/A

 
N/A


Our ability to pay dividends to our stockholders is substantially dependent upon the Bank’s ability to pay dividends to the Company. The Federal Reserve guidance sets forth the supervisory expectation that bank holding companies will inform and consult with Federal Reserve staff in advance of issuing a dividend that exceeds earnings for the quarter and should not pay dividends in a rolling four quarter period in an amount that exceeds net income for that period. Federal law also prohibits the Bank from paying dividends that would be greater than its undivided profits after deducting statutory bad debt in excess of its allowance for loan losses. The FDIC may limit a savings bank’s ability to pay dividends. No dividends may be paid to the Company’s shareholder if such dividends would reduce stockholders’ equity below the amount of the liquidation account required by the Connecticut conversion regulations. Connecticut law restricts the amount of dividends that the Bank can pay based on net income


34
 
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included in retained earnings for the current year and the preceding two years. As of March 31, 2017 and December 31, 2016 , $87.3 million and $79.8 million , respectively, was available for the payment of dividends. Connecticut banking laws grant banks broad lending authority. With certain limited exceptions, any one obligor under this statutory authority may not exceed 10% and 15%, respectively, of a bank’s capital and allowance for loan losses.
Note 10.
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, included in stockholders’ equity, are as follows:
 
 
March 31, 2017
 
December 31, 2016
 
 
(In thousands)
Benefit plans:
 
 
 
 
Unrecognized net actuarial loss
 
$
(7,791
)
 
$
(7,936
)
Tax effect
 
2,807

 
2,859

Net-of-tax amount
 
(4,984
)
 
(5,077
)
Securities available for sale:
 
 
 
 
Net unrealized loss
 
(9,322
)
 
(12,845
)
Tax effect
 
3,352

 
4,617

Net-of-tax amount
 
(5,970
)
 
(8,228
)
Interest rate swaps:
 
 
 
 
Net unrealized loss
 
(2,604
)
 
(3,202
)
Tax effect
 
939

 
1,154

Net-of-tax amount
 
(1,665
)
 
(2,048
)
 
 
$
(12,619
)
 
$
(15,353
)
Note 11.
Net Income Per Share
The following table sets forth the calculation of basic and diluted net income per share for the three months ended March 31, 2017 and 2016 :
 
For the Three Months 
 Ended March 31,
 
2017
 
2016
 
(In thousands, except share data)
Net income available to common stockholders
$
13,726

 
$
11,894

Weighted-average common shares outstanding
50,803,377

 
49,991,583

Less: average number of unallocated ESOP award shares
(545,552
)
 
(568,365
)
Weighted-average basic shares outstanding
50,257,825

 
49,423,218

Dilutive effect of stock options
771,970

 
229,414

Weighted-average diluted shares
51,029,795

 
49,652,632

Net income per share:
 
 
 
Basic
$
0.27

 
$
0.24

Diluted
$
0.27

 
$
0.24

There were no anti-dilutive stock options during the three months ended March 31, 2017. For the three months ended March 31, 2016, the weighted-average number of anti-dilutive stock options excluded from diluted net income per share were 717,501 . Stock options were anti-dilutive because the strike price is greater than the average fair value of the Company’s common stock for the periods presented.
Note 12.
Fair Value Measurements
Fair value estimates are made as of a specific point in time based on the characteristics of the assets and liabilities and relevant market information. In accordance with FASB ASC 820, the fair value estimates are measured within the fair value hierarchy. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1


35
 
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measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1:
Quoted prices are available in active markets for identical assets and liabilities as of the reporting date. The quoted price is not adjusted because of the size of the position relative to trading volume.
Level 2:
Pricing inputs are observable for assets and liabilities, either directly or indirectly, but are not the same as those used in Level 1. Fair value is determined through the use of models or other valuation methodologies.
Level 3:
Pricing inputs are unobservable for assets and liabilities and include situations where there is little, if any, market activity and the determination of fair value requires significant judgment or estimation.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such instances, the determination of which category within the fair value hierarchy is appropriate for any given asset and liability is based on the lowest level of input that is significant to the fair value of the asset and liability.
When available, quoted market prices are used. In other cases, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors. Changes in assumptions could significantly affect these estimates and could be material. Derived fair value estimates may not be substantiated by comparison to independent markets and, in certain cases, could not be realized in an immediate sale of the instrument.
Fair value estimates for financial instrument fair value disclosures are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not financial instruments. Accordingly, the aggregate fair value amounts presented do not purport to represent the underlying market value of the Company.
Loans Held for Sale
The Company has elected the fair value option for its portfolio of residential real estate mortgage loans held for sale to reduce certain timing differences and better match changes in fair value of the loans with changes in the fair value of the derivative loan sale contracts used to economically hedge them.
The aggregate principal amount of the residential real estate mortgage loans held for sale was $85.1 million and $61.9 million at March 31, 2017 and December 31, 2016 , respectively. The aggregate fair value of these loans as of the same dates was $87.0 million and $62.5 million , respectively.
There were no residential real estate mortgage loans held for sale 90 days or more past due at March 31, 2017 and December 31, 2016 .
The following table presents the gains in fair value related to mortgage loans held for sale for the periods indicated. Changes in the fair value of mortgage loans held for sale are reported as a component of income from mortgage banking activities in the Consolidated Statements of Net Income.
 
 
Three Months Ended 
 March 31,
 
 
2017
 
2016
 
(In thousands)
Mortgage loans held for sale
 
$
1,137

 
$
30

Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables detail the assets and liabilities carried at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value. There were no transfers in and out of Level 1, Level 2 and Level 3 measurements during the three months ended March 31, 2017 and 2016 .


36
 
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Total
Fair
Value
 
Quoted Prices
in Active
Markets for
Identical Assets
 
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
(In thousands)
March 31, 2017
 
 
 
 
 
 
 
Available-for-Sale Securities:
 
 
 
 
 
 
 
Government-sponsored residential mortgage-backed securities
$
223,734

 
$
—

 
$
223,734

 
$
—

Government-sponsored residential collateralized debt obligations
204,278

 
—

 
204,278

 
—

Government-sponsored commercial mortgage-backed securities
22,224

 
—

 
22,224

 
—

Government-sponsored commercial collateralized debt obligations
140,561

 
—

 
140,561

 
—

Asset-backed securities
156,185

 
—

 
5,311

 
150,874

Corporate debt securities
86,568

 
—

 
84,963

 
1,605

Obligations of states and political subdivisions
231,574

 
—

 
231,574

 
—

Marketable equity securities
10,605

 
369

 
10,236

 
—

Total available-for-sale securities
$
1,075,729

 
$
369

 
$
922,881

 
$
152,479

 
 
 
 
 
 
 
 
Mortgage loan derivative assets
$
763

 
$
—

 
$
763

 
$
—

Mortgage loan derivative liabilities
689

 
—

 
689

 
—

Loans held for sale
87,031

 
—

 
87,031

 
—

Mortgage servicing rights
10,284

 
—

 
—

 
10,284

Interest rate swap assets
10,916

 
—

 
10,916

 
—

Interest rate swap liabilities
14,241

 
—

 
14,241

 
—

 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
Available-for-Sale Securities:
 
 
 
 
 
 
 
Government-sponsored residential mortgage-backed securities
$
179,548

 
$
—

 
$
179,548

 
$
—

Government-sponsored residential collateralized-debt obligations
183,260

 
—

 
183,260

 
—

Government-sponsored commercial mortgage-backed securities
26,530

 
—

 
26,530

 
—

Government-sponsored commercial collateralized-debt obligations
162,927

 
—

 
162,927

 
—

Asset-backed securities
166,967

 
—

 
13,087

 
153,880

Corporate debt securities
75,015

 
—

 
73,423

 
1,592

Obligations of states and political subdivisions
216,376

 
—

 
216,376

 
—

Marketable equity securities
32,788

 
375

 
32,413

 
—

Total available-for-sale securities
$
1,043,411

 
$
375

 
$
887,564

 
$
155,472

 
 
 
 
 
 
 
 
Mortgage loan derivative assets
$
625

 
$
—

 
$
625

 
$
—

Mortgage loan derivative liabilities
51

 
—

 
51

 
—

Loans held for sale
62,517

 
—

 
62,517

 
—

Mortgage servicing rights
10,104

 
—

 
—

 
10,104

Interest rate swap assets
11,109

 
—

 
11,109

 
—

Interest rate swap liabilities
14,989

 
—

 
14,989

 
—



37
 
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The following table presents additional information about assets measured at fair value on a recurring basis for which the Company utilized Level 3 inputs to determine fair value:
 
Three Months Ended 
 March 31,
 
2017
 
2016
 
(In thousands)
Balance of available-for-sale securities, at beginning of period
$
155,472

 
$
146,070

Purchases (sales)
(3,801
)
 
—

Principal payments and net accretion
(139
)
 
(384
)
Total realized gains included in earnings
159

 
—

Total unrealized gains (losses) included in other comprehensive income/loss
788

 
(1,480
)
Balance at end of period
$
152,479

 
$
144,206


 
 
 
Balance of mortgage servicing rights, at beginning of period
$
10,104

 
$
7,074

Issuances
440

 
512

Change in fair value recognized in net income
(260
)
 
(1,315
)
Balance at end of period
$
10,284

 
$
6,271

The following valuation methodologies are used for certain assets that are recorded at fair value on a recurring basis.
Available-for-Sale Securities: Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using an independent pricing service. Level 1 securities are those traded on active markets for identical securities including U.S. treasury securities, equity securities and mutual funds. Level 2 securities include U.S. Government agency obligations, U.S. Government-sponsored enterprises, mortgage-backed securities, obligations of states and political subdivisions, corporate and other debt securities. Level 3 securities include private placement securities and thinly traded equity securities. All fair value measurements are obtained from a third party pricing service and are not adjusted by management.
Matrix pricing is used for pricing most obligations of states and political subdivisions, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on securities relationships to other benchmark quoted securities. The grouping of securities is completed according to insurer, credit support, state of issuance and rating to incorporate additional spreads and municipal bond yield curves.
The valuation of the Company’s asset-backed securities is obtained from a third party pricing provider and is determined utilizing an approach that combines advanced analytics with structural and fundamental cash flow analysis based upon observed market based yields. The third party provider’s model analyzes each instrument’s underlying collateral given observable collateral characteristics and credit statistics to extrapolate future performance and project cash flows, by incorporating expectations of default probabilities, recovery rates, prepayment speeds, loss severities and a derived discount rate. The Company has determined that due to the liquidity and significance of unobservable inputs, that asset-backed securities are classified in Level 3 of the valuation hierarchy.
The Company holds one pooled trust preferred security. The security’s fair value is based on unobservable issuer-provided financial information and discounted cash flow models derived from the underlying structured pool and therefore is classified as Level 3.
Loans Held for Sale: The fair value of residential mortgage loans held for sale is estimated using quoted market prices for loans with similar characteristics provided by government-sponsored entities. Any changes in the valuation of mortgage loans held for sale is based upon the change in market interest rates between closing the loan and the measurement date and an immaterial portion attributable to changes in instrument-specific credit risk. The Company has determined that loans held for sale are classified in Level 2 of the valuation hierarchy.
Mortgage Servicing Rights: A mortgage servicing right (“MSR”) asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans are expected to more than adequately compensate the Company for performing the servicing. The fair value of servicing rights is provided by a third party and is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are recorded monthly as the cash flows derived from the valuation model change the fair value of the asset. Although some assumptions in determining fair value are based on standards used by market participants,


38
 
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some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy. See Note 4, “Loans Receivable and Allowance for Loan Losses” in the Notes to Consolidated Financial Statements contained elsewhere in this report.
Derivatives: Derivative instruments related to commitments for loans to be sold are carried at fair value. Fair value is determined through quotes obtained from actively traded mortgage markets. Any change in fair value for rate lock commitments to the borrower is based upon the change in market interest rates between making the rate lock commitment and the measurement date and, for forward loan sale commitments to the investor, is based upon the change in market interest rates from entering into the forward loan sales contract and the measurement date. Both the rate lock commitments to the borrowers and the forward loan sale commitments to investors are derivatives pursuant to the requirements of FASB ASC 815-10; however, the Company has not designated them as hedging instruments. Accordingly, they are marked to fair value through earnings.
The Company’s intention is to sell the majority of its fixed rate mortgage loans with original terms of 30 years on a servicing retained basis as well as certain 10 , 15 and 20 year loans. The servicing value has been included in the pricing of the rate lock commitments. The Company estimates a fallout rate of approximately 14.5% based upon historical averages in determining the fair value of rate lock commitments. Although the use of historical averages is based upon unobservable data, the Company believes that this input is insignificant to the valuation and, therefore, has concluded that the fair value measurements meet the Level 2 criteria. The Company continually reassesses the significance of the fallout rate on the fair value measurement and updates the fallout rate accordingly.
Hedging derivatives include interest rate swaps as part of management’s strategy to manage interest rate risk. The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy.
The following table presents additional quantitative information about assets measured at fair value on a recurring basis for which the Company utilized Level 3 inputs to determine fair value at March 31, 2017 :
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
Fair
Value
 
Valuation Technique
 
Unobservable Inputs
 
Range
(Weighted Average)
Asset-backed securities
 
$
150,874

 
Discounted Cash Flow
 
Discount Rates
 
2.8% - 4.3% (3.9%)
 
 
 
 
 
 
Cumulative Default %
 
4.8% - 8.7% (9.6%)
 
 
 
 
 
 
Loss Given Default
 
1.4% - 2.7% (3.0%)
 
 
 
 
 
 
 
 
 
Corporate debt - pooled trust
 
$
1,605

 
Discounted Cash Flow
 
Discount Rate
 
7.3% (7.3%)
preferred security
 
 
 
 
 
Cumulative Default %
 
2.7% - 41.4% (12.6%)
 
 
 
 
 
 
Loss Given Default
 
85% - 100% (93.8%)
 
 
 
 
 
 
Cure Given Default
 
75% - 75% (75.0%)
 
 
 
 
 
 
 
 
 
Mortgage servicing rights
 
$
10,284

 
Discounted Cash Flow
 
Discount Rate
 
9.0% - 18.0% (10.5%)
 
 
 
 
 
 
Cost to Service
 
$50 - $110 ($63.09)
 
 
 
 
 
 
Float Earnings Rate
 
0.25% (0.25%)
Asset-backed securities: Given the level of market activity for the asset backed securities in the portfolio, the discount rates utilized in the fair value measurement were derived by analyzing current market yields for comparable securities and research reports issued by brokers and dealers in the financial services industry. Adjustments were then made for credit and structural differences between these types of securities. There is an inverse correlation between the discount rate and the fair value measurement. When the discount rate increases, the fair value decreases.
Other significant unobservable inputs to the fair value measurement of the asset backed securities in the portfolio included prospective defaults and recoveries.  The cumulative default percentage represents the lifetime defaults assumed. The loss given default percentage represents the percentage of current and projected defaults assumed to be lost. There is an inverse correlation between the default percentages and the fair value measurement. When default percentages increase, the fair value decreases. 
Corporate debt: Given the level of market activity for the trust preferred securities in the form of collateralized debt obligations, the discount rate utilized in the fair value measurement were derived by analyzing current market yields for trust preferred securities of individual name issuers in the financial services industry. Adjustments were then made for credit and structural differences


39
 
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between these types of securities. There is an inverse correlation between the discount rate and the fair value measurement. When the discount rate increases, the fair value decreases.
Other significant unobservable inputs to the fair value measurement of the collateralized debt obligations included prospective defaults and recoveries. The cumulative default percentage represents the lifetime defaults assumed, excluding currently defaulted collateral and including all performing and currently deferring collateral.  As a result, the cumulative default percentage also reflects assumptions of the possibility of currently deferring collateral curing and becoming current.  The loss given default percentage represents the percentage of current and projected defaults assumed to be lost. There is an inverse correlation between the cumulative default and loss given default percentages and the fair value measurement. When default percentages increase, the fair value decreases. 
Mortgage servicing rights: Given the low level of market activity in the MSR market and the general difficulty in price discovery, even when activity is at historic norms, the discount rate utilized in the fair value measurement was derived by analyzing recent and historical pricing for MSRs. Adjustments were then made for various loan and investor types underlying these MSRs. There is an inverse correlation between the discount rate and the fair value measurement. When the discount rate increases, the fair value decreases.
Other significant unobservable inputs to the fair value measurement of MSR’s include cost to service, an input that is not as simple as taking total costs and dividing by a number of loans. It is a figure informed by marginal cost and pricing for MSRs by competing firms, taking other assumptions into consideration. It is different for different loan types. There is an inverse correlation between the cost to service and the fair value measurement. When the cost assumption increase, the fair value decreases.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The Company may also be required, from time to time, to measure certain other assets at fair value on a non-recurring basis in accordance with generally accepted accounting principles; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. The following tables detail the assets carried at fair value on a non-recurring basis at March 31, 2017 and December 31, 2016 and indicate the fair value hierarchy of the valuation technique utilized by the Company to determine fair value. There were no liabilities measured at fair value on a non-recurring basis at March 31, 2017 and December 31, 2016 .
 
 
Total
Fair Value
 
Quoted Prices in
Active Markets for
Identical Assets
 
Other
Observable
Inputs
 
Significant
Unobservable
Inputs
 
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
 
(In thousands)
March 31, 2017
 
 
 
 
 
 
 
 
Impaired loans
 
$
2,371

 
$
—

 
$
—

 
$
2,371

Other real estate owned
 
1,786

 
—

 
—

 
1,786

Total
 
$
4,157

 
$
—

 
$
—

 
$
4,157

December 31, 2016
 
 
 
 
 
 
 
 
Impaired loans
 
$
5,100

 
$
—

 
$
—

 
$
5,100

Other real estate owned
 
1,890

 
—

 
—

 
1,890

Total
 
$
6,990

 
$
—

 
$
—

 
$
6,990

The following is a description of the valuation methodologies used for certain assets that are recorded at fair value on a non-recurring basis.
Other Real Estate Owned : The Company classifies property acquired through foreclosure or acceptance of deed-in-lieu of foreclosure, as other real estate owned (“OREO”) in its financial statements. Upon foreclosure, the property securing the loan is recorded at fair value as determined by real estate appraisals less the estimated selling expense. Appraisals are based upon observable market data such as comparable sales within the real estate market. Assumptions are also made based on management’s judgment of the appraisals and current real estate market conditions and therefore these assets are classified as non-recurring Level 3 assets in the fair value hierarchy.
Impaired Loans : Accounting standards require that a creditor recognize the impairment of a loan if the present value of expected future cash flows discounted at the loan’s effective interest rate (or, alternatively, the observable market price of the loan or the fair value of the collateral) is less than the recorded investment in the impaired loan. Non-recurring fair value adjustments to collateral dependent loans are recorded, when necessary, to reflect partial write-downs and the specific reserve allocations based upon observable market price or current appraised value of the collateral less selling costs and discounts based on management’s


40
 
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judgment of current conditions. Based on the significance of management’s judgment, the Company records collateral dependent impaired loans as non-recurring Level 3 fair value measurements.
Losses on assets recorded at fair value on a non-recurring basis are as follows:
 
Three Months Ended 
 March 31,
 
2017
 
2016
 
(In thousands)
Impaired loans
$
(723
)
 
$
(185
)
Other real estate owned
(32
)
 
(8
)
Total
$
(755
)
 
$
(193
)
Disclosures about Fair Value of Financial Instruments:
The following methods and assumptions were used by management to estimate the fair value of each class of financial instruments not recorded at fair value for which it is practicable to estimate that value.
Cash and Cash Equivalents : Carrying value is assumed to represent fair value for cash and due from banks and short-term investments, which have original maturities of 90 days or less.
Loans Receivable – net : The fair value of the net loan portfolio is determined by discounting the estimated future cash flows using the prevailing interest rates and appropriate credit and prepayment risk adjustments as of period-end at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value of non-performing loans is estimated using the Bank’s prior credit experience.
FHLBB stock : FHLBB stock is a non-marketable equity security which is assumed to have a fair value equal to its carrying value due to the fact that it can only be redeemed by the FHLBB at par value.
Accrued Interest Receivable : Carrying value is assumed to represent fair value.
Deposits and Mortgagors’ and Investors’ Escrow Accounts : The fair value of demand, non-interest- bearing checking, savings and certain money market deposits is determined as the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting the estimated future cash flows using rates offered for deposits of similar remaining maturities as of period-end.
FHLBB Advances and Other Borrowings : The fair value of borrowed funds is estimated by discounting the future cash flows using market rates for similar borrowings.



