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, 2008
 
 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 000-1405049
 
 United Financial Bancorp,
Inc.
 (Exact
name of registrant as specified in its charter)
 
 Maryland
              74-3242562(State
      or other jurisdiction of
              (I.R.S.
      Employerincorporation
      or organization)
              Identification
      Number)
 
 95 Elm Street, West
Springfield, Massachusetts 01089
 (Address
of principal executive offices)
 
 Registrant's
telephone number, including area code: (413)
787-1700
 
 Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.   Yes x   No
 ̈.
 
 Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “accelerated filer”, “large accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 Large
      accelerated filer  ̈
              Accelerated
      filer x
              Non-accelerated
      filer  ̈
              Smaller
      reporting company  ̈
 
 Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).   Yes  ̈   No
x.
 
 Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
  Common
stock, $0.01 par value
 17,763,747
shares outstanding as of August 8, 2008
  
  
 United
Financial Bancorp, Inc.
 
 INDEXPagePART I. FINANCIAL INFORMATIONItem 1
              Consolidated Financial Statements
    (unaudited)Consolidated
      Statements of ConditionJune 30, 2008 and December 31,
      2007
              1Consolidated
      Statements of EarningsThree Months and Six Months Ended June 30,
      2008 and 2007
              2Consolidated
      Statements of Stockholders’ Equity and Comprehensive IncomeSix
      Months Ended June 30, 2008 and 2007
              3Consolidated
      Statements of Cash FlowsSix Months Ended June 30, 2008 and
      2007
              4Notes to Unaudited Consolidated Financial
      Statements
              5Item
      2
              Management's
      Discussion and Analysis of Financial Conditionand Results of
      Operations
              14Item 3
              Quantitative and Qualitative Disclosures About Market
      Risk
              30Item 4
              Controls and Procedures
              30PART II. OTHER INFORMATIONItem 1
              Legal Proceedings
              30Item 1A
              Risk Factors
              30Item 2
              Unregistered Sales of Equity Securities and Use of
      Proceeds
              31Item 3
              Defaults Upon Senior Securities
              31Item 4.
              Submission of Matters to a Vote of Security
      Holders
              31Item 5.
              Other Information
              32Item 6
              Exhibits
              33SIGNATURES
              34
  Index
  
 Exhibit 31.1
              Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002
              35Exhibit 31.2
              Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002
              36Exhibit 32.1
              Statement
      of Chief Executive Officer Furnished Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
              37Exhibit 32.2
              Statement
      of Chief Financial Officer Furnished Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
              38
  Index
  PART
I.                      FINANCIAL INFORMATION
 ITEM
1.                      Consolidated Financial Statements
 
 UNITED FINANCIAL BANCORP, INC. AND SUBSIDIARY
 CONSOLIDATED
STATEMENTS OF CONDITION
 (Dollars
in thousands, except per share amounts)
  June
      30,
                
                
                December
      31,2008
                
                
                2007(unaudited)ASSETSCash
      and due from banks
                
                $
                16,499
                
                
                $
                14,219Interest-bearing
      deposits
                
                
                619
                
                
                
                35Total
      cash and cash equivalents
                
                
                17,118
                
                
                
                14,254Short-term
      investments
                
                
                1,055
                
                
                
                1,030Securities
      available for sale, at fair value
                
                
                292,684
                
                
                
                201,257Securities
      to be held to maturity, at amortized cost  (fair value $3,583
      atJune
      30, 2008 and $3,631 at December 31, 2007)
                
                
                3,603
                
                
                
                3,632Loans,
      net of allowance for loan losses of  $8,162 at June 30, 2008
      and$7,714
      at December 31, 2007
                
                
                852,157
                
                
                
                819,117Other
      real estate owned
                
                
                630
                
                
                
                880Accrued
      interest receivable
                
                
                4,624
                
                
                
                4,477Deferred
      tax asset, net
                
                
                8,765
                
                
                
                4,953Stock
      in the Federal Home Loan Bank of Boston
                
                
                10,257
                
                
                
                10,257Banking
      premises and equipment, net
                
                
                12,087
                
                
                
                10,600Bank-owned
      life insurance
                
                
                6,945
                
                
                
                6,652Other
      assets
                
                
                4,281
                
                
                
                2,172TOTAL
      ASSETS
                
                $
                1,214,206
                
                
                $
                1,079,281LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilities:Deposits:Interest-bearing
                
                $
                662,892
                
                
                $
                616,672Non-interest-bearing
                
                
                111,815
                
                
                
                102,010Total
      deposits
                
                
                774,707
                
                
                
                718,682Federal
      Home Loan Bank of Boston advances
                
                
                190,389
                
                
                
                107,997Repurchase
      agreements
                
                
                8,963
                
                
                
