United Financial Bancorp 10-Q 2007 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)
ý	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended June 30, 2007
OR
o	Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______________ to _____________

Commission File Number 000-51369

United Financial Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Federal	83-0395247
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

95 Elm Street, West Springfield, Massachusetts 01089

(Address of principal executive offices)

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

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

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

Large accelerated filer o   Accelerated filer ý Non-accelerated filer o

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

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

Common stock, $0.01 par value

17,071,853 shares outstanding as of August 1, 2007

United Financial Bancorp, Inc.

INDEX
		Page
PART I. FINANCIAL INFORMATION
Item 1	Consolidated Financial Statements (unaudited)
	Consolidated Statements of Condition
	June 30, 2007 and December 31, 2006	1
	Consolidated Statements of Earnings
	Three Months and Six Months Ended June 30, 2007 and 2006	2
	Consolidated Statements of Stockholders’ Equity and Comprehensive Income
	Six Months Ended June 30, 2007 and 2006	3
	Consolidated Statements of Cash Flows
	Six Months Ended June 30, 2007 and 2006	4
	Notes to Unaudited Consolidated Financial Statements	5
Item 2	Management's Discussion and Analysis of Financial Condition
	and Results of Operations	9
Item 3	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4	Controls and Procedures	21
PART II. OTHER INFORMATION		22
Item 1	Legal Proceedings	22
Item 1A	Risk Factors	22
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3	Defaults Upon Senior Securities	22
Item 4.	Submission of Matters to a Vote of Security Holders	23
Item 5.	Other Information	23
Item 6	Exhibits	24
SIGNATURES		25

Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	26
Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	27
Exhibit 32.1	Statement of Chief Executive Officer Furnished Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	28
Exhibit 32.2	Statement of Chief Financial Officer Furnished Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	29

PART I. FINANCIAL INFORMATION

ITEM 1. Consolidated Financial Statements

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CONDITION

(Dollars in thousands, except per share amounts)

	June 30,			December 31,
	2007			2006
	(unaudited)
ASSETS
Cash and due from banks	$	16,534		$	15,459
Interest-bearing deposits		4,027			9,960
Total cash and cash equivalents		20,561			25,419
Short-term investments		1,004			-
Securities available for sale, at fair value		161,169			190,237
Securities to be held to maturity, at amortized cost (fair value $3,621 at
June 30, 2007 and $3,227 at December 31, 2006)		3,686			3,241
Loans, net of allowance for loan losses of  $7,721 at June 30, 2007 and
$7,218 at December 31, 2006		797,236			756,180
Other real estate owned		-			562
Accrued interest receivable		4,295			4,320
Stock in the Federal Home Loan Bank of Boston		9,885			9,274
Banking premises and equipment, net		10,614			8,821
Bank-owned life insurance		6,515			6,304
Other assets		7,782			5,075
TOTAL ASSETS	$	1,022,747		$	1,009,433
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Interest-bearing	$	620,980		$	588,496
Non-interest-bearing		104,773			97,190
Total deposits		725,753			685,686
Federal Home Loan Bank of Boston advances		142,519			169,806
Repurchase agreements		7,990			10,425
Escrow funds held for borrowers		1,113			1,121
Accrued expenses and other liabilities		6,776			4,684
Total liabilities		884,151			871,722
Stockholders’ equity:
Preferred stock, par value $0.01 per share, authorized 5,000,000 shares;
none issued		-			-
Common stock, par value $0.01 per share, authorized 60,000,000 shares;
17,205,995 shares issued at June 30, 2007 and at December 31, 2006		172			172
Paid-in capital		76,700			75,520
Retained earnings		71,337			70,406
Unearned compensation		(5,550	)		(5,772	)
Treasury stock, at cost (134,142 shares at June 30, 2007 and 51,445 shares
at December 31, 2006)		(1,873	)		(664	)
Accumulated other comprehensive loss, net of taxes		(2,190	)		(1,951	)
Total stockholders’ equity		138,596			137,711
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,022,747		$	1,009,433

See notes to unaudited consolidated financial statements

1

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(Dollars in thousands, except per share amounts) 

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2007			2006		2007			2006
Interest and dividend income:
Loans	$	12,350		$	10,076	$	24,305		$	19,676
Investments		1,854			2,261		3,836			4,566
Other interest-earning assets		309			288		684			529
Total interest and dividend income		14,513			12,625		28,825			24,771
Interest expense:
Deposits		5,477			4,664		10,658			8,706
Borrowings		1,901			1,196		4,076			2,393
Total interest expense		7,378			5,860		14,734			11,099
Net interest income before provision for loan losses		7,135			6,765		14,091			13,672
Provision for loan losses		320			300		604			462
Net interest income after provision for loan losses		6,815			6,465		13,487			13,210
Non-interest income:
Fee income on depositors’ accounts		1,097			1,037		2,135			1,982
Loss on sale of securities		(43	)		-		(29	)		-
Wealth management income		170			136		291			193
Other income		211			269		436			524
Total non-interest income		1,435			1,442		2,833			2,699
Non-interest expense:
Salaries and benefits		3,735			3,130		7,573			6,159
Occupancy expenses		481			410		972			813
Marketing expenses		449			350		771			765
Data processing expenses		653			558		1,295			1,190
Professional fees		263			223		652			479
Other expenses		994			1,166		1,959			2,205
Total non-interest expense		6,575			5,837		13,222			11,611
Income before income taxes		1,675			2,070		3,098			4,298
Income tax expense		697			780		1,286			1,653
Net income	$	978		$	1,290	$	1,812		$	2,645
Earnings per share:
Basic	$	0.06		$	0.08	$	0.11		$	0.16
Diluted	$	0.06		$	0.08	$	0.11		$	0.16
Weighted average shares outstanding:
Basic		16,226,449			16,608,783		16,249,929			16,604,775
Diluted		16,309,877			16,608,783		16,321,394			16,604,775

See notes to unaudited consolidated financial statements.