41
 
Table of Contents

As of March 31, 2017 and December 31, 2016 , the carrying value and estimated fair values of the Company’s financial instruments are as described below:
 
Carrying
Value
 
Fair Value
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In thousands)
March 31, 2017
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
84,660

 
$
84,660

 
$
—

 
$
—

 
$
84,660

Available-for-sale securities
1,075,729

 
369

 
922,881

 
152,479

 
1,075,729

Held-to-maturity securities
13,937

 
—

 
14,839

 
—

 
14,839

Loans held for sale
87,031

 
—

 
87,031

 
—

 
87,031

Loans receivable-net
4,913,953

 
—

 
—

 
4,909,044

 
4,909,044

FHLBB stock
52,707

 
—

 
—

 
52,707

 
52,707

Accrued interest receivable
19,126

 
—

 
—

 
19,126

 
19,126

Derivative assets
11,679

 
—

 
11,679

 
—

 
11,679

Mortgage servicing rights
10,284

 
—

 
—

 
10,284

 
10,284

Financial liabilities:
 
 
 
 
 
 
 
 
 
Deposits
4,790,359

 
—

 
—

 
4,789,655

 
4,789,655

Mortgagors’ and investors’ escrow accounts
10,925

 
—

 
—

 
10,925

 
10,925

FHLBB advances and other borrowings
1,180,053

 
—

 
1,181,401

 
—

 
1,181,401

Derivative liabilities
14,930

 
—

 
14,930

 
—

 
14,930

 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
90,944

 
$
90,944

 
$
—

 
$
—

 
$
90,944

Available-for-sale securities
1,043,411

 
375

 
887,564

 
155,472

 
1,043,411

Held-to-maturity securities
14,038

 
—

 
14,829

 
—

 
14,829

Loans held for sale
62,517

 
—

 
62,517

 
—

 
62,517

Loans receivable-net
4,870,552

 
—

 
—

 
4,895,638

 
4,895,638

FHLBB stock
53,476

 
—

 
—

 
53,476

 
53,476

Accrued interest receivable
18,771

 
—

 
—

 
18,771

 
18,771

Derivative assets
11,734

 
—

 
11,734

 
—

 
11,734

Mortgage servicing rights
10,104

 
—

 
—

 
10,104

 
10,104

Financial liabilities:
 
 
 
 
 
 
 
 
 
Deposits
4,711,172

 
—

 
—

 
4,711,774

 
4,711,774

Mortgagors’ and investors’ escrow accounts
13,354

 
—

 
—

 
13,354

 
13,354

FHLBB advances and other borrowings
1,169,619

 
—

 
1,167,066

 
—

 
1,167,066

Derivative liabilities
15,040

 
—

 
15,040

 
—

 
15,040

Certain financial instruments and all nonfinancial investments are exempt from disclosure requirements. Accordingly, the aggregate fair value of amounts presented above may not necessarily represent the underlying fair value of the Company.
Note 13.
Commitments and Contingencies
Financial Instruments With Off-Balance Sheet Risk
In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit through issuing standby letters of credit and undisbursed portions of construction loans and involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized on the Consolidated Statements of Condition. The contractual amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.


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The contractual amounts of commitments to extend credit represent the amounts of potential accounting loss should the contract be fully drawn upon, the customer defaults and the value of any existing collateral obligations is deemed worthless. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. Off-balance sheet financial instruments whose contract amounts represent credit risk are as follows at March 31, 2017 and December 31, 2016 :
 
March 31,
2017
 
December 31,
2016
 
(In thousands)
Commitments to extend credit:
 
 
 
Commitment to grant loans
$
157,022

 
$
197,070

Undisbursed construction loans
86,253

 
90,149

Undisbursed home equity lines of credit
375,710

 
364,421

Undisbursed commercial lines of credit
372,855

 
382,018

Standby letters of credit
14,364

 
13,588

Unused credit card lines
13,800

 
12,327

Unused checking overdraft lines of credit
1,527

 
1,465

Total
$
1,021,531

 
$
1,061,038

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Since these commitments could expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include residential and commercial property, accounts receivable, inventory, property, plant and equipment, deposits, and securities.
Other Commitments
The Company invests in partnerships, including low income housing tax credit, new markets housing tax credit, and alternative energy tax credit partnerships. The net carrying balance of these investments totaled $34.8 million at March 31, 2017 and is included in other assets in the consolidated statement of condition. At March 31, 2017 , the Company was contractually committed under these limited partnership agreements to make additional capital contributions of $12.8 million , which constitutes our maximum potential obligation to these partnerships.
Legal Matters
The Company is involved in various legal proceedings that have arisen in the normal course of business. The Company is not involved in any legal proceedings deemed to be material as of March 31, 2017 .
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the Securities Exchange Act), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions, increased competitive pressures, changes in the interest rate environment, legislative and regulatory change, changes in the financial markets, and other risks and uncertainties disclosed from time to time in documents that United Financial Bancorp files with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and the Risk Factors in Item 1A of this report. Because of these and other uncertainties, United’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, United’s past results of operations do not necessarily indicate United’s combined future results. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by applicable law or regulation,


43
 
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management undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD & A”) is intended to help the reader understand the Company’s operations and present business environment. Management believes accuracy, transparency and clarity are the primary goals of successful financial reporting. Management remains committed to transparency in the Company’s financial reporting, providing the Company’s stockholders with informative financial disclosures and presenting an accurate view of the Company’s financial disclosures, financial position and operating results.
The MD & A is provided as a supplement to—and should be read in conjunction with—the Unaudited Consolidated Financial Statements and the accompanying notes thereto contained in Part I, Item 1, of this report as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 . The following sections are included in the MD & A:
•
Business – a general description of the Company’s business, objectives and regulatory considerations.
•
Critical Accounting Estimates – a discussion of accounting estimates that require critical judgments and estimates.
•
Operating Results – an analysis of the Company’s consolidated results of operations for the periods presented in the Unaudited Consolidated Financial Statements.
•
Comparison of Financial Liquidity and Capital Resources – an overview of financial condition and market interest rate risk.
Business
General
By assets, United Financial Bancorp, Inc. is the third largest publicly traded banking institution headquartered in Connecticut with consolidated assets of $6.70 billion and stockholders’ equity of $666.0 million at March 31, 2017 .
The Company is a commercially-focused financial institution delivering financial services primarily to small- to mid-sized businesses and individuals throughout Connecticut and Massachusetts through 53 banking offices, commercial loan production offices, mortgage loan production offices, 63 ATMs, telephone banking, mobile banking, and online banking (www.bankatunited.com).
The Company’s vision is to pursue excellence in all things with respect to its customers, employees, shareholders and communities. This pursuit of excellence has helped the Company fulfill the financial needs of its customers while delivering an exceptional banking experience in the market areas that it has served since 1858. The structure of United Bank supports the vision with community banking teams in each market that provide traditional banking products and services to business organizations and individuals, including commercial business loans, commercial and residential real estate loans, consumer loans, financial advisory services and a variety of deposit products.
Our business philosophy is to remain a community-oriented franchise and continue to focus on organic growth supplemented through acquisitions and provide superior customer service to meet the financial needs of the communities in which we operate.
The Company’s results of operations depend primarily on net interest income, which is the difference between the income earned on its loan and securities portfolios and its cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by the Company’s provision for loan losses, gains and losses from sales of loans and securities, and non-interest income and expenses. Non-interest income primarily consists of fee income from depositors, mortgage banking activities, loan swap fees and increases in cash surrender value of bank-owned life insurance (“BOLI”). Non-interest expenses consist principally of salaries and employee benefits, occupancy, service bureau fees, core deposit intangible amortization, marketing, professional fees, FDIC insurance assessments, and other operating expenses.
Results of operations are also significantly affected by general economic and competitive conditions and changes in interest rates as well as government policies and actions of regulatory authorities. Future changes in applicable laws, regulations or government policies may materially affect the Company.
The Company’s common stock is traded on the NASDAQ Global Select Market SM  under the ticker symbol “UBNK”.


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Our Objectives
The Company seeks to grow organically and through strategic mergers/acquisitions as well as to continually deliver superior value to its customers, stockholders, employees and communities through achievement of its core operating objectives which are to:
•
Align earning asset growth with organic capital and low cost core deposit generation to maintain strong capital and liquidity;
•
Re-mix cash flows into better yielding risk adjusted return on assets with lower funding costs relative to peers;
•
Invest in people, systems, and technology to grow revenue and improve customer experience while maintaining an attractive cost structure;
•
Grow operating revenue, maximize operating earnings, grow tangible book value, pay dividends. Achieve more revenue into non-interest income and core fee income.
Significant factors management reviews to evaluate achievement of the Company’s operating objectives and its operating results and financial condition include, but are not limited to: net income and earnings per share, return on tangible common equity and assets, net interest margin, non-interest income, operating expenses related to total average assets and efficiency ratio, asset quality, loan and deposit growth, capital management, liquidity and interest rate sensitivity levels, customer service standards, market share and peer comparisons.
Regulatory Considerations
The Company and its subsidiaries are subject to numerous examinations by federal and state banking regulators, as well as the Securities and Exchange Commission. Please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for additional disclosures with respect to laws and regulations affecting the Company’s businesses.
Critical Accounting Estimates
The accounting policies followed by the Company and its subsidiaries conform with accounting principles generally accepted in the United States of America and with general practices within the banking industry. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. The Company bases its assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time the Consolidated Financial Statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that the financial statements are presented fairly and in accordance with GAAP.
Management believes that the most critical accounting policies, which involve the most complex subjective decisions or assessments, relate to the allowance for loan losses, other-than-temporary impairment of investment securities, derivative instruments and hedging activities, goodwill, and income taxes. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of the Board of Directors. Additional accounting policies are more fully described in Note 1 in the “Notes to Consolidated Financial Statements” presented in our 2016 Annual Report on Form 10-K. A brief description of the Company’s current policies involving significant judgment follows:
Allowance for Loan Losses
The allowance for loan losses is maintained at a level that management considers adequate to absorb losses in the loan portfolio. Management’s judgment in determining the adequacy of the allowance is inherently subjective and is based on past loan loss experience, known and inherent losses and size of the loan portfolios, an assessment of current economic and real estate market conditions, estimates of the current value of underlying collateral, review of regulatory authority examination reports and other relevant factors.
The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: owner-occupied and investor non-owner occupied commercial real estate, commercial and residential construction, commercial, residential real estate, home equity, and other consumer. The general component of the allowance for loan losses also includes a reserve based upon historical loss experience for loans which were acquired and have subsequently evidenced measured credit deterioration following initial acquisition. Our acquired loan portfolio is comprised of purchased loans that show no evidence of deterioration subsequent to acquisition and are therefore not part of the covered portfolio. Acquired impaired loans are loans with evidence of deterioration subsequent to acquisition and are considered in the covered portfolio in establishing the allowance for loan losses.
Although management believes it uses appropriate available information to establish the allowance for loan losses, future additions to the allowance may be necessary if certain future events occur that cause actual results to differ from the assumptions used in making the evaluation.


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Other-than-Temporary Impairment of Securities
The Company maintains a securities portfolio that is classified into two major categories: available for sale and held to maturity. Securities available-for-sale are recorded at estimated fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Held-to-maturity securities are recorded at amortized cost. Management determines the classifications of a security at the time of purchase.
Quarterly, securities with unrealized losses are reviewed as deemed appropriate to assess whether the decline in fair value is temporary or other-than-temporary. The assessment is to determine whether the decline in value is from company-specific events, industry developments, general economic conditions, credit losses on debt or other reasons. Declines in the fair value of available-for-sale securities or held to maturity securities below their cost or amortized cost that are deemed to be other-than-temporary are reflected in earnings for equity securities and for debt securities that have an identified credit loss. Unrealized losses on debt securities with no identified credit loss component are reflected in other comprehensive income.
Derivative Instruments and Hedging Activities
The Company uses derivatives to manage a variety of risks, including risks related to interest rates. Accounting for derivatives as hedges requires that, at inception and over the term of the arrangement, the hedged item and related derivative meet the requirements for hedge accounting. The rules and interpretations related to derivatives accounting are complex. Failure to apply this complex guidance correctly will result in the changes in the fair value of the derivative being reported in earnings.
The Company uses interest rate swaps to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. The fair values of interest rate swaps are determined using the standard methodology of netting the discounted future fixed cash receipts (or payment) and the expected variable cash payments (or receipts). The variable cash payment (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rates curves.
At March 31, 2017 , derivative assets and liabilities were $11.7 million and $14.9 million , respectively. Further information about our use of derivatives is provided in Note 7, “Derivatives and Hedging Activities” in Notes to Unaudited Consolidated Financial Statements in this report.
Goodwill
The Company is required to record certain assets and liabilities it has acquired in a business combination, including identifiable intangible assets such as core deposit intangibles, at fair value, which may involve making estimates based on third-party valuations, such as appraisals or internal valuations based on discounted cash flow analyses or other valuation techniques. The resulting goodwill is evaluated for impairment annually or whenever events or changes in circumstances indicate the carrying value of the goodwill may be impaired.
When goodwill is evaluated for impairment, qualitative factors considered include, but are not limited to, industry and market conditions, overall financial performance, and events affecting the reporting unit. If there are no qualitative factors that indicate goodwill may be impaired, the quantitative analysis is not required. For a quantitative analysis, if the carrying amount exceeds the implied fair value, an impairment charge is recorded to income. The fair value is based on observable market prices, when practicable. Other valuation techniques may be used when market prices are unavailable, including estimated discounted cash flows and market multiples analyses. These types of analyses contain uncertainties because they require management to make assumptions and to apply judgment to estimate industry economic factors and the profitability of future business strategies. In the event of future changes in fair value, the Company may be exposed to an impairment charge that could be material.
The carrying value of goodwill at March 31, 2017 was $115.3 million . For further discussion on goodwill see Note 5, “Goodwill and Core Deposit Intangibles” in Notes to Unaudited Consolidated Financial Statements in this report.
Income Taxes
The Company recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Significant management judgment is required in determining income tax expense and deferred tax assets and liabilities. Some judgments are subjective and involve estimates and assumptions about matters that are inherently uncertain. In determining the valuation allowance, we use forecasted future operating results, based upon approved business plans, including a review of the eligible carry forward periods, tax planning opportunities and other relevant considerations. Management believes that the accounting estimate related to the valuation allowance is a critical accounting estimate because the underlying assumptions can change from period to period. For example, tax law changes or variances in future projected operating performance could result in a change in the valuation allowance.


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The reserve for tax contingencies contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various tax positions. The effective income tax rate is also affected by changes in tax law, entry into new tax jurisdictions, the level of earnings and the results of tax audits.

Operating Results
Executive Overview
Net income for the three months ended March 31, 2017 was $13.7 million , or $0.27 per diluted share, compared to $11.9 million , or $0.24 per diluted share, for the same period in 2016 .
Net interest income increased $895,000 for the three months ended March 31, 2017 compared to the same period in 2016 due to balance sheet growth which was mostly comprised of strong loan originations and, to a lesser extent, loan portfolio purchases. The Company intends to increase the level of owner-occupied commercial real estate while selectively originating investor commercial real estate to generate more favorable risk-adjusted returns and protect the net interest margin in a flat yield curve interest rate environment. Balance sheet growth was also attributed to the increase in investment securities as the Company began to reinvest security cash flows focused on extending portfolio duration, primarily in mortgage-backed securities and collateralized loan obligation securities. Total interest and dividend income increased $1.6 million for the three months ended March 31, 2017 compared to the same periods in 2016 . This increase was partially offset by an increase in interest expense of $697,000 compared to the same period in 2016 . The Company’s tax-equivalent net interest margin for the three months ended March 31, 2017 was 3.03% , a decrease of six basis points, over the same period in 2016 . The margin was adversely impacted by $1.1 million in the current period due to the amortization and accretion of fair value adjustments on loans, deposits and borrowings compared to a positive impact in the prior year period of $296,000.
Non-interest income increased $1.8 million to $8.5 million for the three months ended March 31, 2017 compared to $6.7 million for the same period in 2016 . All non-interest income categories experienced increases except for gain on sales of securities which decreased $995,000 from the prior year period. The increase in non-interest income was mostly a result of the Company recording lower impairment charges on its partnership investments, as well as an increase in service charges and fees as the Company’s investment advisory subsidiary generated increased revenue period over period. The decrease in gains recorded on sales of securities was due to a strategy implemented in the prior year period which allowed the Company to pay off higher costing FHLBB advances.
Non-interest expense increased $932,000 for the three months ended March 31, 2017 compared to the same period in 2016 . The largest increases in non-interest expense for the three month period ended March 31, 2017 were in salaries and employee benefits and occupancy and equipment. The increase in salaries and benefits is due primarily to the robust human capital investments in information technology staffing and project management, and the increase in occupancy and equipment is largely driven by weather related expenses as the Northeast dealt with several snow storms in the first quarter of 2017. These increases were partially offset by a decrease in FHLBB prepayment penalties. FHLBB prepayment penalties were incurred as a result of the first quarter 2016 investment portfolio optimization strategy which allowed the Company to pay off higher costing FHLBB advances.
The asset quality of our loan portfolio has remained strong. At March 31, 2017 and December 31, 2016 , the allowance for loan losses to total loans ratio was 0.88% and 0.87% , and the allowance for loan losses to non-performing loans ratio was 125.05% and 125.64% , respectively. The ratio of non-performing loans to total loans was 0.70% and 0.69% at March 31, 2017 and December 31, 2016 , respectively. A provision for loan losses of $2.3 million was recorded for the three months ended March 31, 2017 , compared to $2.7 million for the same prior year period, reflecting the ongoing assessment of asset quality measures including the estimated exposure on impaired loans and organic loan growth.


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The following table presents selected financial data and ratios:
Selected Financial Data
 
At or For the Three Months 
 Ended March 31,
 
 
2017
 
2016
 
(Dollars in thousands, except share data)
Share Data:
 
 
 
 
Basic net income per share
 
$
0.27

 
$
0.24

Diluted net income per share
 
0.27

 
0.24

Dividends declared per share
 
0.12

 
0.12

Key Statistics:
 
 
 
 
Total revenue
 
$
52,802

 
$
50,129

Total expense
 
34,695

 
33,763

Key Ratios (annualized):
 
 
 
 
Return on average assets
 
0.83
%
 
0.76
%
Return on average equity
 
8.35
%
 
7.59
%
Tax-equivalent net interest margin
 
3.03
%
 
3.09
%
Non-interest expense to average assets
 
2.11
%
 
2.15
%
Cost of interest-bearing deposits
 
0.68
%
 
0.66
%
Non-performing Assets:
 
 
 
 
Total non-accrual loans, excluding troubled debt restructures
 
$
26,376

 
$
29,285

Troubled debt restructures - non-accruing
 
8,252

 
7,143

Total non-performing loans
 
34,628

 
36,428

Other real estate owned
 
1,786

 
659

Total non-performing assets
 
$
36,414

 
$
37,087

Asset Quality Ratios:
 
 
 
 
Non-performing loans to total loans
 
0.70
%
 
0.78
%
Non-performing assets to total assets
 
0.54
%
 
0.59
%
Allowance for loan losses to non-performing loans
 
125.05
%
 
97.45
%
Allowance for loan losses to total loans
 
0.88
%
 
0.76
%
Non-GAAP Ratio:
 
 
 
 
Efficiency ratio (1)
 
63.95
%
 
63.00
%
(1)
Calculations for this non-GAAP metric are provided in the following Non-GAAP Financial Measures section
Non-GAAP Financial Measures
In addition to evaluating the Company’s results of operations in accordance with GAAP, management periodically supplements this evaluation with an analysis of certain non-GAAP financial measures. These non-GAAP measures are intended to provide the reader with additional perspectives on operating results, financial condition, and performance trends, while facilitating comparisons with the performance of other financial institutions. Non-GAAP financial measures are not a substitute for GAAP measures, rather, they should be read and used in conjunction with the Company’s GAAP financial information.
The efficiency ratio is used as a common measure by banks as a comparable metric to understand the Company’s expense structure relative to its total revenue; in other words, for every dollar of total revenue we recognize, how much of that dollar is expended. In order to improve the comparability of the ratio to our peers, we remove non-core items. To improve transparency, and acknowledging that banks are not consistent in their definition of the efficiency ratio, we include our calculation of this non-GAAP measure.