                13,864Escrow
      funds held for borrowers
                
                
                1,324
                
                
                
                1,356Capitalized
      lease obligations
                
                
                3,169
                
                
                
                1,890Due
      to broker
                
                
                2,829
                
                
                
                -Accrued
      expenses and other liabilities
                
                
                6,199
                
                
                
                9,372Total
      liabilities
                
                
                987,580
                
                
                
                853,161Stockholders’
      equity:Preferred
      stock, par value $0.01 per share, authorized 50,000,000
      shares;none
      issued
                
                
                -
                
                
                
                -Common
      stock, par value $0.01 per share, authorized 100,000,000
      shares;17,763,747
      shares issued at June 30, 2008 and December 31, 2007
                
                
                178
                
                
                
                178Paid-in
      capital
                
                
                166,171
                
                
                
                165,920Retained
      earnings
                
                
                74,858
                
                
                
                73,026Unearned
      compensation
                
                
                (12,486
                )
                
                
                (12,835
                )Accumulated
      other comprehensive loss, net of taxes
                
                
                (2,095
                )
                
                
                (169
                )Total
      stockholders’ equity
                
                
                226,626
                
                
                
                226,120TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                
                $
                1,214,206
                
                
                $
                1,079,281
 
 See notes
to unaudited consolidated financial statements
  1
 Index
  
 
 UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
 CONSOLIDATED
STATEMENTS OF OPERATIONS (unaudited)
 (Dollars
in thousands, except per share amounts)
 
 Three
      Months Ended
                
                
                Six
      Months EndedJune
      30,
                
                
                June
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Interest
      and dividend income:Loans
                
                $
                12,295
                
                
                $
                12,350
                
                
                $
                24,842
                
                
                $
                24,305Investments
                
                
                3,560
                
                
                
                1,850
                
                
                
                6,178
                
                
                
                3,832Other
      interest-earning assets
                
                
                118
                
                
                
                313
                
                
                
                359
                
                
                
                688Total
      interest and dividend income
                
                
                15,973
                
                
                
                14,513
                
                
                
                31,379
                
                
                
                28,825Interest
      expense:Deposits
                
                
                4,359
                
                
                
                5,477
                
                
                
                9,332
                
                
                
                10,658Borrowings
                
                
                1,706
                
                
                
                1,901
                
                
                
                3,108
                
                
                
                4,076Total
      interest expense
                
                
                6,065
                
                
                
                7,378
                
                
                
                12,440
                
                
                
                14,734Net
      interest income before provision for loan losses
                
                
                9,908
                
                
                
                7,135
                
                
                
                18,939
                
                
                
                14,091Provision
      for loan losses
                
                
                651
                
                
                
                320
                
                
                
                835
                
                
                
                604Net
      interest income after provision for loan losses
                
                
                9,257
                
                
                
                6,815
                
                
                
                18,104
                
                
                
                13,487Non-interest
      income:Fee
      income on depositors’ accounts
                
                
                1,156
                
                
                
                1,097
                
                
                
                2,233
                
                
                
                2,135Net
      (loss) gain on sale of securities
                
                
                -
                
                
                
                (43
                )
                
                
                8
                
                
                
                (29
                )Wealth
      management income
                
                
                136
                
                
                
                170
                
                
                
                286
                
                
                
                291Other
      income
                
                
                282
                
                
                
                211
                
                
                
                566
                
                
                
                436Total
      non-interest income
                
                
                1,574
                
                
                
                1,435
                
                
                
                3,093
                
                
                
                2,833Non-interest
      expense:Salaries
      and benefits
                
                
                4,199
                
                
                
                3,735
                
                
                
                8,240
                
                
                
                7,573Occupancy
      expenses
                
                
                578
                
                
                
                481
                
                
                
                1,087
                
                
                
                972Marketing
      expenses
                
                
                441
                
                
                
                449
                
                
                
                799
                
                
                
                771Data
      processing expenses
                
                
                815
                
                
                
                653
                
                
                
                1,534
                
                
                
                1,295Professional
      fees
                
                
                372
                
                
                
                263
                
                
                
                815
                
                
                
                652Other
      expenses
                
                
                1,145
                
                
                
                994
                
                
                
                2,251
                
                
                
                1,959Total
      non-interest expense
                
                
                7,550
                
                
                
                6,575
                
                
                
                14,726
                
                
                
                13,222Income
      before income taxes
                
                
                3,281
                
                
                
                1,675
                
                
                
                6,471
                
                
                
                3,098Income
      tax expense
                
                
                1,272
                
                
                
                697
                
                
                
                2,496
                
                
                