2

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

FOR THE SIX MONTHS ENDED JUNE 30, 2007 and 2006

(Dollars in thousands, except per share amounts) 

																	Accumulated
	Common																Other
	Shares			Common		Paid-In		Retained			Unearned			Treasury			Comprehensive
	Outstanding			Stock		Capital		Earnings			Compensation			Stock			Loss			Total
Balances at December 31, 2005		17,205,995		$	172	$	78,446	$	66,944		$	(6,092	)	$	-		$	(2,465	)	$	137,005
Net income		-			-		-		2,645			-			-			-			2,645
Other comprehensive loss		-			-		-		-			-			-			(1,363	)		(1,363	)
Total comprehensive income																					1,282
Cash dividends declared ($0.10 per share)		-			-		-		(741	)		-			-			-			(741	)
ESOP shares committed to be released		-			-		30		-			160			-			-			190
Balances at June 30, 2006		17,205,995		$	172	$	78,476	$	68,848		$	(5,932	)	$	-		$	(3,828	)	$	137,736
Balances at December 31, 2006		17,154,550		$	172	$	75,520	$	70,406		$	(5,772	)	$	(664	)	$	(1,951	)	$	137,711
Net income		-			-		-		1,812			-			-			-			1,812
Other comprehensive loss		-			-		-		-			-			-			(239	)		(239	)
Total comprehensive income																					1,573
Cash dividends declared ($0.12 per share)		-			-		-		(881	)		-			-			-			(881	)
Treasury stock purchases		(82,697	)		-		-		-			-			(1,209	)		-			(1,209	)
Stock-based compensation		-			-		1,077		-			-			-			-			1,077
ESOP shares committed to be released		-			-		103		-			222			-			-			325
Balances at June 30, 2007		17,071,853		$	172	$	76,700	$	71,337		$	(5,550	)	$	(1,873	)	$	(2,190	)	$	138,596

The components of other comprehensive loss and related tax effects are as follows:
	Six Months Ended June 30,
	2007			2006
Change in unrealized holding losses on available-for-sale securities	$	(385	)	$	(2,229	)
Reclassification adjustment for losses realized in income		29			-
Net change in unrealized losses		(356	)		(2,229	)
Tax effect		(117	)		(866	)
Other comprehensive loss	$	(239	)	$	(1,363	)

See notes to unaudited consolidated financial statements.

3

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

FOR THE SIX MONTHS ENDED JUNE 30, 2007 and 2006

(Dollars in thousands) 

	2007			2006
Cash flows from operating activities:
Net income	$	1,812		$	2,645
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		604			462
ESOP expense		325			190
Stock-based compensation		1,077			-
Amortization of premiums and discounts		64			201
Depreciation and amortization		442			363
Amortization of intangible assets		15			-
Provision for other real estate owned		-			34
Net (gain) loss on sale of other real estate owned		(14	)		21
Net loss on sale of securities		29			-
Net loss on sale of loans		5			-
Increase in cash surrender value of bank-owned life insurance		(211	)		(154	)
Decrease (increase) in accrued interest receivable		25			(123	)
Increase in other assets		(490	)		(1,123	)
Decrease in accrued expenses and other liabilities		(1,820	)		(60	)
Net cash provided by operating activities		1,863			2,456
Cash flows from investing activities:
Purchases of securities available for sale		(21,947	)		(11,831	)
Proceeds from sales of securities available for sale		5,424			-
Proceeds from  maturities, calls and principal repayments of securities available for sale		45,146			23,104
Purchases of securities held to maturity		(675	)		-
Proceeds from  maturities, calls and principal repayments of securities held to maturity		225			25
Investment in short term time deposits		(1,004	)		-
Purchases of Federal Home Loan Bank of Boston stock		(611	)		(569	)
Proceeds from sales of other real estate owned		576			1,568
Net loan originations and principal repayments		(43,545	)		(59,784	)
Proceeds from sales of loans		1,881			-
Purchases of property and equipment		(298	)		(652	)
Cash paid to acquire Levine Financial Group		(55	)		(100	)
Net cash used in investing activities		(14,883	)		(48,239	)
Cash flows from financing activities:
Net increase in deposits		40,067			43,339
Proceeds of Federal Home Loan Bank of Boston advances		53,000			65,307
Repayments of Federal Home Loan Bank of Boston advances		(80,287	)		(52,197	)
Net decrease in repurchase agreements		(2,435	)		(1,625	)
Net decrease in escrow funds held for borrowers		(8	)		(165	)
Treasury stock purchases		(1,209	)		-
Cash dividends paid		(881	)		(741	)
Payments on capitalized lease obligation		(85	)		-
Net cash provided by financing activities		8,162			53,918
(Decrease) increase in cash and cash equivalents		(4,858	)		8,135
Cash and cash equivalents at beginning of period		25,419			15,843
Cash and cash equivalents at end of  period	$	20,561		$	23,978
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period:
Interest on deposits, borrowings and other interest bearing liabilities	$	14,854		$	11,143
Income taxes – net		2,463			867
Non-cash item:
Capitalized lease asset and obligation	$	1,932		$	-

See notes to unaudited consolidated financial statements.