48
 
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The following is a calculation of our efficiency ratio for the three months ended March 31, 2017 and 2016 :
 
 
For the Three Months 
 Ended March 31,
 
 
2017
 
2016
Efficiency Ratio:
 
 
 
 
Non-Interest Expense (GAAP)
 
$
34,695

 
$
33,763

Non-GAAP adjustments:
 
 
 
 
Other real estate owned expense
 
(91
)
 
(35
)
FHLBB prepayment penalties
 
—

 
(1,454
)
Non-Interest Expense for Efficiency Ratio (non-GAAP)
 
$
34,604

 
$
32,274

 
 
 
 
 
Net Interest Income (GAAP)
 
$
44,297

 
$
43,402

Non-GAAP adjustments:
 
 
 
 
Tax equivalent adjustment for tax-exempt loans and investment securities
 
1,693

 
1,616

 
 
 
 
 
Non-Interest Income (GAAP)
 
8,505

 
6,727

Non-GAAP adjustments:
 
 
 
 
Net gain on sales of securities
 
(457
)
 
(1,452
)
Net loss on limited partnership investments
 
80

 
936

BOLI claim benefit
 
(8
)
 
—

Total Revenue for Efficiency Ratio (non-GAAP)
 
$
54,110

 
$
51,229

 
 
 
 
 
Efficiency Ratio (Non-Interest Expense for Efficiency Ratio (non-GAAP)/Total Revenue for Efficiency Ratio (non-GAAP))
 
63.95
%
 
63.00
%
 
 
 
 
Average Balances, Interest, Average Yields\Cost and Rate\Volume Analysis
The tables below sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. A tax-equivalent yield adjustment was made for the three months ended March 31, 2017 and 2016 . All average balances are daily average balances. Loans held for sale and non-accrual loans are included in the computation of interest-earning average balances, with non-accrual loans carrying a zero yield. The yields set forth above include the effect of deferred costs, discounts and premiums that are amortized or accreted to interest income or expense.


49
 
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Average Balance Sheets for the Three Months Ended March 31, 2017 and 2016 :
 
Three Months Ended March 31,
 
2017
 
2016
 
 Average Balance
 
Interest and Dividends
 
Annualized Yield/Cost
 
 Average Balance
 
Interest and Dividends
 
Annualized Yield/Cost
 
(Dollars in thousands)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Residential real estate loans
$
1,235,065

 
$
10,223

 
3.31
%
 
$
1,207,005

 
$
10,057

 
3.33
%
Commercial real estate loans
2,098,474

 
20,726

 
4.01

 
2,010,589

 
21,082

 
4.22

Construction loans
145,486

 
1,564

 
4.36

 
171,268

 
2,023

 
4.75

Commercial business loans
730,443

 
6,720

 
3.73

 
607,331

 
6,129

 
4.06

Home equity loans
523,335

 
5,222

 
3.99

 
432,208

 
3,712

 
3.44

Other consumer loans
212,283

 
2,611

 
4.92

 
228,657

 
2,975

 
5.20

       Total loans (1)
4,945,086

 
47,066

 
3.84

 
4,657,058

 
45,978

 
3.96

Securities
1,123,083

 
9,692

 
3.45

 
1,134,723

 
9,139

 
3.22

Other earning assets
45,196

 
101

 
0.89

 
57,736

 
73

 
0.51

Total interest-earning assets
6,113,365

 
56,859

 
3.75

 
5,849,517

 
55,190

 
3.79

Allowance for loan losses
(43,625
)
 
 
 
 
 
(35,134
)
 
 
 
 
Non-interest-earning assets
514,403

 
 
 
 
 
472,379

 
 
 
 
Total assets
$
6,584,143

 
 
 
 
 
$
6,286,762

 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
NOW and money market accounts
$
1,843,458

 
2,196

 
0.48

 
$
1,573,554

 
1,783

 
0.46

Saving deposits (2)
528,657

 
77

 
0.06

 
519,264

 
74

 
0.06

Time deposits
1,713,062

 
4,546

 
1.08

 
1,747,654

 
4,409

 
1.01

Total interest-bearing deposits
4,085,177

 
6,819

 
0.68

 
3,840,472

 
6,266

 
0.66

Advances from the Federal Home Loan Bank
980,524

 
2,670

 
1.10

 
956,819

 
2,481

 
1.04

Other borrowings
126,001

 
1,380

 
4.44

 
150,387

 
1,425

 
3.81

Total interest-bearing liabilities
5,191,702

 
10,869

 
0.85
%
 
4,947,678

 
10,172

 
0.83
%
Non-interest-bearing deposits
668,823

 
 
 
 
 
635,552

 
 
 
 
Other liabilities
65,863

 
 
 
 
 
76,472

 
 
 
 
Total liabilities
5,926,388

 
 
 
 
 
5,659,702

 
 
 
 
Stockholders’ equity
657,755

 
 
 
 
 
627,060

 
 
 
 
Total liabilities and stockholders’ equity
$
6,584,143

 
 
 
 
 
$
6,286,762

 
 
 
 
Net interest-earning assets (2)
$
921,663

 
 
 
 
 
$
901,839

 
 
 
 
Tax-equivalent net interest income
 
 
45,990

 
 
 
 
 
45,018

 
 
Tax-equivalent net interest rate spread (3)
 
 
 
 
2.90
%
 
 
 
 
 
2.96
%
Tax-equivalent net interest margin (4)
 
 
 
 
3.03
%
 
 
 
 
 
3.09
%
Average interest-earning assets to average interest-bearing liabilities
 
 
 
 
117.75
%
 
 
 
 
 
118.23
%
Less tax-equivalent adjustment
 
 
1,693

 
 
 
 
 
1,616

 
 
Net interest income
 
 
$
44,297

 
 
 
 
 
$
43,402

 
 
(1)
Total loans includes loans held for sale and nonperforming loans.
(2)
Includes mortgagors’ and investors’ escrow accounts.
(3)
Tax-equivalent net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4)
Net interest rate spread represents the difference between yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(5)
Tax-equivalent net interest rate margin represents tax-equivalent net interest income divided by average interest-earning assets.


50
 
Table of Contents

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 changes in both rate and volume that 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, 2017 compared to
March 31, 2016
 
Increase (Decrease)
Due to
 
 
 
Volume
 
Rate
 
Net
 
(In thousands)
Interest and dividend income:
 
 
 
 
 
Loans receivable
$
2,664

 
$
(1,576
)
 
$
1,088

Securities (1)
(95
)
 
648

 
553

Other earning assets
(19
)
 
47

 
28

Total earning assets
2,550

 
(881
)
 
1,669

Interest expense:
 
 
 
 
 
NOW and money market accounts
321

 
92

 
413

Savings accounts
1

 
2

 
3

Time deposits
(89
)
 
226

 
137

Total interest-bearing deposits
233

 
320

 
553

FHLBB advances
63

 
126

 
189

Other borrowings
(250
)
 
205

 
(45
)
Total interest-bearing liabilities
46

 
651

 
697

Change in tax-equivalent net interest income
$
2,504

 
$
(1,532
)
 
$
972

(1)
Includes FHLBB stock
Comparison of Operating Results for the Three Months Ended March 31, 2017 and 2016
The following discussion provides a summary and comparison of the Company’s operating results for the three months ended March 31, 2017 and 2016 .
Net Interest Income
Net interest income is the amount that interest and fees on earning assets (loans and investments) exceeds the cost of funds, interest paid to the Company’s depositors and interest on external borrowings. Net interest margin is the difference between the income on earning assets and the cost of interest-bearing funds as a percentage of average earning assets. Growth in net interest income has resulted from growth in interest-earning assets and liabilities, primarily reflecting organic loan growth and portfolio purchases.
For the three months ended March 31, 2017 , tax-equivalent net interest income increased $972,000 from the comparative 2016 period. This was mainly due to the increase in average earning assets of $263.8 million outpacing the increase of $244.0 million in interest-bearing liabilities, with the remainder funded by an increase in non-interest bearing deposits of $33.3 million. The increase in interest and dividend income of $1.7 million was partially offset by the increase in interest expense of $697,000 . The net interest margin decreased six basis points, the yield on average earnings assets decreased four basis points and the cost of interest-bearing liabilities increased two basis points from the same period in 2016 . The fair value adjustments recorded reflect amortization and accretion of credit and interest rate marks on the acquired loans, time deposits and borrowings which resulted in a decrease in net interest income of $1.1 million for the three months ended March 31, 2017 compared to a $296,000 increase in net interest income for the comparable 2016 period.
The increase in the average balances of loans primarily reflects loan growth and portfolio purchases. The average balance of total loans for the three months ended March 31, 2017 was $4.95 billion , and had an average yield of 3.84% . The largest increases in the average balances for loans were recorded in commercial business loans, home equity loans and commercial real estate loans. For the three months ended March 31, 2017 , the average balance of commercial business loans, home equity loans and commercial


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real estate loans totaled $730.4 million , $523.3 million and $2.10 billion, an increase of $123.1 million, $91.1 million and $87.9 million from the prior year period, respectively.
The average balance of investment securities decreased $11.6 million , and the average yield earned on these securities increased 23 basis points, respectively, for the three months ended March 31, 2017 , compared to the same period in 2016 . The decrease in average balances is primarily due to the Company allowing cash flows to runoff and not being reinvested in the portfolio and the increase in the yield is due to the Company extending duration to earn a higher return.
For the three months ended March 31, 2017 compared to the same period in 2016 , the average balance of total interest-bearing deposits increased $244.7 million while the average cost was limited to a two basis point increase. These increases were primarily due to deposit growth in all categories except for time deposits and the Company’s continued focus to grow low cost deposits. FHLBB advances increased $23.7 million while the average cost increased six basis points. Average other borrowings decreased $24.4 million while the average cost increased 63 basis points. The increase in FHLBB advances was to fund new loan growth and loan portfolio purchases.
Net interest income is affected by changes in interest rates, loan and deposit pricing strategies, competitive conditions, the volume and mix of interest-earning assets and interest-bearing liabilities as well as the level of non-performing assets. The Company manages the risk of changes in interest rates on its net interest income through an Asset/Liability Management Committee and through related interest rate risk monitoring and management policies.
Provision for Loan Losses
The provision for loan losses is a charge to earnings in an amount sufficient to maintain the allowance for loan losses at a level deemed adequate by the Company. The level of the allowance is a critical accounting estimate, which is subject to uncertainty. Acquired loans are recorded at fair value at the time of acquisition, with no carryover of the allowance for loan losses, which includes adjustments for market interest rates and expected credit losses. Included within the ALL at March 31, 2017 are reserves for acquired loans in accordance with Bank policies.
Management evaluates the adequacy of the allowance for loan losses on a quarterly basis. The adequacy of the loan loss allowance is based on such interrelated factors as the composition of the loan portfolio and its inherent risk characteristics, the level of non-performing loans and charge-offs, both current and historic, local economic and credit conditions, the direction of real estate values, and regulatory guidelines. The provision is charged against earnings in order to maintain an allowance for loan losses that reflects management’s best estimate of probable losses inherent in the loan portfolio at the balance sheet date.
Management recorded a provision for loan losses of $2.3 million for the three months ended March 31, 2017 compared to $2.7 million for the same period of 2016 . The primary factors that influenced management’s decision to record the provision was organic growth during the period, migration to covered loans, the on-going assessment of estimated exposure on impaired loans, level of delinquencies, and general economic conditions. Impaired loans totaled $50.5 million at March 31, 2017 compared to $50.1 million at December 31, 2016 , an increase of $391,000 , or 0.8% , reflecting increases in residential real estate, home equity and commercial business nonaccrual loans of $828,000, $264,000, and $369,000, respectively, and a decrease in other consumer nonaccrual loans of $963,000. Troubled debt restructured (“TDR”) loans totaled $24.1 million at March 31, 2017, compared to $23.4 million at December 31, 2016, an increase of $773,000. At March 31, 2017 , the allowance for loan losses totaled $43.3 million , representing 0.88% of total loans and 125.05% of non-performing loans compared to an allowance for loan losses of $42.8 million , which represented 0.87% of total loans and 125.64% of non-performing loans as of December 31, 2016 . As loans move from the acquired loan portfolio to the covered loan portfolio, the ALL is anticipated to increase as a percentage of total loans. There is no carryover of the allowance for loan losses on acquired loans. The repayment of impaired loans is largely dependent upon the sale and value of collateral that may be impacted by current real estate conditions.


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Non-Interest Income
Total non-interest income was $8.5 million and $6.7 million for the three months ended March 31, 2017 and 2016, with non-interest income representing 16.1% and 13.4% of total revenues, respectively. The following is a summary of non-interest income by major category for the three months ended March 31, 2017 and 2016 :
 
For the Three Months Ended March 31,
 
2017
 
2016
 
$ Change
 
% Change
 
(Dollars in thousands)
Service charges and fees
$
5,418

 
$
4,594

 
$
824

 
17.9
 %
Gain on sale of securities, net
457

 
1,452

 
(995
)
 
(68.5
)
Income from mortgage banking activities
1,321

 
860

 
461

 
53.6

Bank-owned life insurance income
1,207

 
818

 
389

 
47.6

Net loss on limited partnership investments
(80
)
 
(936
)
 
856

 
(91.5
)
Other income (loss)
182

 
(61
)
 
243

 
398.4

Total non-interest income
$
8,505

 
$
6,727

 
$
1,778

 
26.4
 %
Service Charges and Fees: Service charges and fees were $5.4 million for the three months ended March 31, 2017 , an increase of $824,000 from the comparable 2016 period. The most significant increases were recorded in revenue generated by (a) the Company’s investment advisory subsidiary, United Northeast Financial Advisors, Inc. (“UNFA”) and (b) deposit and service charges for various accounts.
The increased revenue generated by UNFA is due to several factors. The Company continues to successfully acquire proven talent with deep local relationships as well as installing Series 6 representatives in select branches which work alongside our retail employees to ensure a cohesive sales approach to meeting the financial needs of our customers. Additionally, beginning in the first quarter of 2016 the Company shifted its focus to assets under management (“AUM”) for ongoing revenue versus a transactional approach; the result has been more recurring fee revenue driven by increasing AUM versus one-time fees generated by transactions. The deposit fee increases are related to a project undertaken by the Company focused on increasing profitability by implementing a deposit fee structure that is more in line with our competition based on a detailed study. The Company recorded revenue increases in the areas of service charges and fees targeted by the project beginning in July 2016. These increases were partially offset by a decrease in loan swap fee income as a direct result of lower transactional volume. Loan swap fee income is generated as part of the Company’s loan level hedge program that is offered to certain commercial banking customers to facilitate their respective risk management strategies.
Gains on Sales of Securities, Net : For the three months ended March 31, 2017 , the Company recorded $457,000 in net gains on security sales compared to $1.5 million in net gains in the prior year period, respectively.
For the three months ended March 31, 2017, the Company recorded lower transactional volume with the activity mainly driven by the sale of shorter-term securities, adding longer duration investments in the portfolio to optimize income as well as improving portfolio efficiency. The gains recorded in the three months ended March 31, 2016 were a result of an optimization strategy of our investment portfolio in which we took advantage of the shape of the yield curve and sold shorter-term securities and added longer duration investments in the portfolio to optimize income and reduce higher-cost borrowings.
Income From Mortgage Banking Activities: The Company recorded an increase of $461,000 in income from mortgage banking activities for the three months ended March 31, 2017 , compared to the same period in 2016 . The increase for the three months ended March 31, 2017 was primarily due to a $1.1 million improvement in the fair value recognized in net income for mortgage servicing rights in relation to the prior year due to an increase on long-term rates and a decrease in the value of forward loan sales contracts.
BOLI Income:  For the three months ended March 31, 2017 , the Company recorded BOLI income of $1.2 million compared to $818,000 in the same period in 2016 , an increase of $389,000 . The increase for the three months ended March 31, 2017 is mainly due to the purchase of $40.0 million of BOLI late in December 2016.
Net loss on limited partnership investments: The Company has investments in low income housing tax credit, new markets housing tax credit and alternative energy tax credit partnerships. In March 2017 and March 2016, the Company invested an additional $3.5 million and $12.7 million in an alternative energy tax credit partnerships, respectively.
For the three months ended March 31, 2017 , the Company recorded net losses of $80,000 on limited partnership investments, compared to net losses of $936,000 for the corresponding period as the Company experienced fewer impairments on its partnership investments in the current period. In conjunction with the losses realized on the tax credit partnerships, the Company recorded an


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offsetting benefit of $2.4 million and $2.6 million as reflected in the tax provision for the three months ended March 31, 2017 and 2016 , respectively.
Other Income: The Company recorded an increase in other income of $243,000 for the three months ended March 31, 2017 compared to the prior year period.
For the three months ended March 31, 2017 , the $243,000 increase in other income was primarily due to an increase in the credit value adjustments on borrower facing loan level hedges further augmented by an increase in miscellaneous income related to mortgage insurance claims.
Non-Interest Expense
Non-interest expense increased $932,000 to $34.7 million for the three months ended March 31, 2017 .
For the three months ended March 31, 2017 and 2016 , annualized non-interest expense represented 2.11% and 2.15% of average assets, respectively. The following table summarizes non-interest expense for the three months ended March 31, 2017 and 2016 :
 
For the Three Months Ended March 31,
 
2017
 
2016
 
$ Change
 
% Change
 
(Dollars in thousands)
Salaries and employee benefits
$
19,730

 
$
17,791

 
$
1,939

 
10.9
 %
Service bureau fees
2,103

 
2,029

 
74

 
3.6

Occupancy and equipment
4,469

 
3,900

 
569

 
14.6

Professional fees
1,309

 
881

 
428

 
48.6

Marketing and promotions
712

 
592

 
120

 
20.3

FDIC insurance assessments
679

 
939

 
(260
)
 
(27.7
)
Core deposit intangible amortization
385

 
433

 
(48
)
 
(11.1
)
FHLBB prepayment penalties
—

 
1,454

 
(1,454
)
 
100.0

Other
5,308

 
5,744

 
(436
)
 
(7.6
)
Total non-interest expense
$
34,695

 
$
33,763

 
$
932

 
2.8
 %
Salaries and Employee Benefits : Salaries and employee benefits was $19.7 million for the three months ended March 31, 2017 , an increase of $1.9 million from the comparable 2016 period.
For the three months ended March 31, 2017 , the increase in salaries and benefits of $1.9 million was attributable to (a) an increase in salaries with a greater number of employees mainly reflecting the robust investment in information technology staffing and project management; (b) an increase in commissions and incentives on product sales; (c) an increase in bonuses driven by the Company’s financial results and reaching corporate goals; and (d) an increase in restricted stock expense related to stock awards granted in November 2016, increasing the number of unvested shares being expensed.
Service Bureau Fees : Service bureau fees increased $74,000 for the three months ended March 31, 2017 , compared to the same period in 2016 . The increases for the three months were largely driven by an investment in several efficiency and risk mitigation projects related to the core banking system.
Occupancy and Equipment : For the three months ended March 31, 2017 , the Company recorded $4.5 million in occupancy and equipment expense, an increase of $569,000 from the prior year period primarily due to higher expenses related to snow removal, outsourcing of property management services which began in July of 2016 and depreciation on leasehold improvements. These increases were partially offset by a decrease in rent expense related to a change in the estimate for deferred rent in September 2016 resulting from the Company’s efforts to control expenses over the branch network.
Professional fees : Professional fees increased $428,000 for the three months ended March 31, 2017 , compared to the same period in 2016 . The increases were largely driven by the expenses related to the engagement of consulting services assisting in a project targeted to maximize non-interest income revenue streams and legal services related to tax matters regarding a new partnership investment.
Marketing and Promotions : For the three months ended March 31, 2017 marketing and promotions increased $120,000 to $712,000 from the same period in the prior year. The increase was primarily attributable to expenses related to digital advertising and marketing as the Company increased it’s utilization of online marketing channels. Those increases were partially offset by a decrease in television and newspaper advertising expenses.