                1,286Net
      income
                
                $
                2,009
                
                
                $
                978
                
                
                $
                3,975
                
                
                $
                1,812Earnings
      per share:Basic
                
                $
                0.12
                
                
                $
                0.06
                
                
                $
                0.24
                
                
                $
                0.11Diluted
                
                $
                0.12
                
                
                $
                0.06
                
                
                $
                0.24
                
                
                $
                0.11Weighted
      average shares outstanding:Basic
                
                
                16,248,424
                
                
                
                16,888,326
                
                
                
                16,239,635
                
                
                
                16,912,764Diluted
                
                
                16,336,409
                
                
                
                16,975,157
                
                
                
                16,303,907
                
                
                
                16,987,144
 
 See notes to unaudited consolidated
financial statements.
  2
 Index
  
 UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)
 FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 and
2007
 (Dollars
in thousands, except per share amounts)
 
 AccumulatedCommon
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                OtherShares
                
                
                Common
                
                
                Paid-In
                
                
                Retained
                
                
                Unearned
                
                
                Treasury
                
                
                ComprehensiveOutstanding
                
                
                Stock
                
                
                Capital
                
                
                Earnings
                
                
                Compensation
                
                
                Stock
                
                
                Loss
                
                
                TotalBalances
      at December 31, 2006
                
                
                17,154,550
                
                
                $
                172
                
                
                $
                75,520
                
                
                $
                70,406
                
                
                $
                (5,772
                )
                
                $
                (664
                )
                
                $
                (1,951
                )
                
                $
                137,711Net
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,812
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,812Other
      comprehensive loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (239
                )
                
                
                (239
                )Total
      comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,573Cash
      dividends paid ($0.12 per share)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (881
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (881
                )Treasury
      stock purchases
                
                
                (82,697
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,209
                )
                
                
                -
                
                
                
                (1,209
                )Stock-based
      compensation
                
                
                -
                
                
                
                -
                
                
                
                1,077
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,077ESOP
      shares committed to be released
                
                
                -
                
                
                
                -
                
                
                
                103
                
                
                
                -
                
                
                
                222
                
                
                
                -
                
                
                
                -
                
                
                
                325Balances
      at June 30, 2007
                
                
                17,071,853
                
                
                $
                172
                
                
                $
                76,700
                
                
                $
                71,337
                
                
                $
                (5,550
                )
                
                $
                (1,873
                )
                
                $
                (2,190
                )
                
                $
                138,596Balances
      at December 31, 2007
                
                
                17,763,747
                
                
                $
                178
                
                
                $
                165,920
                
                
                $
                73,026
                
                
                $
                (12,835
                )
                
                $
                -
                
                
                $
                (169
                )
                
                $
                226,120Net
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                3,975
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                3,975Other
      comprehensive loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,926
                )
                
                
                (1,926
                )Total
      comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,049Net
      costs from issuance of common stockpursuant
      to second-step conversion
                
                
                -
                
                
                
                -
                
                
                
                (26
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (26
                )Repurchase
      of stock to fund the 2008 EquityIncentive
      Plan
                
                
                -
                
                
                
                -
                
                
                
                (537
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (537
                )Cash
      dividends paid ($0.13 per share)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (2,143
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (2,143
                )Stock-based
      compensation
                
                
                -
                
                
                
                -
                
                
                
                761
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                761ESOP
      shares committed to be released
                
                
                -
                
                
                
                -
                
                
                
                53
                
                
                
                -
                
                
                
                349
                
                
                
                -
                
                
                
                -
                
                
                
                402Balances
      at June 30, 2008
                
                
                17,763,747
                
                
                $
                178
                
                
                $
                166,171
                
                
                $
                74,858
                
                
                $
                (12,486
                )
                
                $
                -
                
                
                $
                (2,095
                )
                
                $
                226,626
  The
components of comprehensive loss and related tax effects are as
follows:
 
 Six
      Months Ended June 30,2008
                
                
                2007Change
      in unrealized holding losses on available-for-sale
    securities
                
                $
                (3,194
                )
                
                $
                (385
                )Reclassification
      adjustment for (gains) losses realized in income
                
                
                (8
                )
                
                
                29Net
      change in unrealized losses
                
                
                (3,202
                )
                
                
                (356
                )Tax
      effect
                
                
                (1,276
                )
                
                
                (117
                )Other
      comprehensive loss
                
                $
                (1,926
                )
                
                $
                (239
                )
 
 See notes to unaudited consolidated
financial statements.
  3
 Index
  UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (unaudited)
 FOR THE
SIX MONTHS ENDED JUNE 30, 2008 and 2007
 (Dollars
in thousands)
  2008
                
                
                2007Cash
      flows from operating activities:Net
      income
                
                $
                3,975
                
                
                $
                1,812Adjustments
      to reconcile net income to net cash provided by (used in)
      operatingactivities:Provision
      for loan losses
                
                
                835
                
                
                
                604ESOP
      expense
                
                
                402
                
                
                