4

UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

Dollars in Thousands (except per share amounts)

NOTE A – BASIS OF PRESENTATION

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

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with general practices within the banking industry. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which are necessary for the fair presentation of the Company’s financial condition as of June 30, 2007 and the results of operations for the three and six months ended June 30, 2007 and 2006. The interim results of operations presented herein are not necessarily indicative of the results to be expected for the entire year. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2006 included in the Company’s Annual Report on Form 10-K, which was filed by the Company with the Securities and Exchange Commission.

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

NOTE B – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2006, the Financial Accounting Standards Board (“FASB”) released FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the accounting and reporting for income taxes where interpretation of the tax law may be uncertain. FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of income tax uncertainties with respect to positions taken or expected to be taken in income tax returns. The cumulative effect, if any, of applying FIN 48 is recorded as an adjustment to the beginning balance of retained earnings. FIN 48 also requires disclosure of the entity’s policy on classification of interest and penalties. The Company adopted FIN 48 on January 1, 2007. The adoption of this standard had no material effect on the Company’s results of operations or financial condition. The Company’s policy is to report interest and penalties as part of other non-interest expenses in the Consolidated Statement of Operations.

In June 2006, the EITF released Issue 06-05, “Accounting for Purchases of Life Insurance-Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, “Accounting for Purchases of Life Insurance”. On September 7, 2006, the EITF concluded that a policyholder should consider any additional amounts included in the contractual terms of the policy in determining the amount that could be realized under the insurance contract. Amounts that are recoverable by the policyholder at the discretion of the insurance company should be excluded from the amount that could be realized. Amounts that are recoverable by the policyholder in periods beyond one year from the surrender of the policy should be discounted utilizing an appropriate rate of interest. The Company adopted EITF 06-05 on January 1, 2007. The Company’s implementation of this Interpretation had no material effect on its results of operations or financial condition.

5

NOTE C – CRITICAL ACCOUNTING POLICIES

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

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

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

NOTE D – EARNINGS PER SHARE

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

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Net income	$	978	$	1,290	$	1,812	$	2,645
Weighted average common shares applicable to
basic EPS		16,226,449		16,608,783		16,249,929		16,604,775
Effect of dilutive potential common shares (1, 2)		83,428		-		71,465		-
Weighted average common shares applicable to
diluted EPS		16,309,877		16,608,783		16,321,394		16,604,775
Earnings per share:
Basic	$	0.06	$	0.08	$	0.11	$	0.16
Diluted	$	0.06	$	0.08	$	0.11	$	0.16

(1)    For the three and six months ended June 30, 2007, options to purchase 739,500 shares were outstanding but not included in the computation of earnings per share because they were antidilutive.

(2)    Includes incremental shares related to stock options and restricted stock.

6

NOTE E – LOANS

The components of loans were as follows at June 30, 2007 and December 31, 2006:

	June 30,			December 31,
	2007			2006
One-to-four family residential real estate	$	329,199		$	319,108
Commercial real estate		198,938			175,564
Construction		52,191			54,759
Home equity loans		116,939			112,739
Commercial and industrial		75,544			69,762
Consumer		30,751			30,181
Total loans		803,562			762,113
Net deferred loan costs and fees		1,395			1,285
Allowance for loan losses		(7,721	)		(7,218	)
Loans, net	$	797,236		$	756,180

NOTE F – NON-PERFORMING ASSETS

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

	At June 30,			At December 31,
	2007			2006
Non-accrual loans:
Residential mortgages	$	268		$	-
Commercial mortgages		2,384			1,144
Home equity		52			20
Commercial and industrial		268			123
Other consumer		-			1
Total non-accrual loans		2,972			1,288
Accruing loans 90 days or more past due		-			-
Total non-performing loans		2,972			1,288
Other real estate owned		-			562
Total non-performing assets	$	2,972		$	1,850
Ratios:
Total non-performing loans to total loans		0.37	%		0.17	%
Total non-performing assets to total assets		0.29	%		0.18	%
Allowance for loan losses to non-performing loans		259.79	%		560.40	%

7

NOTE G – ALLOWANCE FOR LOAN LOSSES

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

 

	For the Six Months Ended June 30,
	2007			2006
Balance at beginning of period	$	7,218		$	6,382
Provision for loan losses		604			462
Charge-offs		(107	)		(58	)
Recoveries		6			39
Balance at end of period	$	7,721		$	6,825
Ratios:
Net charge-offs to average loans
outstanding		0.03	%		0.01	%
Allowance for loan losses to non-performing
loans at end of period		259.79	%		294.82	%
Allowance for loan losses to total
loans at end of period		0.96	%		0.98	%

NOTE H – COMMITMENTS

Financial instruments with off-balance sheet risk at June 30, 2007 and December 31, 2006 were as follows:

	June 30,		December 31,
	2007		2006
Unused lines of credit	$	142,173	$	135,374
Amounts due mortgagors		36,525		34,742
Standby letters of credit		973		879
Commitments to originate loans		23,977		42,551

8

NOTE I – DEPOSITS

Deposit accounts, by type, are summarized as follows at June 30, 2007 and December 31, 2006:

	June 30,		December 31,
	2007		2006
Demand	$	104,773	$	97,190
NOW		42,258		37,523
Regular savings		63,431		65,475
Money market		176,633		165,984
Certificates of deposit		338,658		319,514
	$	725,753	$	685,686

NOTE J – CONTINGENCIES

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

NOTE K – SECOND STAGE CONVERSION

On June 29, 2007 the Company filed a Form S-1 Registration Statement with the Securities and Exchange Commission in connection with the previously announced mutual-to-stock conversion of United Mutual Holding Company. The transaction is subject to the approvals of regulators, depositors and shareholders, and is expected to close in the fourth quarter of 2007.