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FDIC Insurance Assessments: The expense for FDIC insurance assessments decreased $260,000 to $679,000 , for the three months ended March 31, 2017 compared to the same period in the prior year. The decrease is primarily attributable to a decrease in the assessment rate, which is partially offset by a higher assessment base used in the assessment calculation due to loan growth.
Core Deposit Intangible Amortization : The $48,000 decrease in core deposit intangible amortization for the three months ended March 31, 2017 , is directly attributable to the amortization method used by the Company. The Company is amortizing the original core deposit intangible of $10.6 million over 10 years using the sum-of-the-years-digits method.
FHLBB Prepayment Penalties : The Company did not record any FHLBB prepayment penalties during the three months ended March 31, 2017 compared to $1.5 million for the same period in the prior year. As part of the Company’s investment portfolio optimization strategy implemented in the first quarter of 2016, the Company sold investment securities and recorded gains of $1.5 million and prepaid FHLBB advances with prepayment penalties amounting to $1.5 million.
Other Expenses : For the three months ended March 31, 2017 , other expenses recorded by the Company were $5.3 million , a decrease of $436,000 from the comparable 2016 period. The decreases for the three months ended March 31, 2017 were primarily driven by higher expenses in the prior year related to (a) sales and use tax as the Company incurred expenses associated with a sales and use tax audit; (b) human resource on-boarding expenses related to new hires; and (c) mortgage appraisal and credit reports.
Income Tax Provision
The provision for income taxes was $2.1 million and $1.8 million for the three months ended March 31, 2017 and 2016 , respectively. The Company’s effective tax rate for the three months ended March 31, 2017 and 2016 was 13.2% and 13.0% , respectively. The effective tax rate is lower than the statutory rate due to favorable permanent differences such as tax exempt income and BOLI, as well as tax credit benefits and state tax minimization planning. The increase in the tax expense over the prior year period is primarily due to a higher pre-tax income as compared to the prior year period. Although less than a 0.5% impact on the effective tax rate for the quarter ended March 31, 2017, the Company anticipates the potential for increased periodic volatility in future effective tax rates due to the impact of Accounting Standards Update 2016-09 which applies the tax effect of restricted stock vestings and stock option exercises through the tax rate as discrete items in the period in which the tax event occurs.
The Company continually monitors and evaluates the potential impact of current events and circumstances on the estimates used in the analysis of its income tax positions, and accordingly, the Company’s effective tax rate may fluctuate in the future. The Company evaluates its income tax positions based on tax laws and appropriate regulations and financial reporting considerations, and records adjustments as appropriate. This evaluation takes into consideration the status of current taxing authorities’ examinations of the Company’s tax returns and recent positions taken by the taxing authorities on similar transactions, if any. Accordingly, the results of these examinations may alter the timing or amount of taxable income or deductions taken by the Company.
Financial Condition, Liquidity and Capital Resources
Summary
The Company had total assets of $6.70 billion at March 31, 2017 and $6.60 billion at December 31, 2016 , an increase of $97.1 million , or 1.5% , primarily due to the increase in net loans of $43.4 million , an increase in available-for-sale securities of $32.3 million , an increase in loans held for sale of $24.5 million , and an increase in other assets of $6.2 million , due in part to a new partnership agreement that the Company entered into the first quarter of 2017. The Company utilized deposit growth to fund the growth in loans and securities.
Total net loans of $4.91 billion , with allowance for loan losses of $43.3 million at March 31, 2017 , increased $43.4 million , or 0.9% , when compared to total net loans of $4.87 billion , with allowance for loan losses of $42.8 million at December 31, 2016 . The increase in loans is due primarily to organic loan growth, as well as the purchased loan portfolios. Net loans increased primarily due to growth in owner-occupied commercial real estate loans, commercial business loans and residential real estate loans, partially offset by decreases in home equity loans, commercial construction and investor non-owner occupied commercial real estate balances.
Total deposits of $4.79 billion at March 31, 2017 increased $79.2 million , or 1.7% , when compared to total deposits of $4.71 billion at December 31, 2016 . The increase in deposits is mainly due to growth in money market deposits and NOW accounts, offset by a decrease in certificates of deposit, which is reflective of the Company’s strategy to emphasize growth in transactional accounts to drive low-cost core deposit growth. The Company’s gross loan-to-deposit ratio was 103.2% at March 31, 2017 , compared to 104.0% at December 31, 2016 .
At March 31, 2017 , total equity of $666.0 million increased $10.1 million when compared to total equity of $655.9 million at December 31, 2016 . The change in equity for the period ended March 31, 2017 consisted primarily of year to date net income,


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partially offset by dividends paid to common shareholders, as well as an increase due to the change in market value on available-for-sale securities. At March 31, 2017 , the tangible common equity ratio was 8.29% compared to 8.25% at December 31, 2016 .
See Note 9, “Regulatory Matters” in Notes to Unaudited Consolidated Financial Statements contained in this report for information on the Bank and the Company’s regulatory capital levels and ratios.
Securities
The Company maintains a securities portfolio that is primarily structured to generate interest income, manage interest-rate sensitivity, and provide a source of liquidity for operating needs. The securities portfolio is managed in accordance with regulatory guidelines and established internal corporate investment policies.
The following table sets forth information regarding the amortized cost and fair value of the Company’s investment portfolio at the dates indicated:
Securities
 
March 31, 2017
 
December 31, 2016
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
(In thousands)
Available for sale:
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
Government-sponsored residential mortgage-backed securities
$
225,266

 
$
223,734

 
$
181,419

 
$
179,548

Government-sponsored residential collateralized debt obligations
204,406

 
204,278

 
184,185

 
183,260

Government-sponsored commercial mortgage-backed securities
22,489

 
22,224

 
26,949

 
26,530

Government-sponsored commercial collateralized debt obligations
142,786

 
140,561

 
164,433

 
162,927

Asset-backed securities
154,215

 
156,185

 
166,336

 
166,967

Corporate debt securities
87,969

 
86,568

 
76,787

 
75,015

Obligations of states and political subdivisions
238,251

 
231,574

 
223,733

 
216,376

Total debt securities
1,075,382

 
1,065,124

 
1,023,842

 
1,010,623

Marketable equity securities, by sector:
 
 
 
 
 
 
 
Banks
9,428

 
10,235

 
32,174

 
32,413

Industrial
109

 
180

 
109

 
167

Oil and gas
132

 
190

 
131

 
208

Total marketable equity securities
9,669

 
10,605

 
32,414

 
32,788

Total available-for-sale securities
$
1,085,051

 
$
1,075,729

 
$
1,056,256

 
$
1,043,411

Held to maturity:
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
12,311

 
$
13,052

 
$
12,321

 
$
12,940

Government-sponsored residential mortgage-backed securities
1,626

 
1,787

 
1,717

 
1,889

Total held to maturity securities
$
13,937

 
$
14,839

 
$
14,038

 
$
14,829

During the three months ended March 31, 2017 , the available-for-sale securities portfolio increased $32.3 million to $1.08 billion , representing 16.1% of total assets at March 31, 2017 , from $1.04 billion and 15.8% of total assets at December 31, 2016 . The increase is largely reflective of continued maintenance of the Company’s barbell management strategy, with bond purchases focused on maintaining investment portfolio duration and diversification of the corporate and municipal sleeves. Portfolio activity during the first quarter of the year primarily stemmed from a bond repositioning into slightly longer agency mortgage securities in order to obtain better duration adjusted returns, some repositioning between security classes in order to obtain more efficient risk weighting and certain repositioning for better credit risk adjusted returns in the corporate and municipal sleeves.
Accounting guidance requires the Company to designate its securities as held to maturity, available for sale, or trading depending on the Company’s intent regarding its investments at the time of purchase. The Company does not currently maintain a portfolio of trading securities. As of March 31, 2017 , $1.08 billion , or 98.7% of the portfolio, was classified as available for sale, and $13.9 million of the portfolio was classified as held to maturity.


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The Company held $636.2 million in securities that are in an unrealized loss position at March 31, 2017 ; $584.5 million of this total had been in an unrealized loss position for less than twelve months with the remaining $51.7 million in an unrealized loss position for twelve months or longer. These securities were evaluated by management and were determined not to be other-than-temporarily impaired. The Company does not have the intent to sell these securities, and it is more-likely-than-not that it will not have to sell the securities before the recovery of their cost basis. To the extent that changes in interest rates, credit spread movements and other factors that influence the fair value of securities continue, the Company may be required to record additional impairment charges for other-than-temporary impairment in future periods. For additional information on the securities portfolio, see Note 3, “Securities” in the Notes to Unaudited Consolidated Financial Statements contained elsewhere in this report.
The Company monitors investment exposures continually, performs credit assessments based on market data available at the time of purchase, and performs ongoing credit due diligence for all collateralized loan obligations, corporate exposures, and municipal securities. The Company’s investment portfolio is regularly monitored for performance enhancements and interest rate risk profiles, with dynamic strategies implemented accordingly.
The Company has the ability to use the investment portfolio, as well as interest-rate financial instruments within internal policy guidelines, to hedge and manage interest-rate risk as part of its asset/liability strategy. See Note 7, “Derivatives and Hedging Activities,” in the Notes to Unaudited Consolidated Financial Statements contained elsewhere in this report for additional information concerning derivative financial instruments.
Lending Activities
The Company’s wholesale lending team includes bankers, cash management specialists and originations, underwriting and servicing staff allayed against each of our disciplines in wholesale lending which includes commercial real estate, commercial business, business banking, cash management, and a shared national credits desk. Our consumer lending team includes the following disciplines which in nearly all channels drive lending activities: retail branches and retail lending, customer contact center which includes outbound calling, direct sales, correspondent lending, LH-Finance, and United Northeast Financial Advisors (“UNFA”).
The Company’s lending activities have historically been conducted principally in Connecticut and Massachusetts; however, as we seek to enhance shareholder value through favorable risk adjusted returns, we often will lend throughout the Northeast and to a lesser extent certain Mid-Atlantic states and other select states. The Company’s experience in our geographic areas we lend in allow us to look at a wide variety of commercial, mortgage, and consumer loans. Opportunities are initially reviewed to determine if they meet the Company’s credit underwriting guidelines. After successfully passing an initial credit review, we then utilize the Company’s risk adjusted return on capital model to determine pricing and structure that supports, or is accretive to, the Company’s return goals. Our systematic approach is intended to create better risk adjusted returns on capital. Through the Company’s Loan and Funds Management Policies, both approved by the Board of Directors, we set limits on loan size, relationship size, and product concentration for both loans and deposits. Creating diversified and granular loan and deposit portfolios is how we diversify risk and create improved return on risk adjusted capital.
The Company can originate, purchase, and sell commercial loans, commercial real estate loans, residential and commercial construction loans, residential real estate loans collateralized by one-to-four family residences, home equity lines of credit and fixed rate loans, marine floor plan loans and other consumer loans.
The Company’s approach to lending is influenced in large part by its risk adjusted return models. With the high level of competition for high quality earning assets, pricing is often at levels that are not accretive to the Company’s aspirational equity return metrics. The Company utilizes a web-based risk adjusted return model that includes inputs such as internal risk ratings, the marginal cost of funding the origination, contractual loan characteristics such as interest rate and term, and origination and servicing costs. This model allows the Company to understand the life-of-loan impact of the origination, leading to proactive and informed decision making that results in the origination of loans that support the Company’s aspirational return metrics. We seek to acquire, develop, and preserve high quality relationships with customers, prospects, and centers of influence that support our return goals and compensate our commercial bankers and branch management for improving returns on equity for their respective areas of responsibility.
Periodically, the Company will purchase loans to enhance geographical diversification, enhance returns, and gain exposure to loan types that we are unwilling to make infrastructure investments in to originate ourselves. Loans purchased by the Company are underwritten by us, are generally serviced by others (“SBO”), and undergo a robust due diligence process. Management performs a vigorous due diligence exercise on the originator, and visits and observes first hand the servicer and its operational process and controls to ensure that the originator and servicer both meet the standards of the Company. Financial modeling includes reviewing prospective yields, costs associated with purchasing loans, including servicing fees and assumed loss rates to ensure that risk adjusted returns of the target portfolio are accretive to our return goals. The Company has set


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portfolio and capital limits on each of its purchased portfolios and has hired staff to oversee ongoing monitoring of the respective servicer and performance to ensure the portfolio performance is meeting our initial and ongoing expectations. In the event that our expectations are not met, the Company has many remedies at its disposal, including replacing the servicer, ending its relationship with the originator, and selling the entire target portfolio. Contractually, the Company has the ability to cross sell dissimilar products to customers in its purchased portfolios allowing us to develop a relationship using our existing online and mobile channels that support servicing and acquisition of our current and prospective clients without the need for a brick and mortar branch.
The table below displays the balances of the Company’s loan portfolio as of March 31, 2017 and December 31, 2016 :
Loan Portfolio Analysis
 
March 31, 2017
 
December 31, 2016
 
Amount
 
Percent
 
Amount
 
Percent
 
(Dollars in thousands)
Commercial real estate loans:
 
 
 
 
 
 
 
Owner-occupied
$
433,358

 
8.8
%
 
$
416,718

 
8.5
%
Investor non-owner occupied
1,697,414

 
34.3

 
1,705,319

 
34.8

Construction
85,533

 
1.7

 
98,794

 
2.0

Total commercial real estate loans
2,216,305

 
44.8

 
2,220,831

 
45.3

 
 
 
 
 
 
 
 
Commercial business loans
769,153

 
15.6

 
724,557

 
14.8

 
 
 
 
 
 
 
 
Consumer loans:
 
 
 
 
 
 
 
Residential real estate
1,167,428

 
23.6

 
1,156,227

 
23.6

Home equity
516,325

 
10.4

 
536,772

 
11.0

Residential construction
49,456

 
1.0

 
53,934

 
1.1

Other consumer
225,317

 
4.6

 
209,393

 
4.2

Total consumer loans
1,958,526

 
39.6

 
1,956,326

 
39.9

 
 
 
 
 
 
 
 
Total loans
4,943,984

 
100.0
%
 
4,901,714

 
100.0
%
Net deferred loan costs and premiums
13,273

 
 
 
11,636

 
 
Allowance for loan losses
(43,304
)
 
 
 
(42,798
)
 
 
Loans - net
$
4,913,953

 
 
 
$
4,870,552

 
 
As shown above, gross loans were $4.94 billion , an increase of $42.3 million , or 0.9% , at March 31, 2017 from December 31, 2016 .
Total commercial real estate loans represent the largest segment of our loan portfolio at 44.8% of total loans and decreased $4.5 million , or 0.2% , to $2.22 billion from December 31, 2016 . The commercial real estate loan portfolio is comprised of owner-occupied commercial real estate (“OOCRE”) and investor non-owner occupied commercial real estate (“Investor CRE”), and to a lesser extent, commercial construction. Investor CRE represents the largest segment of the Company’s loan portfolio as of March 31, 2017 , comprising 34.3% of total loans and OOCRE represents 8.8% of the portfolio. The Company plans to continue to increase the level of OOCRE while decreasing the level of Investor CRE to generate more favorable risk-adjusted returns and enhance net interest margin. Commercial real estate construction loans are made for developing commercial real estate properties such as office complexes, apartment buildings and residential subdivisions. Commercial real estate construction loans totaled $85.5 million at March 31, 2017 , approximately $35.3 million of which is residential use and $50.2 million is commercial use, compared to total commercial real estate construction loans of $98.8 million at December 31, 2016 , $35.4 million of which was residential use and $63.4 million was commercial use.
Commercial business loans increased to $769.2 million at March 31, 2017 from $724.6 million at December 31, 2016 . The commercial division continues to experience momentum in origination activity and has a strong loan pipeline. Mid-sized businesses continue to look to community banks for relationship banking and personalized lending services. Periodically, the Company participates in a shared national credit (“SNC”) program, which engages in the participation and purchase of credits with other “supervised” unaffiliated banks or financial institutions, specifically loan syndications and participations. These loans generate earning assets to increase profitability of the Company and diversify commercial loan portfolios by providing opportunities to


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participate in loans to borrowers in other regions or industries the Company might otherwise have no access. The Company offers both term and revolving commercial loans. Term loans have either fixed or adjustable rates of interest and, generally, terms of between three and seven years and amortize on the same basis. Additionally, two market segments the Company has focused on is franchise and educational banking. The franchise lending practice lends to certain franchisees in support of their development, acquisition and expansion needs. The Company typically offers term loans with maturities between three to eight years with amortization from seven to ten years. These loans generally are on a floating rate basis with spreads slightly higher than the standard commercial business loan spreads. Over the past two years, the franchise lending portfolio has increased from $0 to over $60.0 million in loan commitments. The educational banking practice consists of K-12 schools and colleges/universities utilizing both taxable and tax-exempt loan products for campus improvements, expansions and working capital needs. Generally, educational term loans have longer dated maturities that amortize up to 30 years and typically offer the Company a full deposit and cash management relationship. Over the past two years, the Company has seen growth in educational commitments of $100.0 million and deposit increases of over $29.3 million. Both the franchise and educational lending areas focus on opportunities across New England and certain Mid-Atlantic states.
Residential real estate loans continue to represent a major segment of the Company’s loan portfolio as of March 31, 2017 , comprising 23.6% of total loans. The increase of $11.2 million from December 31, 2016 . The Company had originations of both adjustable and fixed rate mortgages of $134.0 million during the first three months of 2017, reflecting both refinancing activity and loans for new home purchases. The Company currently sells the majority of all originated fixed rate residential real estate loans with terms of 30 years, but will also sell 10, 15, and 20 year loans depending on the circumstances. The mortgage origination activity resulted from low market interest rates and competitive pricing.
The Company also offers home equity loans and home equity lines of credit (“HELOCs”), both of which are secured by owner-occupied one-to-four family residences. Home equity loans are offered with fixed rates of interest and with terms up to 15 years. At March 31, 2017 the home equity portfolio totaled $516.3 million compared to $536.8 million at December 31, 2016 . During the three months ended March 31, 2017, the Company did not purchase any HELOC portfolios, compared to $330.5 million for the year ended December 31, 2016. The total balance of the HELOC purchased portfolios outstanding at March 31, 2017 and December 31, 2016 was $193.4 million and $208.8 million, respectively. These loans are not serviced by the Company. The purchased HELOC portfolios are secured by second liens. The Company may continue purchasing HELOCs throughout 2017 to maintain its existing exposure, but will not be increasing outstandings in this portfolio.
Residential real estate construction loans are made to individuals for home construction whereby the borrower owns the parcel of land and the funds are advanced in stages until completion. Residential real estate construction loans totaled $49.5 million at March 31, 2017 , compared to $53.9 million at December 31, 2016 .
Other consumer loans totaled $225.3 million , or 4.6% , of our total loan portfolio at March 31, 2017 . Other consumer loans generally consist of loans on retail high-end boats and small yachts, home improvement loans, new and used automobiles, loans collateralized by deposit accounts and unsecured personal loans. During December 2015, the Company purchased two consumer loan portfolios totaling $229.2 million which consisted of marine retail loans and home improvement loans. At March 31, 2017 and December 31, 2016, $161.6 million and $168.7 million was outstanding, respectively. The marine retail loans are collateralized by premium brand boats. The home improvement loans are 90% backed by the U.S. Department of Housing and Urban Development and consist of loans to install energy efficient upgrades to the borrowers’ one-to-four family residences. The Company’s plan seeks to marginally increase the level of consumer loans throughout 2017, given these loan types have favorable rate characteristics that will positively impact the net interest margin along with significant granularity and credit metrics that fit within the superior credit quality of its existing portfolio.
LH-Finance, the Company’s marine lending unit, include purchased and originated retail loans and dealer floorplan loans. The Company’s relationships are limited to well established dealers of global premium brand manufacturers. The Company’s top three manufacturer customers have been in business between 30 and 100 years. The Company has generally secured agreements with premium manufacturers to support dealer floor plan loans which may reduce the Company’s credit exposure to the dealer, despite our underwriting of each respective dealer. We have developed incentive retail pricing programs with the dealers to drive retail dealer flow. Retail loans are generally limited to premium manufacturers with established relationships with the Company which have a vested interest in the secondary market pricing of their respective brand due to the limited inventory available for resale. Consequently, while not contractually committed, manufacturers will often support secondary resale values which can have the effect of reducing losses from non-performing retail marine loans. Retail borrowers generally have very high credit scores, substantial down payments, substantial net worth, personal liquidity, an excess cash flow. Retail loans have an average life of four years and key markets include Florida, California, and New England.
The Company has employed specific parameters taking into account: geographical considerations; exposure hold levels; qualifying financial partners; and most importantly sound credit quality with strong metrics. A thorough independent analysis of the credit quality of each borrower is made for every transaction whether it is an assignment or participation.