                325Stock-based
      compensation
                
                
                761
                
                
                
                1,077Amortization
      of premiums and discounts
                
                
                73
                
                
                
                64Depreciation
      and amortization
                
                
                406
                
                
                
                442Amortization
      of intangible assets
                
                
                15
                
                
                
                15Net
      loss (gain) on sale of other real estate owned
                
                
                9
                
                
                
                (14
                )Net
      (gain) loss on sale of securities
                
                
                (8
                )
                
                
                29Net
      loss on sale of loans
                
                
                -
                
                
                
                5Increase
      in cash surrender value of bank-owned life insurance
                
                
                (293
                )
                
                
                (211
                )(Increase)
      decrease in accrued interest receivable
                
                
                (147
                )
                
                
                25Increase
      in other assets
                
                
                (4,660
                )
                
                
                (490
                )Decrease
      in accrued expenses and other liabilities
                
                
                (2,670
                )
                
                
                (1,820
                )Net
      cash (used in) provided by operating activities
                
                
                (1,302
                )
                
                
                1,863Cash
      flows from investing activities:Purchases
      of securities available for sale
                
                
                (167,496
                )
                
                
                (21,947
                )Proceeds
      from sales of securities available for sale
                
                
                28,407
                
                
                
                5,424Proceeds
      from maturities, calls and principal repayments of securities available
      for sale
                
                
                46,871
                
                
                
                45,146Purchases
      of securities held to maturity
                
                
                -
                
                
                
                (675
                )Proceeds
      from  maturities, calls and principal repayments of securities
      held to maturity
                
                
                25
                
                
                
                225Investment
      in short term time deposits
                
                
                (25
                )
                
                
                (1,004
                )Purchases
      of Federal Home Loan Bank of Boston stock
                
                
                -
                
                
                
                (611
                )Proceeds
      from sales of other real estate owned
                
                
                391
                
                
                
                576Net
      loan originations and principal repayments
                
                
                (34,025
                )
                
                
                (43,545
                )Proceeds
      from sales of loans
                
                
                -
                
                
                
                1,881Purchases
      of property and equipment
                
                
                (579
                )
                
                
                (298
                )Cash
      paid to acquire Levine Financial Group
                
                
                (82
                )
                
                
                (55
                )Net
      cash used in investing activities
                
                
                (126,513
                )
                
                
                (14,883
                )Cash
      flows from financing activities:Net
      increase in deposits
                
                
                56,025
                
                
                
                40,067Increase
      (decrease) in short term borrowings
                
                
                53,145
                
                
                
                (17,000
                )Proceeds
      of Federal Home Loan Bank of Boston long term advances
                
                
                45,000
                
                
                
                15,000Repayments
      of Federal Home Loan Bank of Boston long term advances
                
                
                (15,753
                )
                
                
                (25,287
                )Net
      decrease in repurchase agreements
                
                
                (4,901
                )
                
                
                (2,435
                )Net
      decrease in escrow funds held for borrowers
                
                
                (32
                )
                
                
                (8
                )Repurchases
      of common stock to fund the 2008 Equity Incentive Plan
                
                
                (537
                )
                
                
                -Treasury
      stock purchases
                
                
                -
                
                
                
                (1,209
                )Cash
      dividends paid
                
                
                (2,143
                )
                
                
                (881
                )Costs
      from issuance of common stock pursuant to second-step
      conversion
                
                
                (26
                )
                
                
                -Payments
      on capitalized lease obligations
                
                
                (99
                )
                
                
                (85
                )Net
      cash provided by financing activities
                
                
                130,679
                
                
                
                8,162Increase
      (decrease) in cash and cash equivalents
                
                
                2,864
                
                
                
                (4,858
                )Cash
      and cash equivalents at beginning of period
                
                
                14,254
                
                
                
                25,419Cash
      and cash equivalents at end of  period
                
                $
                17,118
                
                
                $
                20,561Supplemental
      Disclosure of Cash Flow Information:Cash
      paid during the period:Interest
      on deposits, borrowings and other interest bearing
    liabilities
                
                $
                12,400
                
                
                $
                14,854Income
      taxes – net
                
                
                8,330
                
                
                
                2,463Non-cash
      items:Capitalized
      lease asset and obligations
                
                $
                1,308
                
                
                $
                1,932Transfer
      of loans to other real estate owned
                
                
                150
                
                
                
                -Trade
      date accounting for securities purchased
                
                
                2,471
                
                
                
                -
  See notes to unaudited consolidated
financial statements.
  4
 Index
  UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2008
 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, 2008 and the results of operations for the three and
six months ended June 30, 2008 and 2007. 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, 2007 included in the Company’s Annual Report on Form 10-K,
which was filed by the Company with the Securities and Exchange Commission on
March 17, 2008 and amended on April 29, 2008.
 