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

Forward-Looking Statements

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

9

Comparison of Financial Condition at June 30, 2007 and December 31, 2006

Total assets increased $13.3 million, or 1.3%, to $1.0 billion at June 30, 2007, due in large part to strong growth in net loans. Net loans increased $41.1 million, or 5.4%, to $797.2 million at June 30, 2007 from $756.2 million at December 31, 2006.  Loan growth reflected a sound local economy, a resilient real estate market, continued demand in our primary market areas for our products and successful business development efforts. The increase in loans was also attributable to the Company’s practice of originating a significant portion of residential loans for investment. The increases were offset to some extent by a decrease in securities available for sale of $29.1 million, or 15.3%, to $161.2 million at June 30, 2007 from $190.2 million at December 31, 2006 due to sales, calls and maturities of certain debt instruments and repayments of mortgage-backed securities, partially offset by purchases of mortgage-backed securities. The cash flows from investment securities were used to pay down short-term Federal Home Loan Bank advances. Cash and cash equivalents decreased $4.9 million to $20.6 million at June 30, 2007 reflecting the use of interest-bearing deposits to pay down short-term Federal Home Loan Bank advances.

The growth in loans was funded by an increase in total deposits of $40.1 million, or 5.8%, to $725.8 million at June 30, 2007 from $685.7 million at December 31, 2006. Deposit growth was evident in all categories excluding savings accounts, with increases of 9.1% in transaction accounts, 6.4% in money market accounts and 6.0% in certificates of deposit. These results were mainly attributable to the December 2006 opening of our second branch in Westfield, Massachusetts, the introduction of new products and services, competitive pricing and targeted promotional activities. Savings account balances decreased $2.0 million, or 3.1%, as customers continued to transfer balances to higher yielding money market and certificate of deposit accounts. Core deposits increased $20.9 million, or 5.7%, to $387.1 million, or 53.3% of deposits at June 30, 2007. Federal Home Loan Bank advances decreased $27.3 million, or 16.1%, to $142.5 million at June 30, 2007 from $169.8 million at December 31, 2006 due to repayment of higher cost short-term advances. Repurchase agreements decreased $2.4 million, or 23.4%, to $8.0 million at June 30, 2007 from $10.4 million at December 31, 2006, reflecting routine fluctuations in these overnight accounts.

Total stockholders’ equity increased $885,000, or 0.6%, to $138.6 million at June 30, 2007 from $137.7 million at December 31, 2006 as a result of net income of $1.8 million for the six months ended June 30, 2007, stock-based compensation totaling $1.1 million and ESOP compensation expense of $325,000. These items were partially offset by share repurchases totaling $1.2 million, payments of cash dividends amounting to $881,000, and an increase of $239,000 in the net unrealized loss on securities available for sale.

Comparison of Operating Results for the Three Months Ended June 30, 2007 and 2006

Overview

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

10

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

Net Income.  The Company’s net income was $978,000, or $0.06 per diluted share, for the second quarter of 2007 compared to net income of $1.3 million, or $0.08 per diluted share, for the same period in 2006. The Company’s lower net income and earnings per share were due in large part to net interest margin contraction, increased non-interest expenses and a higher effective tax rate in 2007 compared to 2006, partially offset by growth in average interest-earning assets and core deposits.

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

11

	Three Months Ended June 30,
	2007							2006
			Interest							Interest
	Average		and		Yield/			Average		and		Yield/
	Balance		Dividends		Cost			Balance		Dividends		Cost
	(Dollars in thousands)
Interest-earning assets:
Loans:
Residential real estate	$	340,716	$	4,809		5.65	%	$	300,282	$	4,189		5.58	%
Commercial real estate		236,840		3,898		6.58	%		181,412		2,882		6.35	%
Home equity loans		118,140		1,938		6.56	%		96,529		1,542		6.39	%
Commercial and industrial		71,990		1,323		7.35	%		62,586		1,126		7.20	%
Consumer and other		30,065		382		5.08	%		28,599		337		4.71	%
Total loans		797,751		12,350		6.19	%		669,408		10,076		6.02	%
Investment securities		166,163		1,854		4.46	%		220,844		2,261		4.10	%
Other interest-earning assets		21,605		309		5.72	%		24,475		288		4.71	%
Total interest-earning assets		985,519		14,513		5.89	%		914,727		12,625		5.52	%
Noninterest-earning assets		32,990							30,540
Total assets	$	1,018,509						$	945,267
Interest-bearing liabilities:
Savings accounts	$	65,304		149		0.91	%	$	81,625		169		0.83	%
Money market accounts		180,940		1,442		3.19	%		160,432		1,255		3.13	%
NOW accounts		34,959		47		0.54	%		35,753		23		0.26	%
Certificates of deposit		335,626		3,839		4.58	%		316,150		3,217		4.07	%
Total interest-bearing deposits		616,829		5,477		3.55	%		593,960		4,664		3.14	%
FHLB advances		149,853		1,779		4.75	%		111,316		1,122		4.03	%
Other interest-bearing liabilities		10,997		122		4.44	%		6,898		74		4.29	%
Total interest-bearing liabilities		777,679		7,378		3.79	%		712,174		5,860		3.29	%
Demand deposits		98,343							92,671
Other noninterest-bearing liabilities		3,591							2,782
Total liabilities		879,613							807,627
Stockholders' equity		138,896							137,640
Total liabilities and stockholders' equity	$	1,018,509						$	945,267
Net interest income			$	7,135						$	6,765
Interest rate spread(1)						2.10	%						2.23	%
Net interest-earning assets(2)	$	207,840						$	202,553
Net interest margin(3)						2.90	%						2.96	%
Average interest-earning assets to
average interest-bearing liabilities						126.73	%						128.44	%