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Asset Quality
The Company’s lending strategy focuses on direct relationship lending within its primary market area as the quality of assets underwritten is an important factor in the successful operation of a financial institution. Non-performing assets, loan delinquency and credit loss levels are considered to be key measures of asset quality. Management strives to maintain asset quality through its underwriting standards, servicing of loans and management of non-performing assets since asset quality is a key factor in the determination of the level of the allowance for loan losses. See Note 4, “Loans Receivable and Allowance for Loan Losses” contained elsewhere in this report for further information concerning the Allowance for Loan Losses.
The following table details asset quality ratios for the following periods:
Asset Quality Ratios
 
At March 31, 2017
 
At December 31, 2016
Non-performing loans as a percentage of total loans
0.70
%
 
0.69
%
Non-performing assets as a percentage of total assets
0.54
%
 
0.54
%
Net charge-offs as a percentage of average loans (1)
0.14
%
 
0.10
%
Allowance for loan losses as a percentage of total loans
0.88
%
 
0.87
%
Allowance for loan losses to non-performing loans
125.05
%
 
125.64
%
(1)
Calculated based on year to date net charge-offs annualized
Non-performing Assets
Generally loans are placed on non-accrual if collection of principal or interest in full is in doubt, if the loan has been restructured as part of a TDR, or if any payment of principal or interest is past due 90 days or more. A loan may be returned to accrual status if it has demonstrated sustained contractual performance for six continuous months or if all principal and interest amounts contractually due are reasonably assured of repayment within a reasonable period. There are, on occasion, circumstances that cause commercial loans to be placed in the 90 days delinquent and accruing category, for example, loans that are considered to be well secured and in the process of collection or renewal. As of March 31, 2017 and December 31, 2016 , loans totaling $320,000 and $750,000 , respectively, were greater than 90 days past due and accruing. The loans reported as past due 90 days or more and still accruing represent loans that were evaluated by management and maintained on accrual status based on an evaluation of the borrower. At March 31, 2017 and December 31, 2016, loans reported as past due 90 days or more and still accruing represent loans which carry a U.S. Government guarantee and therefore, the contractual balances have been determined to be collectible in full.
The following table details non-performing assets for the periods presented:
 
At March 31, 2017
 
At December 31, 2016
 
Amount
 
%
 
Amount
 
%
 
(Dollars in thousands)
Non-accrual loans:
 
 
 
 
 
 
 
Owner-occupied commercial real estate
$
2,314

 
6.4
%
 
$
2,642

 
7.3
%
Investor commercial real estate
3,809

 
10.5

 
4,016

 
11.2

Construction
1,355

 
3.7

 
1,701

 
4.7

Commercial business
2,369

 
6.5

 
2,000

 
5.6

Residential real estate
12,185

 
33.5

 
11,357

 
31.6

Home equity
4,307

 
11.8

 
4,043

 
11.2

Other consumer loans
37

 
0.1

 
1,000

 
2.8

Total non-accrual loans, excluding troubled debt restructured loans
26,376

 
72.5
%
 
26,759

 
74.4
%
Troubled debt restructurings - non-accruing
8,252

 
22.7

 
7,304

 
20.3

Total non-performing loans
34,628

 
95.1

 
34,063

 
94.7

Other real estate owned
1,786

 
4.9

 
1,890

 
5.3

Total non-performing assets
$
36,414

 
100.0
%
 
$
35,953

 
100.0
%
As displayed in the table above, non-performing assets at March 31, 2017 increased to $36.4 million compared to $36.0 million at December 31, 2016 .


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Non-accruing TDR loans increased by $948,000 since December 31, 2016 , primarily due to an increase of $487,000 for residential real estate and home equity TDR loans, an increase in commercial business TDRs of $409,000, and an increase in investor commercial real estate TDR loans of $406,000, partially offset by a decrease of $437,000 in construction TDR loans. The increase in the residential real estate and home equity categories reflects, in part, an increase in the number of home equity line of credit loans that have reached maturity and converted from interest only to principal and interest payments. Difficulty making these larger payments, combined with a decline in home values related to these loans, is a driver of this increase. Additionally, home equity non-accrual loans increased $264,000 to $4.3 million at March 31, 2017 due to the increasing number of maturing home equity lines of credit converting from interest only to principal and interest payments.
Residential real estate non-accrual loans increased $828,000 to $12.2 million at March 31, 2017 . The Company continues to originate loans with strong credit characteristics and routinely updates non-performing loans in terms of FICO scores and LTV ratios. Through continued heightened account monitoring, collections and workout efforts, the Bank is committed to mortgage solution programs designed to assist homeowners to remain in their homes. As has been its practice historically, the Company does not originate subprime loans.
Other consumer non-accrual loans decreased to $37,000 at March 31, 2017 . This decrease represents a decrease in non-accruing marine loans reported at March 31, 2017. The current balance represents one marine loan which evidenced payments due in excess of 90 days and resulted in the loan being classified as non-accrual.
At March 31, 2017 , commercial real estate non-accrual loans (including owner-occupied and investor non-owner occupied commercial real estate loans) decreased $535,000 and commercial business non-accrual loans increased $369,000 . The movements in these categories was the result of several smaller loans which impacted the totals within the categories.
Non-accrual construction loans decreased $346,000 , primarily reflecting seven commercial relationships totaling $1.4 million , of which all relates to construction for residential subdivisions. At December 31, 2016 nonaccrual construction loans consisted of 11 commercial relationships and totaled $1.7 million .
Troubled Debt Restructuring
Loans are considered restructured in a troubled debt restructuring when the Company has granted concessions to a borrower due to the borrower’s financial condition that it otherwise would not have considered. These concessions include modifications of the terms of the debt such as reduction of the stated interest rate other than normal market rate adjustments, extension of maturity dates, or reduction of principal balance or accrued interest. The decision to restructure a loan, versus aggressively enforcing the collection of the loan, may benefit the Company by increasing the ultimate probability of collection.
TDR loans are classified as accruing or non-accruing based on management’s assessment of the collectability of the loan. Loans which are already on non-accrual status at the time of the restructuring generally remain on non-accrual status for a minimum of six months before management considers such loans for return to accruing TDR status. Accruing restructured loans are placed into non-accrual status if and when the borrower fails to comply with the restructured terms and management deems it unlikely that the borrower will return to a status of compliance in the near term . Once a loan is classified as a TDR it retains that classification for the life of the loan; however, some TDRs may demonstrate acceptable performance allowing the TDR loan to be placed on accruing TDR status. The increase in TDRs is primarily attributable to the addition of larger commercial loans along with increases in residential and home equity TDRs during the period ended March 31, 2017 .
The following table provides detail of TDR balances for the periods presented:
 
 
At March 31,
2017
 
At December 31,
2016
 
 
(In thousands)
Recorded investment in TDRs:
 
 
 
 
Accrual status
 
$
15,873

 
$
16,048

Non-accrual status
 
8,252

 
7,304

Total recorded investment
 
$
24,125

 
$
23,352

 
 
 
 
 
Accruing TDRs performing under modified terms for more than one year
 
$
10,387

 
$
10,020

TDR allocated reserves included in the balance of allowance for loan losses
 
577

 
714

Additional funds committed to borrowers in TDR status
 
7

 
3




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The following table provides detail of TDR activity for the periods presented:
 
Three Months Ended 
 March 31,
 
2017
 
2016
 
(In thousands)
TDRs, beginning of period
$
23,352

 
$
24,064

New TDR status
1,543

 
4,012

Paydowns/draws on existing TDRs, net
(699
)
 
(711
)
Charge-offs post modification
(71
)
 
(6
)
TDRs, end of period
$
24,125

 
$
27,359

Allowance for Loan Losses
The allowance for loan losses and the reserve for unfunded credit commitments are maintained at a level estimated by management to provide for probable losses inherent within the loan portfolio. Probable losses are estimated based upon a quarterly review of the loan portfolio, which includes historic default and loss experience, specific problem loans, risk rating profile, economic conditions and other pertinent factors which, in management’s judgment, warrant current recognition in the loss estimation process. The Company’s Risk Management Committee meets quarterly to review and conclude on the adequacy of the reserves and to present their recommendation to executive management and the Board of Directors.
Management considers the adequacy of the ALL a critical accounting estimate. The adequacy of the ALL is subject to considerable assumptions and judgment used in its determination. Therefore, actual losses could differ materially from management’s estimate if actual conditions differ significantly from the assumptions utilized. These conditions include economic factors in the Company’s market and nationally, industry trends and concentrations, real estate values and trends, and the financial condition and performance of individual borrowers. While management believes the ALL is adequate as of March 31, 2017 , actual results may prove different and the differences could be significant.
The Company’s general practice is to identify problem credits early and recognize full or partial charge-offs as promptly as practicable when it is determined that the collection of loan principal is unlikely. The Company recognized full or partial charge-offs on collateral dependent impaired loans when the collateral is deemed to be insufficient to support the carrying value of the loan. The Company does not recognize a recovery when an updated appraisal indicates a subsequent increase in value.
The Company had an allowance for loan losses of $43.3 million , or 0.88% , of total loans at March 31, 2017 as compared to an allowance for loan losses of $42.8 million , or 0.87% , of total loans at December 31, 2016 . Management believes that the allowance for loan losses is adequate and consistent with asset quality indicators and that it represents the best estimate of probable losses inherent in the loan portfolio.
The unallocated portion of the ALL represents general valuation allowances that are not allocated to a specific loan portfolio. The unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses and reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio. The unallocated portion of the ALL at March 31, 2017 decreased $20,000 to $1.4 million compared to December 31, 2016 . See Note 4, “Loans Receivable and Allowance for Loan Losses” in the Notes to the Unaudited Consolidated Financial Statements contained in this report for a table providing the activity in the Company’s allowance for loan losses for the three months ended March 31, 2017 and 2016 .
In addition to the ALL, the Company maintains a reserve for unfunded credit commitments in other liabilities on the Consolidated Statements of Condition. The allowance for credit losses analysis includes consideration of the risks associated with unfunded loan commitments. The reserve calculation includes factors that are consistent with ALL methodology for funded loans. The combination of ALL and unfunded reserves is calculated in a manner to capture the entirety of the underlying business relationship of the customer. The amounts of unfunded commitments and the associated reserves may be subject to fluctuations due to originations, the timing and volume of loan funding, as well as changes in risk ratings. At both March 31, 2017 and December 31, 2016 , the reserve for unfunded credit commitments was $1.4 million.
Sources of Funds
The primary source of the Company’s cash flows, for use in lending and meeting its general operational needs, is deposits. Additional sources of funds are from FHLBB advances, reverse repurchase agreements, federal funds lines, loan and mortgage-backed securities repayments, securities sales proceeds and maturities, subordinated debt, and earnings. While scheduled loan and securities repayments are a relatively stable source of funds, loan and investment security prepayments and deposit inflows are influenced by prevailing interest rates and local economic conditions and are inherently uncertain.


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Deposits
The Company offers a wide variety of deposit products to consumer, business and municipal customers. Deposit customers can access their accounts in a variety of ways including branch banking, ATM’s, online banking, mobile banking and telephone banking. Effective advertising, direct mail, well-designed product offerings, customer service and competitive pricing policies have been successful in attracting and retaining deposits. A key strategic objective is to grow the base of checking customers by retaining existing relationships while attracting new customers.
Deposits provide an important source of funding for the Bank as well as an ongoing stream of fee revenue. The Company attempts to control the flow of funds in its deposit accounts according to its need for funds and the cost of alternative sources of funding. A Retail Pricing Committee meets weekly and a Management ALCO meets monthly, to determine pricing and marketing initiatives. Actions of these committees influence the flow of funds primarily by the pricing of deposits, which is affected to a large extent by competitive factors in its market area and asset/liability management strategies.
The following table presents deposits by category as of the dates indicated:
 
March 31, 2017
 
December 31, 2016
 
(In thousands)
Demand deposits
$
690,516

 
$
708,050

NOW accounts
537,878

 
498,672

Regular savings and club accounts
529,269

 
518,820

Money market and investment savings
1,380,104

 
1,222,952

Total core deposits
3,137,767

 
2,948,494

Time deposits
1,652,592

 
1,762,678

Total deposits
$
4,790,359

 
$
4,711,172

Deposits totaled $4.79 billion at March 31, 2017 , an increase of $79.2 million compared to December 31, 2016 . Core deposits increased $189.3 million , or 6.4% , from year end due to the Company’s continued strategy to focus on obtaining low cost core deposits.
Time deposits included brokered certificate of deposits of $176.6 million and $215.7 million at March 31, 2017 and December 31, 2016 , respectively. The Company utilizes brokered time deposits as part of its overall funding program along with other sources. Excluding out-of-market brokered certificates of deposits, in-market time deposits totaled $1.48 billion and $1.55 billion at March 31, 2017 and December 31, 2016 , respectively.
Borrowings
The Company also uses various types of short-term and long-term borrowings in meeting funding needs. While customer deposits remain the primary source for funding loan originations, management uses short-term and long-term borrowings as a supplementary funding source for loan growth and other liquidity needs when the cost of these funds are favorable compared to alternative funding, including deposits.
The following table presents borrowings by category as of the dates indicated:
 
March 31, 2017
 
December 31, 2016
 
(In thousands)
FHLBB advances (1)
$
1,008,942

 
$
1,046,712

Subordinated debt (2)
79,775

 
79,716

Wholesale repurchase agreements
70,000

 
20,000

Customer repurchase agreements
17,102

 
18,897

Other
4,234

 
4,294

Total borrowings
$
1,180,053

 
$
1,169,619

(1) FHLBB advances include $1.3 million and $1.7 million of purchase accounting discounts at March 31, 2017 and December 31, 2016 , respectively.
(2) Subordinated debt includes $7.7 million of acquired junior subordinated debt, net of mark to market discounts of $2.0
million at both March 31, 2017 and December 31, 2016, and $75.0 million of Subordinated Notes, net of associated deferred costs of $948,000 and $980,000 at March 31, 2017 and December 31, 2016 , respectively.


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United Bank is a member of the Federal Home Loan Bank System, which consists of twelve district Federal Home Loan Banks, each subject to the supervision and regulation of the Federal Housing Finance Agency. Members are required to own capital stock in the FHLBB in order for the Bank to access advances and borrowings which are collateralized by certain home mortgages or securities of the U.S. Government and its agencies. The capital stock investment is restricted in that there is no market for it, and it can only be redeemed by the FHLBB.
Total FHLBB advances decreased $37.4 million to $1.01 billion at March 31, 2017 , exclusive of the purchase accounting mark adjustment on the advances, compared to $1.04 billion at December 31, 2016 . At March 31, 2017 , $907.6 million of the Company’s $1.01 billion outstanding FHLBB advances were at fixed coupons ranging from 0.49% to 4.49%, with a weighted average cost of 1.16%. Additionally, the Company has three advances with the FHLBB totaling $100.0 million that are underlying hedge instruments; the interest is based on the three 3-month LIBOR and adjusts quarterly. The Company also has one Flipper advance with the FHLBB totaling $25.0 million, effective March 18, 2016, with an initial interest rate of 0.05% per annum. The advance repriced to 3-month LIBOR minus 60 basis points on a quarterly basis until March 2017, at which point the advance converted to a fixed rate of 1.62% and is callable at the option of the FHLBB on a quarterly basis. The average cost of funds including these adjustable advances is 1.16% . FHLBB borrowings represented 15.1% and 15.9% of assets at March 31, 2017 and December 31, 2016 , respectively.
Borrowings under reverse purchase agreements totaled $70.0 million at March 31, 2017 , a increase of $50.0 million from December 31, 2016 . The outstanding borrowings consisted of three individual agreements with remaining terms of three years or less and a weighted-average cost of 1.49% . Retail repurchase agreements, which have a term of one day and are backed by the purchasers’ interest in certain U.S. Government or government-sponsored securities, totaled $17.1 million and $18.9 million at March 31, 2017 and December 31, 2016 , respectively.
Subordinated debentures totaled $ 79.8 million at March 31, 2017 and $79.7 million at December 31, 2016 .
Liquidity and Capital Resources
Liquidity is the ability to meet cash needs at all times with available cash or by conversion of other assets to cash at a reasonable price and in a timely manner. The Company maintains liquid assets at levels the Company considers adequate to meet its liquidity needs. The Company adjusts its liquidity levels to fund loan commitments, repay its borrowings, fund deposit outflows, pay escrow obligations on all items in the loan portfolio and to fund operations. The Company also adjusts liquidity as appropriate to meet asset and liability management objectives.
The Company’s primary sources of liquidity are deposits, amortization and prepayment of loans, the sale in the secondary market of loans held for sale, maturities and sales of investment securities and other short-term investments, periodic pay downs of mortgage-backed securities, and earnings and funds provided from operations. While scheduled principal repayments on loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and rates offered by our competition. The Company sets the interest rates on our deposits to maintain a desired level of total deposits. In addition, the Company invests excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements.
A portion of the Company’s liquidity consists of cash and cash equivalents, which are a product of our operating, investing and financing activities. At March 31, 2017 , $84.7 million of the Company’s assets were held in cash and cash equivalents compared to $90.9 million at December 31, 2016 . The Company’s primary sources of cash are principal repayments on loans, proceeds from the calls and maturities of investment securities, increases in deposit accounts, proceeds from residential loan sales and advances from the FHLBB.
Liquidity management is both a daily and longer-term function of business management. If the Company requires funds beyond its ability to generate them internally, borrowing agreements exist with the FHLBB, which provide an additional source of funds. At March 31, 2017 , the Company had $1.01 billion in advances from the FHLBB and an additional available borrowing limit of $463.9 million based on collateral requirements of the FHLBB inclusive of the line of credit. In addition, the Bank has relationships with brokered sweep deposit providers with outstanding balances of $356.4 million at March 31, 2017 . Internal policies limit wholesale borrowings to 40% of total assets, or $2.68 billion , at March 31, 2017 . In addition, the Company has uncommitted federal funds line of credit with four counterparties totaling $107.5 million at March 31, 2017 . No federal funds purchased were outstanding at March 31, 2017 .
The Company has established access to the Federal Reserve Bank of Boston’s discount window through a borrower in custody agreement. As of March 31, 2017 , the Bank had pledged 27 commercial loans, with outstanding balances totaling $193.9 million. Based on the amount of pledged collateral, the Bank had available liquidity of $141.1 million.
At March 31, 2017 , the Company had outstanding commitments to originate loans of $157.0 million and unfunded commitments under construction loans, lines of credit, stand-by letters of credit, unused checking overdraft lines of credit, and unused credit card lines of $864.5 million . At March 31, 2017 , time deposits scheduled to mature in less than one year totaled


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$1.02 billion. Based on prior experience, management believes that a significant portion of such deposits will remain with the Company, although there can be no assurance that this will be the case. In the event a significant portion of its deposits are not retained by the Company, it will have to utilize other funding sources, such as FHLBB advances in order to maintain its level of assets. Alternatively, we would reduce our level of liquid assets, such as our cash and cash equivalents in order to meet funding needs. In addition, the cost of such deposits may be significantly higher if market interest rates are higher or there is an increased amount of competition for deposits in our market area at the time of renewal.
The main sources of liquidity at the parent company level are dividends from United Bank and the ability to obtain funding through capital market issuances, as evidenced by the Company’s issuance of $75.0 million of subordinated notes in September 2014. The main uses of liquidity are payments of dividends to common stockholders, repurchase of United Financial’s common stock, payment of subordinated note interest, and corporate operating expenses. There are certain restrictions on the payment of dividends. See Note 18, “Regulatory Matters” in the Company’s 2016 Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for further information on dividend restrictions.
The Company and the Bank are subject to various regulatory capital requirements. As of March 31, 2017 , the Company and the Bank are categorized as “well-capitalized” under the regulatory framework for prompt corrective action. See Note 9, “Regulatory Matters” in the Notes to the Unaudited Consolidated Financial Statements contained elsewhere in this report for discussion of capital requirements.
The liquidity position of the Company is continuously monitored and adjustments are made to balance between sources and uses of funds as deemed appropriate. Management is not aware of any events that are reasonably likely to have a material adverse effect on the Company’s liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity, which if implemented would have a material adverse effect on the Company. The Company has a detailed liquidity contingency plan which is designed to respond to liquidity concerns in a prompt and comprehensive manner. It is designed to provide early detection of potential problems and details specific actions required to address liquidity stress scenarios.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
General: The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of mortgage loans, in general have longer contractual maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. Accordingly, our Board of Directors has established a Risk Committee which is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors. Management monitors the level of interest rate risk on a regular basis and the Risk Committee meets at least quarterly to review our asset/liability policies and interest rate risk position.
We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. During the low interest rate environment that has existed in recent years, we have implemented the following strategies to manage our interest rate risk: (i) emphasizing adjustable rate loans including, adjustable rate one-to-four family, commercial and consumer loans, (ii) selling longer-term 1-4 family fixed rate mortgage loans in the secondary market, (iii) reducing and shortening the expected average life of the investment portfolio and (iv) a forward starting hedge strategy for future dated wholesale funding and (v) a loan level hedging program. These measures should serve to reduce the volatility of our future net interest income in different interest rate environments.
Quantitative Analysis
Income Simulation: Simulation analysis is used to estimate our interest rate risk exposure at a particular point in time. The Company models a static balance sheet when measuring interest rate risk, in which a stable balance sheet is projected throughout the modeling horizon. Under a static approach both the size and mix of the balance sheet remains constant, with maturing loan and deposit balances replaced as “new volumes” within the same loan and deposit category, repricing at the respective scenario’s market rate. This adoption was made in a continued effort to align with regulatory best practices and to highlight the current level of risk in the Company’s positions without the effects of growth assumptions. We utilize the income simulation method to analyze our interest rate sensitivity position to manage the risk associated with interest rate movements. At least quarterly, our Risk Committee of the Board of Directors reviews the potential effect changes in interest rates could have on the repayment or repricing of rate sensitive assets and funding requirements of rate sensitive liabilities. Our most recent simulation uses projected repricing of assets and liabilities at March 31, 2017 and December 31, 2016 on the basis of contractual maturities, anticipated repayments and scheduled rate adjustments. Prepayment rate assumptions as well as deposit characterization assumptions can have a significant


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impact on interest income simulation results. Because of the large percentage of loans and mortgage-backed assets we hold, rising or falling interest rates may have a significant impact on the actual prepayment speeds of our mortgage related assets that may in turn effect our interest rate sensitivity position. When interest rates rise, prepayment speeds slow and the average expected life of our assets would tend to lengthen more than the expected average life of our liabilities and therefore would most likely result in a decrease to our asset sensitive position. As a measure of potential market risk arising from a parallel shock of magnitude to the Company’s net interest income, Management includes a 300 basis point parallel increase in rates in the quarterly simulation results. In order to observe the impact of a slower and gradual rate increase over the 12-month period, Management includes a 150 basis point ramp simulation, which assumes that interest rates increase by 25 basis points every other month. To highlight the net interest income of a falling rate environment, Management includes a 50 basis point parallel decrease in rates.
 