 Amounts
reported for prior periods are reclassified as necessary to conform to the
current period presentation.
 
 NOTE
B – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 
 In
June 2006, the
EITF released Issue 06-4,“Accounting for
Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements”. EITF 06-4 addresses accounting for
split-dollar life insurance arrangements whereby the employer purchases a policy
to insure the life of an employee, and separately enters into an agreement to
split the policy benefits between the employer and the employee. This EITF
states that an obligation arises as a result of a substantive agreement with an
employee to provide future postretirement benefits. Under EITF 06-4, the
obligation is not settled upon entering into an insurance arrangement. Since the
obligation is not settled, a liability should be recognized in accordance with
applicable authoritative guidance. EITF 06-4 is effective for fiscal years
beginning after December 15, 2007. The adoption of this Interpretation as of
January 1, 2008, had no material impact on the Company’s financial condition or
results of operations.
 
 In March
2007, the FASB ratified EITF Issue No. 06-10, “Accounting for Collateral
Assignment Split-Dollar Life Insurance Agreements,” which provides guidance for
determining a liability for the postretirement benefit obligation as well as
recognition and measurement of the associated asset on the basis of the terms of
the collateral assignment agreement. EITF 06-10 is effective for fiscal years
beginning after December 15, 2007. The adoption of this Interpretation as of
January 1, 2008, had no material effect on the Company’s results of operations
or financial condition.
 
 In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS
157 defines fair value, establishes a U.S. GAAP framework for measuring fair
value, and expands financial statement disclosures about fair value
measurements. The Company adopted SFAS No.157 on January 1, 2008 (see Note L).
The adoption of this Standard had no material effect on the Company’s results of
operations or financial condition.
  5
 Index
  
 In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” ("SFAS 159"), which provides
companies with an option to report selected financial assets and liabilities at
fair value. The objective of SFAS 159 is to reduce both complexity in accounting
for financial instruments and the volatility in earnings caused by measuring
related assets and liabilities differently. SFAS 159 establishes presentation
and disclosure requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar types of assets and
liabilities and to more easily understand the effect of the company’s choice to
use fair value on its earnings. SFAS 159 also requires entities to display the
fair value of the selected assets and liabilities on the face of the balance
sheet. SFAS 159 does not eliminate disclosure requirements of other accounting
standards, including fair value measurement disclosures in SFAS 157. The Company
did not elect fair value treatment for any financial assets or liabilities upon
the adoption of this Standard at January 1, 2008.
 
 In
December 2007, the FASB issued proposed FASB Staff Position (“FSP”) 157-b,
“Effective Date of FASB Statement No. 157,” which would permit a one-year
deferral in applying the measurement provisions of SFAS No. 157 to
non-financial assets and non-financial liabilities (non-financial items) that
are not recognized or disclosed at fair value in an entity’s financial
statements on a recurring basis (at least annually). Therefore, if the change in
fair value of a non-financial item is not required to be recognized or disclosed
in the financial statements on an annual basis or more frequently, the effective
date of application of SFAS No. 157 to that item is deferred until fiscal
years beginning after November 15, 2008. This deferral would not apply,
however, to an entity that applies SFAS No. 157 in interim or annual
financial statements before proposed FSP 157-b is finalized. In February 2008,
the FASB finalized the provisions of proposed FSP 157-b, issuing FSP 157-2 as
authoritative guidance. The Company is currently evaluating the impact, if any,
that the adoption of FSP 157-2 will have on its Consolidated Financial
Statements.
 
 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.
 
 
  6
 Index
  NOTE
D – EARNINGS PER SHARE
 
 Earnings
per share have been computed in accordance with SFAS No. 128,
“Earnings Per Share.” Basic earnings per share have been calculated by
dividing net income by weighted average shares outstanding before any dilution
and are adjusted to exclude the weighted average number of unallocated shares
held by the ESOP and unvested restricted stock awards. Diluted earnings per
share have been calculated by dividing net income by weighted average shares
outstanding after giving effect to the potential dilution that could occur if
potential common shares were converted into common stock using the treasury
stock method.
 
 The
calculation of basic and diluted earnings per common share for the periods
indicated is presented below.
 