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

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

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

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

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	Three Months Ended June 30
	2007 vs. 2006
	Increase (Decrease) Due to
	Volume			Rate			Net
	(In thousands)
Interest-earning assets:
Loans:
Residential real estate	$	570		$	50		$	620
Commercial real estate		910			106			1,016
Home equity loans		353			43			396
Commercial and industrial		173			24			197
Consumer and other		17			28			45
Total loans		2,023			251			2,274
Investment securities		(597	)		190			(407	)
Other interest-earning assets		(36	)		57			21
Total interest-earning assets		1,390			498			1,888
Interest-bearing liabilities:
Savings accounts		(36	)		16			(20	)
Money market accounts		163			24			187
NOW accounts		(1	)		25			24
Certificates of deposit		206			416			622
Total interest-bearing deposits		332			481			813
FHLB advances		434			223			657
Other interest-bearing liabilities		46			2			48
Total interest-bearing liabilities		812			706			1,518
Change in net interest income	$	578		$	(208	)	$	370

Net Interest Income Before Provision for Loan Losses.  Net interest income before provision for loan losses increased $370,000, or 5.5%, to $7.1 million for the three months ended June 30, 2007, reflecting growth in average earning assets, partially offset by net interest margin compression.   Net interest margin contracted 6 basis points to 2.90% for the three-month period ended June 30, 2007 compared to 2.96% for the same period in 2006. Net interest margin was affected by the flat yield curve, the increasingly competitive pricing conditions for loans and deposits and a shift in deposit demand towards higher-yielding money market and time deposit accounts.

Interest Income.  Interest income increased $1.9 million, or 15.0%, to $14.5 million for the three months ended June 30, 2007 from $12.6 million for the prior year period reflecting expansion in total average interest-earning asset balances and an increase in the yield on average interest-earning assets. Total average interest-earning asset balances increased $70.8 million, or 7.7%, to $985.5 million for the three months ended June 30, 2007 due in large part to strong loan growth, funded largely by deposit growth and cash flows from the investment securities portfolio. Total average loans increased $128.3 million, or 19.2%, to $797.8 million for the second quarter of 2007 as a result of origination activity, partially offset by prepayments and normal amortization. Total average investment securities decreased by $54.7 million, or 24.8%, to $166.2 million due to maturities, calls, sales and principal repayments of existing securities, partially offset by purchases of bonds. The yield on average interest-earning assets increased 37 basis points to 5.89% for the second quarter of 2007 in connection with the higher interest rate environment and the use of cash flows from the investment portfolio to fund higher yielding loans. The increase in market rates contributed to the repricing of a portion of the Company’s existing assets and to higher rates for new assets. Since a significant amount of the Company’s average interest-earning assets are fixed rate and the impact of Federal Reserve Board actions was less pronounced on the long end of the yield curve, the effect of the expansion in market rates was limited.

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Interest Expense.  Interest expense increased $1.5 million, or 25.9%, to $7.4 million for the three months ended June 30, 2007 from $5.9 million for the prior year period due to an increase in the rate paid for interest-bearing liabilities and an increase in the average balance of such liabilities. The average rate paid on interest-bearing liabilities rose 50 basis points to 3.79% for the three months ended June 30, 2007 reflecting the impact of higher market rates related to interest rate increases initiated by the Federal Reserve Board and the competitive rate environment for deposits. Since a large portion of the Company’s interest-bearing liabilities are short-term, the impact of the increase in market rates was significant.  Average interest-bearing liabilities increased $65.5 million, or 9.2%, to $777.7 million for the three months ended June 30, 2007 from $712.2 million for the prior year period reflecting growth in interest-bearing deposits and FHLB advances. Total average interest-bearing deposits increased $22.9 million, or 3.9%, to $616.8 million for the second quarter of 2007 mainly attributable to an increase in money market and certificate of deposit balances, partially offset by a reduction in savings deposits.  The decline in savings account balances reflected a shift in deposit demand towards money market and certificate of deposit products to take advantage of more attractive rates. Total average FHLB advances increased $38.5 million, or 34.6%, to $149.9 million to support loan growth.

Provision for Loan Losses. The provision for loan losses was $320,000 for the three months ended June 30, 2007 as compared to $300,000 for the three months ended June 30, 2006. The allowance for loan losses is based on management’s estimate of the probable losses inherent in the portfolio, considering the impact of certain factors.  Among the factors management may consider are prior loss experience, current economic conditions and their effect on borrowers, the character and size of the portfolio, trends in nonperforming loans and delinquency rates and the performance of individual loans in relation to contractual terms. The provision for loan losses reflects adjustments to the allowance based on management’s review of the loan portfolio in light of those conditions. The allowance for loan losses was $7.7 million, or 0.96%, of loans outstanding at June 30, 2007.

Non-interest Income.  Non-interest income decreased $8,000, or 0.6%, to $1.4 million for the three months ended June 30, 2007 due to losses of $43,000 from the sale of lower yielding available-for-sale securities in the second quarter of 2007, partially offset by growth in fee income on deposit and wealth management accounts. Fee income on deposit accounts rose $60,000, or 5.8%, as a result of growth in transaction account balances and activity. Wealth management income expanded $34,000, or 25.0%, as a result of new accounts opened due to successful business development efforts and the acquisition of the Levine Financial Group in March 2006.