Percentage Decrease in Estimated
Net Interest Income
 
Over 12 Months
 
Over 12 -24 Months
300 basis point increase in rates
(1.62
)%
 
(7.22
)%
150 basis point ramp in rates
4.20
 %
 
2.78
 %
50 basis point decrease in rates
(4.68
)%
 
(6.26
)%
The Company’s Asset/Liability policy currently limits projected changes in net interest income based on a matrix of projected total risk-based capital relative to the interest rate change for each twelve month period measured compared to the flat rate scenario. As a result, the higher a level of projected risk-based capital, the higher the limit of projected net interest income volatility the Company will accept. As the level of projected risk-based capital is reduced, the policy requires that net interest income volatility also is reduced, making the limit dynamic relative to the capital level needed to support it. These policy limits are re-evaluated on a periodic basis (not less than annually) and may be modified, as appropriate. Because of the asset-sensitivity of our balance sheet, income is projected to increase if interest rates rise. Also included in the decreasing rate scenario is the assumption that further declines are reflective of a deeper recession as well as narrower credit spreads from Federal Open Market Committee actions. At March 31, 2017 , income at risk (i.e., the change in net interest income) decreased 1.62% and decreased 4.68% based on a 300 basis point average increase or a 50 basis point average decrease, respectively. When considering the impact of the 150 basis point ramp simulation, income at risk increased 4.20% over the 12-month simulation horizon. While we believe the assumptions used are reasonable, there can be no assurance that assumed prepayment rates will approximate actual future mortgage-backed security and loan repayment activity.
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures: Our disclosure controls and procedures are designed to ensure that information the Company must disclose in its reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported on a timely basis. Our management has evaluated, with the participation and under the supervision of our chief executive officer (“CEO”) and chief financial officer (“CFO”), the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our CEO and CFO have concluded that, as of such date, the Company’s disclosure controls and procedures are effective in ensuring that information relating to the Company, including its consolidated subsidiaries, required to be disclosed in reports that it files under the Exchange Act is (1) recorded, processed, summarized and reported within time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls: During the quarter under report, there was no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II.
OTHER INFORMATION
Item 1.
Legal Proceedings
The Company is involved in various legal proceedings that have arisen in the normal course of business. The Company is not involved in any legal proceedings deemed to be material as of March 31, 2017 .
Item 1A.
Risk Factors
There have been no material changes in the Risk Factors previously disclosed in Item 1A of the Company’s annual report on Form 10-K for the period ended December 31, 2016 .


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Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information with respect to net purchases made by United Financial Bancorp’s, Inc. of its common stock during the period ended March 31, 2017 :
Period
 
Total number
of shares
purchased
 
Average(1)
price paid
per share
 
Total number
of shares
purchased as
part of publicly
announced
plans or programs
 
Maximum number of shares that may yet be purchased under the plan
January 1 - 31, 2017
 
—

 
$
—

 
5,041,915

 
1,248,536

February 1 - 28, 2017
 
—

 
—

 
5,041,915

 
1,248,536

March 1 - 31, 2017
 
80,000

 
16.40

 
5,121,915

 
1,168,536

Total
 
80,000

 
$
16.40

 
5,121,915

 
1,168,536

(1) Includes dealer commission expense to purchase the securities.
On January 26, 2016, the Company’s Board of Directors approved a fourth share repurchase plan authorizing the Company to repurchase up to 2.5% of outstanding shares, or 1,248,536 shares. As of March 31, 2017 , there were 1,168,536 maximum shares that may yet be purchased under this publicly announced plan.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
Mine Safety Disclosures
None.
Item 5.
Other Information
None.
Item 6.
 

2.1
Amended and Restated Plan of Conversion and Reorganization (incorporated herein by reference to Exhibit 2.1 to the Registration Statement filed on the Form S-1 for Rockville Financial New, Inc. on September 16, 2010)
2.2
Agreement and Plan of Merger by and between Rockville Financial, Inc. and United Financial Bancorp, Inc. (incorporated herein by reference to Exhibit 99.1 to the Current Report on the Company’s Form 8-K filed on November 15, 2013)
3.1
Certificate of Incorporation of United Financial Bancorp, Inc. (incorporated herein by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on May 1, 2014)
3.1.1
Amendment to Certificate of Incorporation increasing authorized common stock from 60,000,000 shares to 120,000,000 shares (incorporated to Exhibit B in the definitive proxy statement herein by reference)
3.2
The Bylaws, as amended and restated, (incorporated herein by reference to Exhibit 3.2 to the Current Report on the Company’s Form 8-K filed on May 1, 2014)
3.2.1
Amendment to Bylaws (incorporated by reference to Exhibit 3.2.1 of the Company’s Current Report on Form 8-K filed on March 23, 2017)
10.5
United Bank Officer Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.2.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 filed on March 31, 2006 (File No. 000-52139))
10.6
United Bank Supplemental Executive Retirement Plan as amended and restated effective December 31, 2007 (incorporated herein by reference to Exhibit 10.9 to the Current Report on Form 8-K filed for Rockville Financial, Inc. (now United Financial Bancorp, Inc.) filed on December 18, 2007)
10.9
United Bank Supplemental Executive Retirement Plan as amended and restated effective December 31, 2007 (incorporated herein by reference to Exhibit 10.9 to the Current Report on Form 8-K filed for Rockville Financial, Inc. (now United Financial Bancorp, Inc.) filed on December 18, 2007)


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10.10
United Financial Bancorp, Inc. 2006 Stock Incentive Award Plan (incorporated herein by reference to Appendix B in the Definitive Proxy Statement on Form 14A for Rockville Financial, Inc. (now United Financial Bancorp, Inc.) filed on July 3, 2006 (File No. 000-51239))
10.11.2
Supplemental Executive Retirement Agreement of United Bank for William H.W. Crawford, IV effective December 26, 2012 (incorporated by reference to Exhibit 10.11.2 to the Current Report on the Company’s Form 8-K filed on January 2, 2013)
10.11.4
Employment Agreement with William H.W. Crawford, IV effective on the date of the consummation of the Legacy United Merger (incorporated by reference to Exhibit 10.11.4 to the Company’s Form 8-K filed on November 20, 2013)
10.12
Supplemental Executive Retirement Agreement of United Bank for Mark A. Kucia effective December 6, 2010 (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 filed on March 10, 2011)
10.12.1
Employment Agreement as amended and restated by and among United Financial Bancorp, Inc., United Bank and Mark A. Kucia, effective January 1, 2016 (incorporated herein by reference to Exhibit 10.12.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed March 7, 2016)
10.14
Rockville Financial , Inc. 2012 Stock Incentive Award Plan (incorporated herein by reference to Appendix A in the Definitive Proxy Statement on Form 14A for Rockville Financial, Inc. (now United Financial Bancorp, Inc.) filed on April 4, 2012 (File No. 0001193125-12-149948))
10.17
Employment Agreement as amended and restated by and among United Financial Bancorp, Inc., United Bank and Eric R. Newell, effective January 1, 2016 (incorporated herein by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed on March 7, 2016)
10.18
Employment Agreement as amended and restated by and among United Financial Bancorp, Inc., United Bank and David Paulson, effective January 1, 2016 (incorporated herein by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed on March 7, 2016)
10.19
Form of United Financial Bancorp, Inc. Executive Change in Control Severance Plan, effective January 21, 2015 (incorporated herein by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed on March 9, 2015)
10.20
United Financial Bancorp, Inc. 2015 Omnibus Stock Incentive Plan (incorporated herein by reference to Appendix A in the Definitive Proxy Statement on Form 14A for the Company filed September 8, 2015)
10.21
Employment Agreement as amended and restated by and among United Financial Bancorp, Inc., United Bank and Brandon C. Lorey, effective January 1, 2016 (incorporated herein by reference to Exhibit 10.21 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 filed August 5, 2016)
10.22
Employment Agreement by and among United Financial Bancorp, Inc., United Bank and John J. Smith effective January 19, 2016 filed herewith
14.0
United Financial Bancorp, Inc., United Bank, Standards of Conduct Policy Employees (incorporated herein by reference to Exhibit 14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed on March 9, 2015)
21.0
Subsidiaries of United Financial Bancorp, Inc. and United Bank (incorporated by reference to Exhibit 21.0 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed on March 7, 2016)
31.1
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer filed herewith
31.2
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer filed herewith
32.0
Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer attached hereto
101.
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Net Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Unaudited Consolidated Financial Statements filed herewith


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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 on its behalf by the undersigned thereunto duly authorized.
United Financial Bancorp, Inc.
By:
 
/s/ Eric R. Newell
 
 
Eric R. Newell
 
 
EVP, Chief Financial Officer and Treasurer
Date: May 9, 2017


69
 


EXHIBIT 10.22

EMPLOYMENT AGREEMENT
This Employment Agreement (the “Agreement”) is made effective January 19, 2016 (the “Effective Date”) by and between United Financial Bancorp, Inc. , a Connecticut corporation (the “Company”), United Bank (the “Bank”) and collectively with the Company, the “Employer”) and John J. Smith (“Executive”). The Company and Executive are collectively referred to herein as the “Parties,” and individually referred to as a “Party.”

RECITALS:
WHEREAS, the Company, the Bank and Executive mutually desire to enter into an employment agreement setting forth the terms and conditions of Executive’s employment with the Company.

NOW, THEREFORE , in consideration of the mutual covenants herein contained, it is AGREED as follows:

1.      Purpose . The purpose of this Agreement is to set forth the terms and conditions of Executive’s employment with the Employer. This Agreement represents both Parties’ intentions with respect to the terms and conditions of Executive’s employment with the Employer.

2.      Definitions . For the purposes of this Agreement, the following words shall have the following meanings:

“ Affiliate ” means any entity that, directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, another entity.

“ Annual Incentive Compensation Plan ” or “ AICP” means any Employer-sponsored annual incentive compensation cash bonus plan in which Executive participates, as in effect from time to time.

“ Annual Cash Compensation ” means the sum of (i) Executive’s Base Annual Salary at the rate in effect on Executive’s Date of Termination and (ii) Executive’s target AICP bonus opportunity for the calendar year in which Executive’s Date of Termination occurs; provided, however , that if the target bonus opportunity has not been established for such year, the AICP amount under this definition shall be calculated using the target bonus opportunity from the immediately preceding calendar year.

“ Base Annual Salary ” means Executive’s base annual salary as described in Section 5(a) hereof.

“ Board ” mean the board of directors of the Company and/or of the Bank, as the context requires and, where appropriate, includes any committee thereof.

“ Cause ” means termination on account of the occurrence of any of the following events:
(i)    Executive’s malfeasance or nonfeasance in the performance of the material duties or responsibilities of his or her position with the Employer or any of its subsidiaries, or failure to timely carry out any material lawful and reasonable directive of the Employer, in each case if not remedied within fifteen (15) days after receipt of written notice from the Employer describing such malfeasance, nonfeasance or failure;

(ii)    Executive’s embezzlement or misappropriation of any material funds or property of the Employer or any of its subsidiaries or of any material corporate opportunity of the Employer or any of its subsidiaries;

(iii)    the conduct by Executive which is a material violation of this Agreement or any other agreement between Executive and the Employer or any of its subsidiaries or affiliates in each case, that is not remedied within fifteen (15) days after receipt of written notice from the Employer describing such conduct;

(iv)    any material violation of any generally applicable written policy of the Employer previously provided to Executive, the terms of which provide that violation may be grounds for termination of employment in each case, that is not remedied within fifteen (15) days after receipt of written notice from the Employer describing such conduct;

(v)    the commission by Executive of an act of fraud or willful misconduct or Executive’s gross negligence, in each case that has caused or is reasonably expected to result in material injury to the Employer or any of its subsidiaries; or





(vi)    Executive’s conviction of any felony or of any misdemeanor involving moral turpitude.

Any termination for Cause of Executive shall be effective only upon (i) a determination by the majority of the Board in good faith that Cause exists, (ii) receipt by Executive of a notice in accordance with Section 12 stating in reasonable detail the facts and circumstances alleged to provide a basis for termination for Cause and (iii) Executive has been given a reasonable opportunity to be heard by the Board (together with legal counsel) (such opportunity to be given within thirty (30) days of Executive’s receipt of the notice set forth in (ii) above).

“ Change in Control ” shall be deemed to have occurred if, as the result of a single transaction or a series of transactions, an event set forth in any one of the following paragraphs shall have occurred:

(i) the Company merges into or consolidates with another corporation, or merges another corporation into the Company, and as a result, with respect to the Company, less than a majority of the combined voting power of the resulting corporation immediately after the merger or consolidation is held by “Persons” (as such term is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act ” )) who were stockholders of the Company immediately before the merger or consolidation;

(ii) any Person (other than any trustee or other fiduciary holding securities under an employee benefit plan of the Bank or the Company), becomes the “Beneficial Owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the resulting corporation representing 50% or more of the combined voting power of the resulting corporation’s then-outstanding securities;

(iii) during any period of twenty-four months (not including any period prior to the Effective Date of this Agreement), individuals who at the beginning of such period constitute the board of directors of the Company, and any new director (other than (A) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in subparagraphs (i), (ii) or (iv) hereof, (B) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control or (C) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company’s securities) whose election by the board of directors of the Company or nomination for election by the Company’s stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; or

(iv)    the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets;

“ Code ” means the Internal Revenue Code of 1986, as amended.

“ Compensation Committee ” means the compensation committee of the Company Board.

“ Competing Business ” shall mean any entity (other than the Employer and its Affiliates) that is conducting business that is the same or substantially the same as the business of the Employer.

“ Confidential Information ” means information (i) disclosed to or known by Executive as a consequence of or through his employment with the Company; (ii) not generally known outside the Company; and (iii) which relates to any aspect of the Company, its Affiliates or their business. “Confidential Information” includes, but is not limited to, trade secrets, proprietary information, business plans, marketing plans, financial information, compensation and benefit information, cost and pricing information, customer contacts, suppliers, vendors, and information provided to the Company or its Affiliates by a third party under restrictions against disclosure or use by the Company, its Affiliates or others.

“ Date of Termination ” means the date of termination of Executive’s employment by the Company and that is a “Separation from Service” within the meaning of Code Section 409A, which means a termination of Executive’s employment with the Company (and its controlled group within the meaning of Treasury Regulation §1.409A-1(h)(3)); provided, however , that the Company and Executive reasonably anticipate that no further services will be performed after the termination date or that the level of bona fide services Executive will perform after such date (whether as an employee or an independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services




performed (whether as an employee or an independent contractor) over the immediately preceding 36-month period or the full period of service to the Company if Executive has been providing services to the Company for less than 36 months.

“ Disability ” or “ Disabled ” means any physical or mental incapacity, disease or affliction, as determined by a legally qualified medical practitioner selected by the Company which prevents Executive to a substantial degree from performing his obligations after reasonable accommodation from the Company.

“ Equity-Based Awards ” means stock options, restricted stock, restricted stock units, performance vesting stock, performance stock units, and any other award granted by the Company, which derives its value based upon the Company’s common stock, regardless whether such award is ultimately intended to be settled in stock or cash.

“ Good Reason ” means the occurrence of any one of the following without Executive’s prior written consent:

(i)    any material adverse alteration (including an adverse change to Executive’s upward reporting requirements) or material diminution in Executive’s authority, duties or responsibilities under this Agreement;

(ii)    a reduction in Executive’s base salary or target bonus opportunity (as determined by the Compensation Committee in good faith), except as part of a reduction of less than ten percent (10%) that is applicable to all of the Employer’s senior executives;

(iii)    a relocation of the offices at which Executive is principally employed, which relocation increases the distance between Executive’s residence and such offices by more than thirty five (35) miles; or

(iv)    the Employer’s failure to obtain assumption of this Agreement by a successor.

“ Long Term Incentive Plan ” or “ LTIP ” means any plan of the Company pursuant to which Executive may receive Equity Based Awards or cash awards earned over a multi-year period, as in effect from time to time.

“ Post-Termination Period ” means the twenty four (24) month period following Executive’s Date of Termination.

“ Retirement ” means a termination of Executive’s employment under circumstances as shall constitute retirement from the Employer based on age and/or years of employment, as determined by the Board, in its sole discretion, in accordance with written policies adopted by the Board from time to time. In absence of the adoption of such policy, Executive’s resignation on or after attainment of age 65 shall be deemed to be “Retirement” for purposes of this Agreement.

“ Territory ” means any county in which the Bank maintains a business office.

3.      Term . This Agreement shall become effective on the Effective Date and shall continue in effect through the second anniversary of the Effective Date, unless earlier terminated as hereinafter provided. Commencing on the second anniversary of the Effective Date and each anniversary of the Effective Date thereafter, the term of this Agreement shall automatically be extended for one (1) additional year unless, unless, no later than sixty (60) days prior to the applicable anniversary date, the Employer or Executive gives written notice to the other Party that such Party does not wish to extend the term of this Agreement, in which case this Agreement shall terminate on the applicable anniversary date.

4.      Duties and Responsibilities . Commencing on the Effective Date of this Agreement, Executive shall diligently render his services to the Company as Executive Vice President, Chief Information and Administrative Officer in a manner customary for such officers or equivalent positions, and shall use his best efforts and good faith in fulfilling such responsibilities and in accomplishing such directives. Executive agrees to devote his full-time efforts, abilities, and attention to the business of the Company, and shall not engage in any activities which will interfere with such efforts. Executive shall well and faithfully serve the Company during the continuance of his employment hereunder and shall use his best efforts to promote the interests of the Company.