 Three
      Months Ended June 30,
                
                
                Six
      Months Ended June 30,2008
                
                
                2007
                
                
                2008
                
                
                2007Net
      income
                
                $
                2,009
                
                
                $
                978
                
                
                $
                3,975
                
                
                $
                1,812Weighted
      average common shares applicable tobasic EPS(1,
      4)
                
                
                16,248,424
                
                
                
                16,888,326
                
                
                
                16,239,635
                
                
                
                16,912,764Effect of dilutive potential
      common shares(2, 3)
                
                
                87,985
                
                
                
                86,831
                
                
                
                64,272
                
                
                
                74,380Weighted
      average common shares applicable todiluted
      EPS
                
                
                16,336,409
                
                
                
                16,975,157
                
                
                
                16,303,907
                
                
                
                16,987,144Earnings
      per share:Basic
                
                $
                0.12
                
                
                $
                0.06
                
                
                $
                0.24
                
                
                $
                0.11Diluted
                
                $
                0.12
                
                
                $
                0.06
                
                
                $
                0.24
                
                
                $
                0.11
 (1) In
      December 2007, the Company completed a second step conversion and offering
      in which each outstanding minority sharewas exchanged for 1.04079 shares and 9,564,570 shares were sold in
      a subscription and syndicate offering. All share data inprior periods have been adjusted by the exhange ratio.(2) For
      the six months ended June 30, 2008 and June 30, 2007, options to purchase
      1,557,698 and 778,510 shares, respectively,were outstanding but not included in the computation of earnings per share
      because they were antidilutive.(3) Includes
      incremental shares related to stock options and restricted
      stock.(4) Includes
      shares repurchased in June 2008 to fund the 2008 Equity Incentive
      Plan.
 
 NOTE
E – STOCK-BASED INCENTIVE PLAN
 
 The
Company’s 2008 Equity Incentive Plan (the “Incentive Plan”) was approved by the
shareholders at its Annual Meeting held on June 10, 2008. The Incentive Plan
will remain in effect for a period of ten years and authorizes the issuance of
up to 1,258,534 shares of Company common stock pursuant to grants of restricted
stock awards, restricted stock unit awards, incentive stock options,
non-statutory stock options and stock appreciation rights; provided, however,
that no more than 898,953 shares may be issued or delivered in the aggregate
pursuant to the exercise of stock options or stock appreciation rights, and no
more than 359,581 shares may be issued or delivered pursuant to restricted stock
awards or restricted stock unit awards. Employees and outside directors of the
Company are eligible to receive awards under the Incentive Plan. The holders of
restricted stock awards also have full voting rights beginning on the grant
date.  Upon the occurrence of an event constituting a change in
control of the Company, as defined in the Incentive Plan, all stock options will
become fully vested, and all stock awards then outstanding will vest free of
restrictions.
 
 Under the
Incentive Plan, stock options are granted at an exercise price equal to the fair
value of the underlying shares at the date of grant and have a contractual life
of ten years.  Stock options vest based on continued service with the
Company over the five year period following the grant date. The compensation
cost related to stock options is based upon the fair value for each option as of
the date of the grant determined using the Black-Scholes option pricing model.
The Black-Scholes model requires the Company to provide estimates of the
expected term, volatility of the underlying stock, the stock’s dividend yield
and the discount rate.
  7
 Index
  
 
 The
compensation cost related to restricted stock awards is based upon the Company’s
stock price at the grant date. Restricted stock awards vest based upon
continuous service with the Company over the five-year period following the
grant date. During the vesting period, participants are entitled to dividends
for all awards.
 
 The
Company’s 2008 Incentive Plan is described more fully in the Company’s Proxy
Statement for its 2008 Annual Meeting filed with the Securities and Exchange
Commission on April 29, 2008.
 
 A
combined summary of activity in the Company’s incentive plans for the six months
ended June 30, 2008 is presented in the following table:
 
 Stock
      Awards Outstanding
                  
                  
                  Stock
      Options OutstandingWeighted-
                  
                  
                  
                  
                  
                  Weighted-Shares
                  
                  
                  
                  
                  
                  Average
                  
                  
                  
                  
                  
                  AverageAvailable
                  
                  
                  Number
      of
                  
                  
                  Grant
                  
                  
                  Number
      of
                  
                  
                  Exercisefor
      Grant
                  
                  
                  Shares
                  
                  
                  Price
                  
                  
                  Shares
                  
                  
                  PriceBalance
      at December 31, 2007
                  
                  
                  140,850
                  
                  
                  
                  233,970
                  
                  
                  $
                  12.35
                  
                  
                  
                  785,275
                  
                  
                  $
                  12.36New
      Incentive Plan
                  
                  
                  1,258,534
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Granted
                  
                  
                  (1,068,500
                  )
                  
                  
                  313,500
                  
                  
                  
                  11.66
                  
                  
                  
                  779,500
                  
                  
                  
                  11.55Stock
      options exercised
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Shares
      vested
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Forfeited
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (7,077
                  )
                  
                  
                  11.66Cancelled
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Balance
      at June 30, 2008
                  
                  
                  330,884
                  
                  
                  
                  547,470
                  
                  
                  $
                  11.95
                  
                  
                  