Non-interest Expense.  Non-interest expense increased $738,000, or 12.6%, to $6.6 million for the three months ended June 30, 2007 from $5.8 million for the prior year period primarily reflecting increases in salaries and benefits and occupancy. Total salaries and benefits increased $605,000, or 19.3% mainly due to stock-based compensation associated with restricted stock and stock options granted in August 2006 and staffing costs for the two new branches opened in 2006. Occupancy costs grew $71,000, or 17.3%, principally attributable to the two new branches opened in 2006.

Income Tax Expense.Income tax expense decreased $83,000 to $697,000 for three months ended June 30, 2007 from $780,000 for the comparable 2006 period.  This decrease was mainly due to lower income before income taxes, somewhat offset by an increase in the effective tax rate to 41.6% for the second quarter of 2007 compared to 37.7% for the same period last year. The higher effective tax rate was principally due to the disallowed deduction for stock-based compensation associated with incentive stock options.

14

Comparison of Operating Results for the Six Months Ended June 30, 2007 and 2006

Net Income.  The Company’s net income for the six months ended June 30, 2007 amounted to $1.8 million, or $0.11 per diluted share, compared to $2.6 million, or $0.16 per diluted share, for the same period in 2006.  The Company’s lower net income and earnings per share were due in large part to net interest margin contraction, increased provision for loan losses and non-interest expenses as well as a higher effective tax rate in the 2007 period. These items were partially offset by growth in average earning assets and expansion in non-interest income.

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

15

	Six Months Ended June 30,
	2007							2006
			Interest							Interest
	Average		and		Yield/			Average		and		Yield/
	Balance		Dividends		Cost			Balance		Dividends		Cost
	(Dollars in thousands)
Interest-earning assets:
Loans:
Residential real estate	$	338,814	$	9,555		5.64	%	$	298,182	$	8,272		5.55	%
Commercial real estate		231,046		7,601		6.58	%		175,528		5,662		6.45	%
Home equity loans		116,934		3,812		6.52	%		92,943		2,937		6.32	%
Commercial and industrial		70,363		2,581		7.34	%		60,887		2,145		7.05	%
Consumer and other		29,929		756		5.05	%		27,658		660		4.77	%
Total loans		787,086		24,305		6.18	%		655,198		19,676		6.01	%
Investment securities		173,287		3,836		4.43	%		224,091		4,566		4.08	%
Other interest-earning assets		24,944		684		5.48	%		23,251		529		4.55	%
Total interest-earning assets		985,317		28,825		5.85	%		902,540		24,771		5.49	%
Noninterest-earning assets		32,128							30,737
Total assets	$	1,017,445						$	933,277
Interest-bearing liabilities:
Savings accounts	$	65,114		289		0.89	%	$	83,230		344		0.83	%
Money market accounts		177,586		2,799		3.15	%		160,974		2,437		3.03	%
NOW accounts		34,547		91		0.53	%		35,607		44		0.25	%
Certificates of deposit		329,837		7,479		4.53	%		301,664		5,881		3.90	%
Total interest-bearing deposits		607,084		10,658		3.51	%		581,475		8,706		2.99	%
FHLB advances		160,232		3,802		4.75	%		111,975		2,240		4.00	%
Other interest-bearing liabilities		11,812		274		4.64	%		7,882		153		3.88	%
Total interest-bearing liabilities		779,128		14,734		3.78	%		701,332		11,099		3.17	%
Demand deposits		96,333							91,182
Other noninterest-bearing liabilities		3,386							3,059
Total liabilities		878,847							795,573
Stockholders' equity		138,598							137,704
Total liabilities and stockholders' equity	$	1,017,445						$	933,277
Net interest income			$	14,091						$	13,672
Interest rate spread(1)						2.07	%						2.32	%
Net interest-earning assets(2)	$	206,189						$	201,208
Net interest margin(3)						2.86	%						3.03	%
Average interest-bearing assets to
average interest-bearing liabilities						126.46	%						128.69	%

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

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

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

Rate/Volume Analysis

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

16

	Six Months Ended June 30
	2007 vs. 2006
	Increase (Decrease) Due to
	Volume			Rate			Net
	(In thousands)
Interest-earning assets:
Loans:
Residential real estate	$	1,144		$	139		$	1,283
Commercial real estate		1,825			114			1,939
Home equity loans		779			96			875
Commercial and industrial		345			91			436
Consumer and other		56			40			96
Total loans		4,149			480			4,629
Investment securities		(1,099	)		369			(730	)
Other interest-earning assets		41			114			155
Total interest-earning assets		3,091			963			4,054
Interest-bearing liabilities:
Savings accounts		(79	)		24			(55	)
Money market accounts		258			104			362
NOW accounts		(1	)		48			47
Certificates of deposit		582			1,016			1,598
Total interest-bearing deposits		760			1,192			1,952
FHLB advances		1,091			471			1,562
Other interest-bearing liabilities		87			34			121
Total interest-bearing liabilities		1,938			1,697			3,635
Change in net interest income	$	1,153		$	(734	)	$	419

Net Interest Income Before Provision for Loan Losses.  Net interest income before provision for loan losses increased $419,000, or 3.1%, to $14.1 million for the six months ended June 30, 2007 from $13.7 million for the comparable 2006 period reflecting growth in average earning assets, substantially offset by net interest margin compression. Net interest margin contracted 17 basis points to 2.86% for the six-month period ended June 30, 2007 compared to 3.03% for the same period in 2006.  Net interest margin was affected by the flat yield curve, the increasingly competitive pricing conditions for loans and deposits and a shift in deposit demand towards higher-yielding money market and time deposit accounts.