5.      Compensation and Benefits . In return for the services to be provided by Executive pursuant to this Agreement, the Company agrees to pay Executive as follows:

(a)     Base Annual Salary . Executive shall receive a Base Annual Salary annually of $320,000 payable in accordance with the Employer’s customary payroll practices. The annual salary to be paid by the Employer to Executive shall be reviewed at least annually and may from time to time be increased (but may not be decreased) any such increased amount shall then be referred to as “Base Annual Salary” for the purposes of this Agreement.





(b)     Annual Incentive Compensation Plan . Executive shall be eligible to participate in any AICP, subject to the terms of the then applicable plan. AICP awards for each calendar year shall be payable in the following calendar year as determined by the Board or Compensation Committee.

(c)     Long Term Incentive Plan . Executive shall participate in the Long Term Incentive Plan of the Company, as in effect from time to time, as determined by and on such terms approved by the Board or the Compensation Committee, in its sole discretion.

(d)     Benefits . Executive shall be entitled to participate in the Company’s various employee benefit plans as the same may be constituted from time to time in the same manner as other senior management executives of the Company, subject to the terms and conditions of the plans, as same may be amended or terminated pursuant to their terms from time to time as determined by the Company in its sole discretion.

(e)     Expenses . Executive shall be reimbursed by the Employer for all reasonable business expenses incurred by Executive in performance of his duties hereunder upon the submission of appropriate documentation for such expenses in accordance with the Employer’s policies then in effect.

(f)     Leave . Executive will be provided with such vacation leave, sick leave and other paid time off as are provided generally to the Employer’s senior management executives. All time off must be taken in accordance with the Employer’s policy for senior management executives, as may be amended from time to time.

6.      Termination .

(a)     Death, Disability or Retirement . The Company may terminate Executive’s employment if he is Disabled for six (6) consecutive months or for a total of six (6) months during any 12-month period. Executive’s employment will be automatically terminated upon his death or Retirement.

(b)     Termination for Cause . The Company may terminate Executive’s employment for Cause by written notice to Executive.

(c)     Termination Without Cause . The Company may terminate Executive’s employment without Cause upon written notice to Executive.

(d)     Termination by Executive Without Good Reason . Executive may terminate his employment upon 30 days’ written notice to the Company. In the event Executive terminates his employment in this manner, he shall remain in the Company’s employ subject to all terms and conditions of this Agreement for the entire 30-day period unless instructed otherwise by the Company in writing.

(e)     Termination by Executive for Good Reason . Executive may terminate his employment for “Good Reason” by giving the Company advance written notice of such intent and the grounds thereof within a period not to exceed 30 days after the existence of the event constituting Good Reason. After Executive gives such notice, the Company shall have 30 days to correct the Good Reason event, and if the Company does not correct the Good Reason event within the prescribed time, Executive must terminate his employment within 61 days of the date of the event constituting Good Reason in order to be entitled to any benefits under Section 7(c) of this Agreement. In addition, once an event constitutes Good Reason, if the Company does not correct the event and if Executive does not give notice (as described above) and terminate his employment within 61 days of the event, such specific instance of the event shall no longer constitute Good Reason under this Agreement.

(f)     Resignation of All Positions . Executive agrees that after any termination of his employment, he will tender his resignation from any position he may hold as an officer or director of the Company or any Affiliate.

7.      Severance and Change in Control Payments and Benefits . Executive shall be entitled to the following compensation under the following circumstances:

(a)     Death, Disability or Retirement . In the event Executive’s employment is terminated as a result of his death, Disability or Retirement, the following shall apply:

(i) Executive’s rights under any LTIP or any other executive compensation arrangement in which Executive then participates shall be determined in accordance with the controlling plan document and/or award agreements.





(ii) Any unpaid Base Annual Salary shall be paid through the Date of Termination in accordance with the Employer’s normal payroll practices.

(iii) Any unpaid AICP award for the calendar year preceding the calendar year which includes Executive’s Date of Termination shall be paid when the AICP awards for other participants are paid.

(iv) Executive’s award under any AICP to which he would otherwise be entitled in the calendar year which includes his Date of Termination shall be prorated for the period of his participation in the AICP during the relevant calendar year, and payable at the same time other participants in the AICP receive payment.

(v) Executive shall be reimbursed for all expenses incurred and in accordance with Section 5(e).

(vi) Executive shall be paid all accrued unused vacation in accordance with the Employer’s vacation policy, as amended from time to time.

(vii) Executive shall be entitled to all benefits under Section 5(d) subject to the terms and conditions of the applicable plan documents and arrangements, as amended from time to time.

(viii) If Executive’s employment is terminated by reason of death of Disability, the Employer shall pay Executive (or, in the event of death, to Executive’s surviving spouse, a lump sum amount equal, on an after-tax basis, to the cost of continuation of group health coverage under COBRA for the maximum period allowable by law based upon the rates for such coverage in effect for Executive (and his dependents, if applicable) on the Date of Termination. Such amount shall be paid in a cash lump sum payment not later than ten (10) days following Executive’s Date of Termination.

(b)     Termination for Cause or Without Good Reason . If Executive is terminated by the Employer for Cause or if Executive resigns or otherwise terminates without Good Reason, the following shall apply:

(i) No AICP award shall be paid for the calendar year which includes Executive’s Date of Termination.

(ii) Executive’s rights under any LTIP or any other executive compensation arrangement in which Executive then participates shall be determined in accordance with the controlling plan document and/or award agreements.

(iii) Executive’s unpaid Base Annual Salary shall be paid through to the Date of Termination in accordance with the Employer’s normal payroll practices.

(iv) Any unpaid AICP award for a calendar year preceding the calendar year of Executive’s Date of Termination shall be paid in accordance with the terms of the applicable AICP and when the AICP awards for other participants are paid.

(v) Executive shall be reimbursed for all expenses incurred in accordance with Section 5(e).

(vi) Executive shall be paid all accrued unused vacation in accordance with the Employer’s vacation policy, as amended from time to time.

(vii) Executive shall be entitled to all benefits under Section 5(d) subject to the terms and conditions of the applicable plan documents and arrangements, as amended from time to time.

(c)     Termination Without Cause or for Good Reason . In the event Executive’s employment with the Employer is terminated by the Employer without Cause or by the Executive for Good Reason, the following shall apply:

(i) Employer shall pay Executive an amount equal to the one and one-half (1 ½) times the Executive’s Annual Cash Compensation. Subject to Section 7(f), such amount shall be paid in a lump sum cash payment.

(ii) Executive’s rights under any LTIP or any other executive compensation arrangement in which Executive then participates shall be determined in accordance with the controlling plan document and/or award agreements.

(iii) Executive’s unpaid Base Annual Salary shall be paid through his Date of Termination in accordance with the Company’s normal payroll practices.





(iv) Any unpaid AICP award for a year preceding the calendar year which includes the Executive’s Date of Termination shall be paid when the AICP awards for other participants are paid.

(v) The Employer shall pay Executive his award under any AICP in effect for the calendar year which includes his Date of Termination (A) calculated by reference to the level of attainment for the applicable performance criteria (financial, individual or otherwise) in effect for such calendar year, (B) on the basis of a deemed 12-month calendar year participation in the plan, and (C) at the same time other participants in the AICP receive payment.

(vi) Executive shall be reimbursed for all expenses incurred and in accordance with Section 5(e).

(vii) Executive shall be paid all accrued unused vacation in accordance with the Company’s vacation policy, as amended from time to time.

(viii) Executive shall be entitled to all benefits under Section 5(d) subject to the terms and conditions of the applicable plan documents and arrangements, as amended from time to time.

(ix) The Employer shall pay Executive a lump sum amount equal, on an after-tax basis, to the cost of group health and group life insurance coverage under the Employer’s plans for a period of 18 months based upon the rates for such coverage in effect for Executive (and his dependents, if applicable) on the Date of Termination. Such amount shall be paid in a cash lump sum payment at the same time payment under Section 7(c)(i) is made.

(d)     Change in Control . Notwithstanding the foregoing subsections (a) - (c) of this Section 7 and in lieu thereof, if, within the period beginning with the effective date of a Change in Control and continuing through the second anniversary thereof, the Employer terminates Executive’s employment without Cause or Executive terminates his employment for Good Reason, then:

(i) Subject to Section 7(f), the Employer shall pay Executive a lump sum cash amount equal to three (3) times Executive’s Annual Cash Compensation.

(ii) Executive’s rights under any LTIP or any other executive compensation arrangement in which Executive then participates shall be determined in accordance with the controlling plan document and/or award agreements.

(iii) Any unpaid AICP award for a year preceding the calendar year which includes the Executive’s Date of Termination shall be paid when the AICP awards for other participants are paid.

(iv) The Employer shall pay Executive his award under any AICP in effect for the calendar year which includes his Date of Termination (A) calculated on the basis of the Employer and Executive having fully met all performance criteria (financial, individual or otherwise) for a target bonus (which will not include any multiplier that may be applicable to result in a maximum bonus), (B) paid on the basis of a deemed 12-month calendar year participation in the plan, and (C) payable at the same time other participants in the plan receive payment.

(v) Executive shall be promptly reimbursed all reasonable business expenses incurred by him upon reasonable documentation and in accordance with the Employer’s policy prior to the date of the Change in Control.

(vi) The Employer shall pay Executive a lump sum amount equal, on an after-tax basis, to the cost of continuation of group health and group life insurance coverage under the Employer’s plans for a period of 36 months based upon the rates for such coverage in effect for Executive (and his dependents, if applicable) on the Date of Termination. Such amount shall be paid in a cash lump sum payment at the same time payment under Section 7(d)(i) is made.

(vii) If any payments are payable under this Section 7(d), in no event will any amounts be paid or payable under Sections 7(a)-(c).

(e)     Potential Change in Control . Notwithstanding any other provision of this Agreement, if Executive’s employment is terminated by the Employer without Cause or by Executive for Good Reason and such termination without Cause or the act, circumstance or event which constitutes Good Reason is otherwise in connection with or in anticipation of a Change of Control and occurred after either a letter of intent or agreement with respect to such a transaction has been executed by the Company or a public announcement of a proposed transaction is made, (i) Executive shall be entitled to receive the payments described in Section 7(c) and (ii) in the event of the subsequent consummation of such transaction, Executive shall




receive an additional payment equal to the difference between the payment paid or payable under Section 7(c) and the payment Executive would receive under Section 7(d) had Executive’s termination without Cause or for Good Reason occurred on the effective date of the Change in Control. Section 7(f) shall apply separately with respect to any payment or payments made pursuant to this Section 7(e).

(f)     Release of All Claims . Executive acknowledges and agrees that the Employer’s obligation to make any and all payments, other than the payment of any earned or accrued and unpaid Base Salary and accrued vacation, to which Executive may become entitled to receive under Section 7(c) or (d) is conditioned upon, and subject to, Executive’s execution of a release of claims (substantially in the form of Exhibit A attached hereto) becoming effective by the 60th day following the Employee’s termination of employment. To the extent such payments are not exempt from Code Section 409A pursuant to paragraph (j) below, and the 60-day period crosses two calendar years, the payment shall be made on the first payroll date in the second calendar year that occurs on or after the expiration of the release revocation period, regardless of the date the release is signed.

(g)     Change in Control Best Payments Determination . In the event the payments and benefits described in this Section 7, taken together with all other payments benefits payable to Executive in connection with a Change in Control (together, the CIC Severance Benefits), could subject Executive to an excise tax under Section 4999 of the Code (the “Excise Tax”), then notwithstanding the provisions of Section 7 the Company shall reduce the CIC Severance Benefits (the “Benefit Reduction”) by the amount necessary to result in Executive not being subject to the Excise Tax if such reduction would result in Executive’s “Net After Tax Amount” attributable to the CIC Severance Benefits being greater than it would be if no Benefit Reduction was effected. In the event of any over or under reduction pursuant to the previous sentence, the amount of the Benefit Reduction shall be adjusted (and any additional payments by the Company or any required repayments by Executive, as applicable, shall be promptly made) to the minimum amount necessary to result in Executive not being subject to the Excise Tax. For this purpose “Net After Tax Amount” shall mean the net amount of CIC Severance Benefits Executive is entitled to receive after giving effect to all federal, state and local taxes which would be applicable to such payments, including, but not limited to, the Excise Tax. The determination of whether any such Benefit Reduction shall be effected shall be made by a nationally recognized public accounting firm, selected by the Company and reasonably acceptable to Executive, and such determination shall be binding on both Executive and the Company. In the event the payments to the Executive are required to be reduced pursuant to this Section 7(g), the portions of the payments that would be paid in cash under this Agreement will be reduced first and before any non-cash payments.

(h)     No Duty to Mitigate . Executive shall not be required to mitigate the amount of any payment or other benefit required to be paid to Executive pursuant to this Agreement, whether by seeking other employment or otherwise, nor shall the amount of any such payment or other benefit be reduced on account of any compensation earned by Executive as a result of employment. The Employer’s obligation to make the payments provided for in this Agreement (including, but not limited to, the payments under Section 7(c) or (d)) and otherwise perform its obligations hereunder shall not be affected by any counterclaim, recoupment, defense or other claim, right or action which the Employer may have against Executive or others, exclusive of payroll withholdings required by law.

(i)     Specified Employees . Notwithstanding any other provision herein, if Executive is a “Specified Employee” (as that term is defined in Code Section 409A) as of his Date of Termination, then any amounts under this Agreement which are payable upon his “Separation from Service” (within the meaning of Code Section 409A) and subject to the provisions of Code Section 409A and not otherwise excluded under Code Section 409A, shall not be paid until the first (1st) business day that is at least six (6) months after the date after Executive’s Date of Termination (the “Waiting Period”). Any payments that would have been made to Executive during the Waiting Period but for this Section 7(i) shall instead be made to Executive in the form of a lump sum payment on the date that payments commence pursuant to the preceding sentence with interest (calculated at the short-term applicable federal rate compounded semi-annually) on the amount not paid during the Waiting Period from the Date of Termination through the date of payment.

(j)      Section 409A Exemptions . For purposes of Code Section 409A, each “payment” (as defined by Code Section 409A) made under this Agreement will be considered a “separate payment.” In addition, for purposes of Code Section 409A, each such payment will be deemed exempt from Code Section 409A to the fullest extent possible under (i) the “short-term deferral” exemption of Treasury Regulation § 1.409A-1((b)(4), and (ii) with respect to any additional amounts paid no later than the second (2nd) calendar year following the calendar year containing your Termination Date, the “involuntary separation” pay exemption of Treasury Regulation § 1.409A-1(b)(9)(iii), which are hereby incorporated by reference.

8.      Non‑Competition, Non‑Solicitation, and Confidentiality . The Employer and Executive acknowledge and agree that while Executive is employed pursuant to this Agreement, the Company will give Executive access to Confidential




Information of the Employer and its Affiliates. Executive will also be in contact with customers and potential customers of the Employer. In consideration of all of the foregoing, the Employer and Executive agree as follows:

(a)      Non-Competition . Executive agrees that during the Executive’s employment by the Employer hereunder, and for the duration of the Post-Termination Period, the Executive will not (except on behalf of or with the prior written consent of the Employer), within the Territory, either directly or indirectly, on the Executive’s own behalf or in the service or on behalf of others, perform for any Competing Business any services which are the same as or essentially the same as the services the Executive provided for the Employer.

(b)      Non-Solicitation of Customers . Executive agrees that during the Executive’s employment by the Employer hereunder, and in the event of the Executive’s Termination of Employment, regardless of the reason, for the duration of the Post-Termination Period, the Executive will not (except on behalf of or with the prior written consent of the Employer) on the Executive’s own behalf or in the service or on behalf of others, solicit, divert or appropriate or attempt to solicit, divert or appropriate, any business from any of the Employer’s customers, including prospective customers actively sought by the Employer, with whom the Executive has or had material contact during the last two (2) years of the Executive’s employment with Employer, for purposes of providing products or services that are competitive with those provided by the Employer.

(c)      Non-Solicitation of Employees . Executive agrees that during the Executive’s employment by the Employer hereunder, and in the event of the Executive’s Termination of Employment, regardless of the reason, for the duration of the Post-Termination Period, the Executive will not (except on behalf of or with the prior written consent of the Employer) on the Executive’s own behalf or in the service or on behalf of others, solicit, recruit or hire away or attempt to solicit, recruit or hire away, any employee of the Employer with whom the Executive had material contact during the last two (2) years of the Executive’s employment, whether or not such employee is a full-time employee or a temporary employee of the Employer, such employment is pursuant to written agreement, for a determined period, or at will.

(d)     Confidential Information . Executive further agrees that he will not, except as the Company may otherwise consent or direct in writing, reveal or disclose, sell, use, publish, or otherwise disclose to any third party any Confidential Information or proprietary information of the Company, or authorize anyone else to do these things at any time either during or subsequent to his employment with the Company. This Section 8(d) shall continue in full force and effect after termination of Executive’s employment and after the termination of this Agreement for any reason. Executive’s obligations under this Section 8(d) of this Agreement with respect to any specific Confidential Information and proprietary information shall cease when that specific portion of Confidential Information and proprietary information becomes publicly known, in its entirety and without combining portions of such information obtained separately. It is understood that such Confidential Information and proprietary information of the Company include matters that Executive conceives or develops, as well as matters Executive learns from other employees of the Company.

(e)     Breach . Executive agrees that any breach of Sections 8(a), (b), (c), or (d), above cannot be remedied solely by money damages, and that in addition to any other remedies the Company may have, the Company is entitled to obtain injunctive relief against Executive. Nothing herein, however, shall be construed as limiting the Company’s right to pursue any other available remedy at law or in equity, including recovery of damages and termination of this Agreement.

(f)     Independent Covenants . All covenants contained in this Section 9 shall be construed as agreements independent of any other provision of this Agreement, and the existence of any claim or cause of action by Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of such covenants.

9.      Return of Company Property . Executive agrees to execute and deliver such documents and take all other actions as the Company may request from time to time in order to effect the transfer and delivery to the Company of any of the Company’s or its Affiliate’s assets in the possession or subject to the control of Executive including, without limitation, the Company’s or its Affiliate’s computers, printers, books, records, files, databases, software, Confidential Information, and other documents in whatever form or medium and wherever located.

10.      Assignment . This Agreement may be assigned by the Company, but cannot be assigned by Executive. An assignment of this Agreement by the Company shall not relieve the Company of any liability or obligation under this Agreement except any such assignment in connection with or as a result of a Change in Control (including, but not limited to, by operation of law).

11.      Binding Agreement . The Parties acknowledge that this Agreement shall be binding upon and inure to the benefit of (a) Executive’s heirs, successors, personal representatives, and legal representatives and (b) any successor of the




Company. Any such successor of the Company shall be deemed substituted for the Company under the terms of this Agreement for all purposes. As used herein, “successor” shall include any person, firm, corporation, or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company.

12.      Notices . All notices pursuant to this Agreement shall be in writing and sent certified mail, return receipt requested, by hand delivery or by overnight delivery service addressed as follows:


If to Executive:

John J. Smith
287 Mount Prospect Road
Far Hills, NJ 07931

If to the Company:    
        
United Bank
45 Glastonbury Boulevard
Glastonbury, CT 06033
Attention: Chief Executive Officer


13.      Waiver . No waiver by either Party to this Agreement of any right to enforce any term or condition of this Agreement, or of any breach hereof, shall be deemed a waiver of such right in the future or of any other right or remedy available under this Agreement.

14.      Severability . If any provision of this Agreement is determined to be void, invalid, unenforceable, or against public policy, such provisions shall be deemed severable from the Agreement, and the remaining provisions of the Agreement will remain unaffected and in full force and effect. Furthermore, any breach by the Company of any provision of this Agreement shall not excuse Executive’s compliance with the requirements of Sections 9, to the extent they are otherwise enforceable.

15.      Arbitration . Except with respect to injunctive relief which may be sought by the Employer or Executive from a court in Hartford County, Connecticut, to which the Parties hereby submit to personal jurisdiction, the Parties agree to resolve any and all claims or controversies past, present, or future arising out of or relating to this Agreement, Executive’s employment and/or termination of employment with the Company to binding arbitration under the Federal Arbitration Act, before one neutral arbitrator in Glastonbury, Connecticut, under the American Arbitration Association (“AAA”) National Rules for the Resolution of Employment Disputes. If the Parties cannot agree on one arbitrator, a list of seven (7) arbitrators will be requested from AAA, and the arbitrator will be selected using alternate strikes with Executive striking first. The Parties further agree that (i) except as expressly awarded in arbitration and subject to Section 25 below, each party shall be responsible for its own expenses, including but not limited to attorneys’ fees in connection with the cost of the arbitration except that the fees of the arbitrators shall be shared equally by Executive and the Company, (ii) collective actions are not permissible unless agreed upon by the parties in writing, (iii) administrative proceedings under the National Labor Relations Act and Title VII of the Civil Rights Act are not precluded, (iv) the work of Executive involves interstate commerce, and (v) the award rendered by the arbitrator is final and binding, and judgment thereon may be entered in any court having jurisdiction thereof. The invalidity or unenforceability of any provision of this Section shall not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect; provided, however , that any claim the Company has for breach of the covenants contained in Section 9 of this Agreement shall not be subject to mandatory arbitration, and may be pursued in a court of law or equity.