                  1,557,698
                  
                  
                  $
                  11.96
  On June
19, 2008, the Company granted 755,000 stock options and 313,500 restricted
shares to certain directors and employees under the 2008 equity incentive plan.
The stock options had a weighted average fair value of $2.57 per share, with a
total grant date fair value of $1.9 million. The restricted shares had a
weighted average value of $11.66 per share, with a total grant date fair value
of $3.7 million. In 2008, the Company also granted 24,500 stock options to
certain employees. The stock options had a weighted average fair value of $2.39
and a grant date fair value of $59,000. In 2007, the Company granted 6,765 stock
options with a weighted average value of $3.21 and a total grant date fair value
of $21. No new restricted shares were granted in 2007. At June 30, 2008 the
Company has 94,725 restricted shares and 236,159 stock options available for
grant under the incentive plans.
 
 Stock-based
compensation expense totaled $761,000 during the six months ended June 30,
2008. Stock-based compensation expense is recognized ratably over the requisite
service period for all awards. Unrecognized stock-based compensation expense
related to stock options totaled $3.3 million at June 30, 2008. At such date,
the weighted-average period over which this unrecognized expense is expected to
be recognized was 3.7 years. Unrecognized stock-based compensation expense
related to non-vested stock awards was $5.5 million at June 30, 2008. At
such date, the weighted-average period over which this unrecognized expense was
expected to be recognized was 3.7 years.
 
 The
following table presents the assumptions used to compute the fair value of
options using the Black-Scholes option pricing model for stock options granted
on June 19, 2008.
  8
 Index
  Weighted
      average fair value
                
                $
                2.57Expected
      term
                
                6.50
      yearsVolatility
                
                
                19.30
                %Expected
      dividend yield
                
                
                1.88
                %Risk-free
      interest rate
                
                
                3.89
                %
  A summary
of stock options outstanding and exercisable at June 30, 2008 is as
follows:
 
 Stock
      OptionsOutstanding
                
                
                ExercisableTotal
      number of shares
                
                
                1,557,698
                
                
                
                181,962Weighted
      average exercise price
                
                $
                11.96
                
                
                $
                12.36Aggregate
      intrinsic value
                
                $
                -
                
                
                $
                -Weighted
      average remaining contractual term
                
                9.0
      years
                
                
                8.1
      years
  
 NOTE
F – LOANS
 
 The
components of loans were as follows at June 30, 2008 and December 31,
2007:
  June
      30,
                
                
                December
      31,2008
                
                
                2007One-to-four
      family residential real estate
                
                $
                357,103
                
                
                $
                339,470Commercial
      real estate
                
                
                232,669
                
                
                
                214,776Construction
                
                
                37,312
                
                
                
                42,059Home
      equity
                
                
                117,422
                
                
                
                116,241Commercial
      and industrial
                
                
                83,918
                
                
                
                81,562Automobile
                
                
                20,093
                
                
                
                22,461Consumer
                
                
                9,517
                
                
                
                8,126Total
      loans
                
                
                858,034
                
                
                
                824,695Net
      deferred loan costs and fees
                
                
                2,285
                
                
                
                2,136Allowance
      for loan losses
                
                
                (8,162
                )
                
                
                (7,714
                )Loans,
      net
                
                $
                852,157
                
                
                $
                819,117
  9
 Index
  
 NOTE
G – NON-PERFORMING ASSETS
 
 The table
below sets forth the amounts and categories of non-performing assets at the
dates indicated.
 
 June
      30,
                
                
                December
      31,2008
                
                
                2007Non-accrual
      loans:Residential
      mortgages
                
                $
                1,500
                
                
                $
                328Commercial
      mortgages
                
                
                1,404
                
                
                
                553Construction
                
                
                800
                
                
                
                577Home
      equity
                
                
                75
                
                
                
                52Commercial
      and industrial
                
                
                307
                
                
                
                275Automobile
                
                
                -
                
                
                
                -Other
      consumer
                
                
                49
                
                
                
                -Total
      non-accrual loans
                
                
                4,135
                
                
                
                1,785Accruing
      loans 90 days or more past due
                
                
                -
                
                
                
                -Total
      non-performing loans
                
                
                4,135
                
                
                
                1,785Other
      real estate owned
                
                
                630
                
                
                
                880Total
      non-performing assets
                
                $
                4,765
                
                
                $
                2,665Ratios:Total
      non-performing loans to total loans
                
                
                0.48
                %
                
                
                0.22
                %Total
      non-performing assets to total assets
                
                
                0.39
                %
                
                
                0.25
                %
 
 
 NOTE
H – ALLOWANCE FOR LOAN LOSSES
 
 A summary
of the activity in the allowance for loan losses is as follows:
 
 For
      the Six Months Ended June 30,2008
                
                
                2007Balance
      at beginning of period
                
                $
                7,714
                
                
                $
                7,218Provision
      for loan losses
                
                
                835
                
                
                