Interest Income.  Interest income increased $4.1 million, or 16.4%, to $28.8 million for the six months ended June 30, 2007 from $24.8 million for the prior year period reflecting expansion in total average interest-earning asset balances and an increase in the yield on average interest-earning assets. Total average interest-earning asset balances increased $82.8 million, or 9.2%, to $985.3 million for the six months ended June 30, 2007 due in large part to strong loan growth, funded largely by deposit growth and cash flows from the investment securities portfolio. Total average loans increased $131.9 million, or 20.1%, to $787.1 million for the first six months of 2007 as a result of origination activity, partially offset by prepayments and normal amortization. Total average investment securities decreased by $50.8 million, or 22.7%, to $173.3 million primarily due to maturities, calls, sales and amortization of existing securities, partially offset by purchases of bonds. The yield on average interest-earning assets increased 36 basis points to 5.85% for the six months ended June 30, 2007 in connection with the higher interest rate environment and the use of cash flows from the investment portfolio to fund higher yielding loans. The increase in market rates contributed to the repricing of a portion of the Company’s existing assets and to increased rates for new assets.  Since a significant amount of the Company’s average interest earning assets are fixed rate and the impact of Federal Reserve Board actions was less pronounced on the long end of the yield curve, the effect of the expansion in market rates was limited.

17

Interest Expense.  Interest expense increased $3.6 million, or 32.8%, to $14.7 million for the six months ended June 30, 2007 from $11.1 million for the prior year period due to an expansion in average interest-bearing liabilities and an increase in the rate paid for such liabilities. Average interest-bearing liabilities increased $77.8 million, or 11.1%, to $779.1 million for the six months ended June 30, 2007 reflecting growth in interest-bearing deposits and FHLB advances. Total average interest-bearing deposits increased $25.6 million, or 4.4%, to $607.1 million for the first six months of 2007 mainly attributable to growth in money market and certificate of deposit balances, partially offset by a reduction in savings balances. The decline in savings deposits was mainly attributable to a shift in market demand to money market and certificate of deposit products to take advantage of more attractive rates. Total average FHLB advances increased $48.3 million, or 43.1%, to $160.2 million to support loan growth. The average rate paid on interest-bearing liabilities rose 61 basis points to 3.78% for the six months ended June 30, 2007 reflecting interest rate increases initiated by the Federal Reserve Board. Since a large portion of the Company’s interest-bearing liabilities are short-term, the impact of the expansion in market rates was significant.

Provision for Loan Losses.The provision for loan losses was $604,000 for the six months ended June 30, 2007 as compared to $462,000 for the same period in 2006 reflecting an increase in reserves for classified loans and higher net charge-offs.The allowance for loan losses was $7.7 million, or 0.96%, of loans outstanding at June 30, 2007.

Non-interest Income.  Non-interest income increased $134,000, or 5.0%, to $2.8 million for the six months ended June 30, 2007 reflecting growth in fee income on depositors’ accounts and wealth management accounts. Fee income on depositors’ accounts rose $153,000, or 7.7%, as a result of growth in transaction account balances and activity.  Wealth management income increased $98,000, or 50.8%, as a result of new accounts opened due to successful business development efforts and the acquisition of the Levine Financial Group in March 2006.

Non-interest Expense.  Non-interest expense increased $1.6 million, or 13.9%, to $13.2 million for the six months ended June 30, 2007 from $11.6 million for the prior year period. Total salaries and benefits increased $1.4 million, or 23.0%, mainly due to stock-based compensation associated with restricted stock and stock options granted in August 2006 and staffing costs for the two new branches opened in 2006. Occupancy costs grew $159,000, or 19.6%, principally attributable to the two new branches opened in 2006. Data processing costs expanded $105,000, or 8.8%, reflecting a larger loan and deposit base and new branches opened in 2006. Professional services increased $173,000, or 36.1%, as a result of costs incurred in connection with Sarbanes Oxley Section 404 compliance and a comprehensive review of the Company’s employee benefits package.

Income Tax Expense.Income tax expense decreased $367,000 to $1.3 million for six months ended June 30, 2007 from $1.7 million for the comparable 2006 period. This decrease was mainly due to lower income before income taxes, somewhat offset by an increase in the effective tax rate to 41.5% for the six months ended June 30, 2007 compared to 38.5% for the same period last year. The higher effective tax rate was principally due to the disallowed deduction for stock-based compensation associated with incentive stock options.

18

Market Risk, Liquidity and Capital Resources

Market Risk

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

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

Net interest income at-risk measures the risk of a decline in earnings due to potential short-term and long term changes in interest rates. The table below represents an analysis of our IRR as measured by the estimated changes in NII, resulting from an instantaneous and sustained parallel shift in the yield curve (+200 and -200 basis points) at June 30, 2007 and December 31, 2006.

Net Interest Income At-Risk
	Estimated Increase	Estimated Increase
Change in Interest Rates	(Decrease) in NII	(Decrease) in NII
(Basis Points)	(June 30, 2007)	(December 31, 2006)
-200	6.0%	12.1%
Stable	0.0%	0.0%
+200	(7.5)%	(10.9)%

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

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Liquidity

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments and maturities and cash flows from the investment portfolio. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs of our customers as well as unanticipated contingencies. We seek to maintain a liquidity ratio of 10% or greater. At June 30, 2007 our liquidity ratio was 21.16%, compared to 27.01% at December 31, 2006.