16.      Entire Agreement . The terms and provisions contained herein shall constitute the entire agreement between the Parties with respect to Executive’s employment with the Company during the time period covered by this Agreement. This Agreement replaces and supersedes any and all existing agreements entered into between Executive and the Company relating generally to the same subject matter.

17.      Modification of Agreement . This Agreement may not be changed or modified or released or discharged or abandoned or otherwise terminated, in whole or in part, except by an instrument in writing signed by Executive and an authorized representative of the Employer.





18.      Understand Agreement . Executive represents and warrants that he has read and understood each and every provision of this Agreement, acknowledges that he has obtained independent legal advice from attorneys of his choice, and confirms that Executive has freely and voluntarily entered into this Agreement.

19.      Governing Law . This Agreement shall be governed by and construed in accordance with the internal laws of the State of Connecticut without giving any effect to the conflict of laws provisions thereof.

20.      Code Section 409A . The Parties agree that the Company may amend and/or operate this Agreement to be exempt from or to comply with Code Section 409A including, but not limited to, using the definitions or other terms required by Code Section 409A and including without limitation any notices, rulings, interpretations or regulations issued under Code Section 409A after the date hereof to avoid the application of penalty taxes under Code Section 409A. The Company and Executive shall cooperate in good faith for the adoption of such amendments and/or the operation of the Agreement to avoid the application of penalty taxes under Code Section 409A. The Parties agree that Executive shall have no right to specify the calendar year during which any payment hereunder shall be made.

21.      No Guarantee of Tax Consequences . None of the Company nor any of its Affiliates or their officers, directors or employees guarantees or shall be responsible or liable for the federal, state, local, domestic and foreign, tax consequences to Executive respecting any payments or benefits provided to Executive under this Agreement, including but not limited to, any excise taxes that may be imposed under Code Section 409A. Executive acknowledges that the Company has advised him to consult his own counsel and/or tax advisor respecting all of the terms of this Agreement.

22.      Withholding Taxes . The Employer may withhold from all salary, bonuses, or other benefits or payments under this Agreement all federal, state and local taxes as shall be required pursuant to any law or governmental ruling or regulation as reasonably determined by the Employer.

23.      Legal Fees on Change in Control . If a Date of Termination occurs after a Change in Control occurs, the Company agrees, upon reasonable documentation, to reimburse to the full extent permitted by law, all legal fees and expenses which Executive, Executive’s legal representatives or Executive’s family may reasonably incur arising out of or in connection with any arbitration or litigation, if applicable, concerning the validity or enforceability of any provision of the Agreement, or any action by Executive, Executive’s legal representatives, or Executive’s family to enforce his or their rights under this Agreement if the Executive is the prevailing party in such action.

24.      Regulatory Limitation .

(a)     FDIC Golden Parachute Limitations . Notwithstanding anything contained in this Agreement to the contrary, no payments shall be made pursuant to this Agreement or otherwise in contravention of the requirements of Section 2[18(k)] of the Federal Deposit Insurance Act (the “FDIA”) (12 U.S.C. 1828(k)) and Part 359 of the FDIC Rules and Regulations, 12 C.F.R. 359 (collectively, the “FDIC Golden Parachute Restrictions”).

(b)     Other Bank Regulatory Limitations . If the Executive is removed from office and/or permanently prohibited from participating in the conduct of the affairs of any depository institution by an order issued under Section 8(e) or 8(g) of the FDIA (12 U.S.C. 1818(e) and (g)), the Employer shall have the right to terminate all obligations of the Employer under this Agreement as of the effective date of such order, except for the payment of Base Annual Salary due and owing on the effective date of said order, and expense reimbursement incurred as of the effective date of termination. If the Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Section 8(e) or 8(g) of the FDIA (12 U.S.C. 1818(e) and (g)), the Employer shall have the right to suspend all obligations of the Employer under this Agreement as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Employer shall reinstate prospectively any of its obligations which were suspended. If the FDIC is appointed receiver or conservator under Section 11(c) of the FDIA (12 U.S.C. 1821(c)) of the Company or any depositary institution controlled by the Company, the Employer shall have the right to terminate all obligations of the Employer under this Agreement as of the date of such receivership or conservatorship, other than any rights of the Executive that vested prior to such appointment. If the Employer is in default (as defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but the vested rights of the parties shall not be affected. If the FDIC provides open bank assistance under Section 13(c) of the FDIA (12 U.S.C. 1823(c)) to the Company or any depository institution controlled by the Company, but excluding any such assistance provided to the industry generally, the Employer shall have the right to terminate all obligations of the Employer under this Agreement as of the date of such assistance, other than any rights of the Employee that vested prior to the FDIC action. If the FDIC requires a transaction under Section 13(f) or 13(k) of the FDIA (12 U.S.C. 1823(f) and (k)) by the Company or any depository institution controlled by the Company, the Employer shall have the right to terminate all obligations of the Employer under this




Agreement as of the date of such transaction, other than any rights of the Employee that vested prior to the transaction. Notwithstanding the foregoing provisions of this Section 24(b), any vested rights of the Executive may be subject to such modifications that are consistent with the authority of the FDIC.

(c)     Regulatory Approval . Notwithstanding the timing for the payment of severance under this Agreement, no such payments shall be made or commence, as applicable, that require the concurrence or consent of the appropriate federal banking agency of the Employer pursuant to 12 C.F.R. Section 359 prior to the receipt of such concurrence or consent. Any payments suspended by operation of this Section 24(c) shall be paid in a lump sum within thirty (30) days following receipt of the concurrence or consent of the appropriate banking regulators of the Employer or as otherwise directed by such regulators.

(d)     State Banking Limitations . All obligations under this Agreement are further subject to such conditions, restrictions, limitations and forfeiture provisions as may separately apply pursuant to any applicable state banking laws.

25.      Apportionment of Obligations . The obligations for the payment of the amounts otherwise payable pursuant to this Agreement shall be apportioned between the Company and the Bank as they may agree from time to time in their sole discretion.

26.      Counterparts . Any number of counterparts of this Agreement may be executed and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one instrument. This Agreement may be executed by portable document format (PDF) or facsimile signature which signature shall be binding upon the Parties.

[ Signature Page Follows ]

IN WITNESS WHEREOF , the Parties have executed this Agreement effective as of the Effective Date first written above.

UNITED FINANCIAL BANCORP, INC.


/s/ Kristen A. Johnson
Kristen A. Johnson, Chair of Compensation Committee


UNITED BANK

/s/ Kristen A. Johnson
Kristen A. Johnson, Chair of Compensation Committee


/s/ John. J. Smith
John J. Smith, Executive













Exhibit A

RELEASE OF CLAIMS

This Release of Claims (the “Agreement”) is made and entered into by and among United Financial Bancorp, Inc. , a Connecticut corporation (the “ Company ”), United Bank (the “ Bank ” and collectively with the Company, the “Employer”), and _________________ (the “Executive”)

1.     SEPARATION . Executive’s employment with the Employer will terminate on ______________ or such later date as may be determined by the parties (“Separation Date”). The parties acknowledge that Executive’s termination from employment will result in a “Separation from Service” as defined in Section 409A of the Internal Revenue Code. Executive further agrees that the Executive hereby resigns as an officer and director of the Employer and any related or affiliated entities as of the Separation Date.

2.     CONSIDERATION . In consideration of the Executive’s decision to enter into this Agreement, the Employer will continue to employ Executive through the Separation Date and will provide Executive severance pay in accordance with the terms of the employment agreement between the Employer and the Executive dated ________________, 2015 (the “Employment Agreement”). federal, state and local tax withholdings and other legal deductions may be applied to the above payment as determined by the Employer in its sole discretion.

Whether or not Executive executes this Agreement, the Employer will pay Executive any and all wages for all hours worked up to and through the Separation Date within the appropriate time frame required by applicable law. If Executive fails or refuses to execute this Agreement, or if Executive revokes this Agreement as provided herein, Executive will not be entitled to the consideration set forth above.

3.     FULL AND FINAL RELEASE .

(a)    In consideration of the payments being provided to Executive above, Executive, for himself, his attorneys, heirs, executors, administrators, successors and assigns, fully, finally and forever releases and discharges the Bank and all other affiliated companies, as well as its and their successors, assigns, officers, owners, directors, agents, representatives, attorneys, and employees (all of whom are referred to throughout this Agreement as the “Releasees”), of and from all claims, demands, actions, causes of action, suits, damages, losses, and expenses, of any and every nature whatsoever, as a result of actions or omissions occurring through the date Executive signs this Agreement. Specifically included in this waiver and release are, among other things, any and all claims related to any severance pay plan, any and all claims related to Executive’s employment and separation from employment or otherwise, including without limitation: (1) Title VII of the Civil Rights Act of 1964, as amended by the Civil Rights Act of 1991; (2) the Americans with Disabilities Act, as amended; (3) 42 U.S.C. §1981; (4) the Age Discrimination in Employment Act (29 U.S.C. §§621-624); (5) 29 U.S.C. §206(d)(1); (6) Executive Order 11246; (7) Executive Order 11141; (8) Section 503 of the Rehabilitation Act of 1973; (9) Executive Retirement Income Security Act (ERISA); (10) the Occupational Safety and Health Act; (11) the Worker Adjustment and Retraining Notification (WARN) Act; (12) the Family and Medical Leave Act and (14) other federal, state and local discrimination laws, including those of the State of Connecticut.

Executive further acknowledges that Executive is releasing, in addition to all other claims, any and all claims based on any tort, whistle-blower, personal injury, defamation, invasion of privacy or wrongful discharge theory; retaliatory discharge theory; any and all claims based on any oral, written or implied contract or on any contractual theory (including the Employment Agreement); any claims based on a severance pay plan; and all claims based on any other federal, state or local constitution, regulation, law (statutory or common), or other legal theory, as well as any and all claims for punitive, compensatory, and/or other damages, back pay, front pay, fringe benefits and attorneys’ fees, costs or expenses.

(b)    Nothing in this Agreement, however, is intended to waive Executive’s entitlement to vested benefits under any other executive compensation or employee benefit plan or arrangement in which Executive participates or to which Executive is a party. Furthermore, the parties specifically agree that this release does not cover, and Executive expressly reserves, indemnification rights existing to the Executive as a current or former director and/or officer of the Employer under the Articles and Bylaws of the Employer and pursuant to applicable law and in accordance with any D&O policy existing for former officers and directors of the Employer. Finally, the above release does not waive claims that Executive could make, if available, for unemployment or workers’ compensation or claims that cannot be released by private agreement.





(c)    Executive understands that this Agreement does not bar the Executive from filing a complaint and/or charge with any appropriate federal, state, or local government agency or cooperating with said agency in its investigation. Executive agrees, however, that the Executive shall not be entitled to receive any relief or recovery (monetary or otherwise) in connection with any complaint or charge brought against the Releasees, without regard as to who brought said complaint or charge.

4.      ADVICE OF COUNSEL . Executive acknowledges that the Executive has been and is hereby advised by the Employer to consult with an attorney in regard to this matter. Executive understands that Executive is responsible for the costs of any such legal services incurred in connection with such consultation.

5.      POST-EMPLOYMENT COOPERATION . Executive agrees to fully cooperate with the Employer in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Employer which relate to events or occurrences that transpired or which failed to transpire while Executive was employed by the Employer. Executive also agrees to cooperate fully with the Employer in connection with any internal investigation or review, or any investigation or review by any federal, state or local regulatory authority, relating to events or occurrences that transpired or failed to transpire while Executive was employed by the Employer. Executive’s full cooperation in connection with such matters shall include, but not be limited to, providing information to counsel, being available to meet with counsel to prepare for discovery or trial and acting as a witness on behalf of the Employer at a mutually convenient times.

6.      NO OTHER CLAIMS . Executive represents that Executive has not filed, nor assigned to others the right to file, nor are there currently pending, any complaints, charges or lawsuits against the Releasees with any governmental agency or any court or in any arbitration forum.

7.      NON-DISPARAGEMENT . Executive agrees that Executive has not (including during the time period while this Agreement was under consideration by Executive) and will not make statements to clients, customers and suppliers of the Employer or to other members of the public that are in any way disparaging or negative towards the Employer, the Employer’s products or services, or the Employer’s representatives or employees.

The Employer will advise the members of its Boards of Directors and all executive officers of the Employer (collectively, the “Persons to be Advised”) that they should not make public statements that are in any way disparaging or negative towards the Executive. The Employer will advise the Persons to be Advised that a non-disparagement agreement is in effect, and will use reasonable efforts to enforce compliance with this Agreement. Notwithstanding the foregoing agreement, the parties hereto recognize and acknowledge that the Employer will not be liable for statements between the Employer and its independent auditors or statements necessary to comply with applicable law.

8.      NON-ADMISSION OF LIABILITY OR WRONGFUL CONDUCT . This Agreement shall not be construed as an admission by the Employer of any liability or acts of wrongdoing or discrimination, nor shall it be considered to be evidence of such liability, wrongdoing, or discrimination.

9.      RETURN OF PROPERTY . Executive acknowledges, understands, and agrees that Executive will turn over to _________________ all documents, files, memoranda, records, Employer Information (as defined in the Employment Agreement), credit cards, records, books, manuals, computer equipment, computer software, pagers, cellular phones, facsimile machines, PDAs, keys and electronic keys or access cards into the building and any other equipment or documents, and all other physical or electronic property of similar type that Executive received from the Employer and/or that Executive used in the course of his employment with the Employer and that are the property of the Employer. Executive agrees that Executive will not delete, destroy or erase any data stored on or associated with such property, including but not limited to data stored on computers, servers, phones, or other electronic devices. Executive further agrees to return to _______________ any and all hard copies of any documents which are the subject of a document preservation notice or other legal hold and to notify ______________________ of the location of any electronic documents which are subject to a legal hold.

10.      CONFIDENTIALITY . The nature and terms of this Agreement are strictly confidential and they have not been and shall not be disclosed by Executive at any time to any person (including the Employer’s employees) except Executive’s lawyer, accountant, or immediate family without the prior written consent of an officer of the Employer, except as necessary in any legal proceedings directly related to the provisions and terms of this Agreement, to prepare and file income tax forms, or pursuant to court order after reasonable notice to the Employer. Executive may disclose that Executive is subject to an agreement not to disclose trade secrets and confidential information where necessary to comply with such confidentiality agreement. Executive agrees that Executive is responsible for informing these persons of the confidential nature of this Agreement and that any breach of this confidentiality provision by any of these persons shall be deemed a breach by Executive.

11.      GOVERNING LAW . This Agreement shall be interpreted under the laws of the State of Connecticut.





12.      SEVERABILITY . The provisions of this Agreement are severable, and if any part of this Agreement except Paragraphs 3, 5 or 7 are found by a court of law to be unenforceable, the remainder of the Agreement will continue to be valid and effective, and the court is authorized to amend relevant provisions of the Agreement to carry out the intent of the parties to the extent legally permissible. If Paragraph 3, 5 or 7 is found by a court of competent jurisdiction to be unenforceable, the parties agree to seek a determination by the court as to the rights of the parties, including whether Executive is entitled under those circumstances and the relevant law to retain the benefits paid to Executive under this Agreement.

13.      SOLE AND ENTIRE AGREEMENT . This Agreement and the Employment Agreement set forth the entire agreement between the parties with respect to the subject matters covered by this Agreement and the Employment Agreement; provided however, that all continuing obligations of confidentiality, non-competition or non-solicitation under the Employment Agreement shall survive . Any other prior agreements between or directly involving the parties to the Agreement and the Employment Agreement with respect to the subject matters covered by this Agreement and the Employment Agreement are superseded by the terms of this Agreement and the Employment Agreement and thus are rendered null and void.

14.      NO OTHER PROMISES . Executive affirms that the only consideration for his signing this Agreement is that set forth in Paragraph 2 that no other promise or agreement of any kind has been made to or with Executive by any person or entity to cause Executive to execute this document, and that Executive fully understands the meaning and intent of this Agreement, including but not limited to, its final and binding effect.

15.      NO VIOLATION OF THE LAW . Executive represents and acknowledges that Executive is unaware of any conduct, actions or inactions by the Employer or anyone employed by the Employer which would violate any federal, state or local law, any common law, or any rule promulgated by any administrative body. Executive further acknowledges that Executive has disclosed to ____________________ any relevant facts known to Executive of any conduct which violates any Employer policy or standard.

16.      LEGALLY BINDING AGREEMENT . Executive understands and acknowledges that this Agreement contains a full and final release of claims against the Employer; and that Executive has agreed to its terms knowingly, voluntarily, and without intimidation, coercion or pressure.

17.      ADVICE OF COUNSEL / CONSIDERATION AND REVOCATION PERIODS . Executive hereby acknowledges and agrees that this Agreement and the termination of Executive’s employment and all actions taken in connection therewith are in compliance with the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act and that the releases set forth herein shall be applicable, without limitation, to any claims brought under these Acts. Executive acknowledges that the Executive has been and is hereby advised by the Employer to consult with an attorney in regard to this matter. Executive understands that Executive is responsible for the costs of any such legal services incurred in connection with such consultation. Executive further acknowledges that Executive has been given more than twenty-one (21) days from the time that Executive receives this Agreement to consider whether to sign it. Executive shall have seven (7) days from the date Executive signs this Agreement to revoke the Agreement. To revoke, Executive must ensure that written notice is delivered to ______________________________________________, by the end of the day on the seventh calendar day after Executive signs this Agreement. If Executive does not revoke this Agreement within seven (7) days of signing, this Agreement will become final and binding on the day following such seven (7) day period.

This Agreement includes a release of all known and unknown claims through the date of this Agreement. Executive should carefully consider all of its provisions before signing it. Executive’s signature below indicates Executive’s understanding and agreement with all of the terms in this Agreement.

IN WITNESS WHEREOF , the Parties have executed this Agreement effective as of ______________.

UNITED FINANCIAL BANCORP, INC.


___________________________________________
                            

UNITED BANK






__________________________________________
                        


___________________________________________
Executive









Exhibit 31.1
Certification

I, William H.W. Crawford, IV, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of United Financial Bancorp, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation;
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting
 
 
 
 
 
 
 
 
May 9, 2017
 
 
 
/s/ William H.W. Crawford, IV
 
 
 
 
William H.W. Crawford, IV
Chief Executive Officer


Exhibit 31.2
Certification

I, Eric R. Newell, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of United Financial Bancorp, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation;
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
 
 
 
 
 
 
 
May 9, 2017
 
 
 
 /s/ Eric R. Newell
 
 
 
 
 Eric R. Newell
 EVP, Chief Financial Officer and Treasurer

Exhibit 32.0
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADDED BY
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of United Financial Bancorp, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2017 , as filed with the Securities and Exchange Commission (the “Report”), I hereby certify pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.
 
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
 
 
2.
 
The information contained in this Report fairly presents, in all material respects, the consolidated financial condition and results of the Company as of and for the period covered by this Report.

 
 
 
 
 
 
 
 
 
By:
 
/s/ William H.W. Crawford, IV
 
 
 
 
 
 
 
 
 
 
 
 
 
William H.W. Crawford, IV
 
 
 
 
 
 
Chief Executive Officer
 
 
 
 
 
 
May 9, 2017
 
 
 
 
 
 
 
 
 
 
 
By:
 
/s/ Eric R. Newell
 
 
 
 
 
 
 
 
 
 
 
 
 
Eric R. Newell
 
 
 
 
 
 
EVP, Chief Financial Officer and Treasurer
 
 
 
 
 
 
May 9, 2017
 
 

The forgoing certification is being furnished solely pursuant to 12 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.
 
Note: A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to United Financial Bancorp, Inc. and will be retained by United Financial Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.