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

Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At June 30, 2007, cash and cash equivalents totaled $20.6 million.  Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $161.2 million at June 30, 2007.

At June 30, 2007, we had $24.0 million in loan commitments outstanding. In addition to commitments to originate loans, we had $142.2 million in unused lines of credit to borrowers. Certificates of deposit due within one year of June 30, 2007 totaled $302.3 million, or 41.7% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and Federal Home Loan Bank advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before June 30, 2008. We believe however, based on past experience, that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Capital Resources

United Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At June 30, 2007, the Bank exceeded all regulatory capital requirements. United Bank is considered “well capitalized” under regulatory requirements.

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As of June 30, 2007:
Total risk-based capital	15.48	%
Tier 1 risk-based capital	14.44	%
Tier 1 leverage capital	10.79	%
As of December 31, 2006:
Total risk-based capital	15.86	%
Tier 1 risk-based capital	14.83	%
Tier 1 leverage capital	10.82	%

Off-Balance Sheet Arrangements

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

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk

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

ITEM 4.  Controls and Procedures

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

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

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PART II.  OTHER INFORMATION

ITEM 1.   Legal Proceedings

At June 30, 2007, the Company was not involved in any legal proceedings, the outcome of which would be material to the Company’s financial condition or results of operations.

ITEM 1A.  Risk Factors

As of June 30, 2007, there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2006.

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

 (a) No Company unregistered securities were sold by the Company during the quarter ended June 30, 2007.

 (b) Not applicable

 (c) The following table provides certain information with regard to shares repurchased by the Company in the second quarter of 2007.

					(c)		(d)
					Total Number of		Maximum Number
					Shares		(or Approximate
	(a)		(b)		(or Units)		Dollar Value) of
	Total Number		Average Price		Purchased as Part		Shares (or Units) that
	of Shares		Paid Per		of Publicly		May Yet Be
	(or Units)		Share		Announced Plans		Purchased Under the
Period	Purchased		(or Unit)		or Programs		Plans or Programs
April 1 - 30, 2007		21,068	$	14.86		21,068		776,571
May 1 - 31, 2007		3,213		14.80		3,213		773,358
June 1 - 30, 2007		-		-		-		773,358
Total		24,281	$	14.85		24,281	N/A

ITEM 3.   Defaults Upon Senior Securities

Not applicable.

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

	The annual meeting of the stockholders of the Company was held on April 19, 2007.
1.	The following individuals were elected as directors, each for a three-year term by the following vote:
		FOR	WITHHELD
	Michael F. Crowley	15,755,457	164,217
	Carol Moore Cutting	15,743,047	176,627
	Carol A. Leary	15,747,153	172,521
	The terms of office of the following directors continued after the annual meeting of stockholders:
		TERM EXPIRING
	Richard B. Collins	2008
	G. Todd Marchant	2008
	Michael F. Werenski	2008
	Kevin E. Ross	2009
	Robert A. Stewart, Jr.	2009
	Thomas H. Themistos	2009
2.	The appointment of Grant Thornton LLP as independent registered public accounting firm for the fiscal year ending December 31, 2007 was ratified by the stockholders by the following vote:
	FOR	AGAINST	ABSTENTIONS
	15,835,491	66,411	17,772

ITEM 5.Other Information

Not applicable.

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ITEM 6.	Exhibits.
3.1	Charter of United Financial Bancorp, Inc., as amended (1)
3.2	Resolution and Consent of Sole Stockholder Amending the Charter of United Financial Bancorp, Inc. (1)
3.3	Bylaws of United Financial Bancorp, Inc. (3)
4	Form of Common Stock Certificate of United Financial Bancorp, Inc. (1)
10.1	Form of Employee Stock Ownership Plan (1)
10.2	Executive Supplemental Compensation Agreement by and between United Bank and Richard B. Collins (1)
10.3	Executive Supplemental Compensation Agreement by and between United Bank and Keith E. Harvey (1)
10.4	Executive Supplemental Compensation Agreement by and between United Bank and John J. Patterson (1)
10.5	United Bank 2004 and 2005 Incentive Plans (1)
10.9	Directors Fee Continuation Plan (1)
10.10	Form of Employment Agreement by and between United Bank and Richard B. Collins (1)
10.11	Form of Change in Control Agreement by and between United Bank and certain executive officers (1)
10.12	United Bank 2006 Stock-Based Incentive Plan (2)
11	Statement Regarding Computation of Per Share Earnings (refer to Note D of Part I,
	Item 1- Consolidated Financial Statements)
21	Subsidiaries of Registrant (1)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(1)	Incorporated by reference to the Registration Statement on Form S-1 of United Financial Bancorp, Inc. (file no. 333-123371), originally filed with the Securities and Exchange Commission on March 16, 2005.
(2)	Incorporated by reference to Appendix B of the Registrant’s definitive Proxy Statement for the Company’s 2006 Annual Meeting filed with the Securities and Exchange Commission on June 12, 2006.
(3)	Incorporated by reference to the Registrant’s Form 10-Q filed with the Securities and Exchange Commission on May 9, 2007.

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SIGNATURES

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

	United Financial Bancorp, Inc.
Date: August 8, 2007	By:	/s/ Richard B. Collins
		Richard B. Collins
		Chairman, President and Chief Executive Officer
Date: August 8, 2007	By:	/s/ Mark A. Roberts
		Mark A. Roberts
		Executive Vice President and Chief Financial Officer

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