                604Charge-offs
                
                
                (397
                )
                
                
                (107
                )Recoveries
                
                
                10
                
                
                
                6Balance
      at end of period
                
                $
                8,162
                
                
                $
                7,721Ratios:Net
      charge-offs to average loansoutstanding
      (annualized)
                
                
                0.09
                %
                
                
                0.03
                %Allowance
      for loan losses to non-performingloans
      at end of period
                
                
                197.39
                %
                
                
                259.79
                %Allowance
      for loan losses to totalloans
      at end of period
                
                
                0.95
                %
                
                
                0.96
                %
  10
 Index
  
 NOTE
I – COMMITMENTS
 
 Financial
instruments with off-balance sheet risk at June 30, 2008 and December 31, 2007
were as follows:
 
 June
      30,
                
                
                December
      31,2008
                
                
                2007Unused
      lines of credit
                
                $
                150,387
                
                
                $
                146,579Amounts
      due mortgagors
                
                
                24,098
                
                
                
                31,168Standby
      letters of credit
                
                
                863
                
                
                
                1,627Commitments
      to originate loans
                
                
                10,677
                
                
                
                15,890
 
 NOTE
J – DEPOSITS
 
 Deposit accounts, by type, are
summarized as follows atJune 30, 2008and December 31,
2007:
 
 June
      30,
                
                
                December
      31,2008
                
                
                2007Demand
                
                $
                111,815
                
                
                $
                102,010NOW
                
                
                38,783
                
                
                
                35,207Regular
      savings
                
                
                88,230
                
                
                
                65,711Money
      market
                
                
                167,115
                
                
                
                168,107Certificates
      of deposit
                
                
                368,764
                
                
                
                347,647$
                774,707
                
                
                $
                718,682
 
 NOTE
K – CONTINGENCIES
  The
Company is a defendant in certain claims and legal actions arising in the
ordinary course of business. In the opinion of management, after consultation
with legal counsel, the ultimate disposition of these matters is not expected to
have a material adverse effect on the Company’s financial condition, results of
operations or cash flows.
  
  11
 Index
  NOTE  L  -
FAIR VALUES OF ASSETS AND LIABILITIES
 
 Effective
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
No. 157 (“SFAS 157”), “Fair Value Measurements”, which provides a framework for
measuring fair value under generally accepted accounting
principles.
  The
Company also adopted SFAS No. 159, “The Fair Value Option for Financial Assets
and Financial Liabilities, including an amendment of FASB Statement No. 115”.
SFAS 159 allows an entity the irrevocable option to elect fair value for the
initial and subsequent measurement for certain financial assets and liabilities
on a contract-by-contract basis. The Company did not elect fair value treatment
for any financial assets or liabilities upon adoption.
  In
accordance with SFAS 157, the Company groups its financial assets and financial
liabilities measured at fair value in three levels, based on the markets in
which the assets and liabilities are traded and the reliability of the
assumptions used to determine fair value, as follows:
  Level 1 –
Valuations for assets and liabilities traded in active exchange markets, such as
the New York Stock Exchange. Level 1 also includes U.S. Treasury and other U.S.
government and agency mortgage-backed securities that are traded by dealers or
brokers in active markets.  Valuations are obtained from readily
available pricing sources for market transactions involving identical assets or
liabilities.
  Level 2 –
Valuations for assets and liabilities traded in less active dealer or broker
markets. Valuations are obtained from third party pricing services for identical
or comparable assets or liabilities.
  Level 3 –
Valuations for assets and liabilities that are derived from other valuation
methodologies, including option pricing models, discounted cash flow models and
similar techniques, and not based on market exchange, dealer, or broker-traded
transactions.  Level 3 valuations incorporate certain assumptions and
projections in determining the fair value assigned to such assets and
liabilities.
  Assets
and liabilities measured at fair value on a recurring basis, are summarized
below:
  At
      June 30, 2008Assets/LiabilitiesLevel
      1
                
                
                Level
      2
                
                
                Level
      3
                
                
                at
      Fair ValueAssets:Securities
      available for sale
                
                $
                282,284
                
                
                $
                10,400
                
                
                $
                -
                
                
                $
                292,684Mortgage
      servicing rights
                
                
                -
                
                
                
                -
                
                
                
                129
                
                
                
                129Total
      assets
                
                $
                282,284
                
                
                $
                10,400
                
                
                $
                129
                
                
                $
                292,813
 
 The table
below presents the changes in Level 3 assets and liabilities measured at fair
value on a recurring basis.
  Balance
      as of January 1, 2008
                
                $
                136Total
      realized/unrealized gains (losses) included in net income
                
                
                (7
                )Purchases,
      sales, issuances and settlements
                
                
                -Transfers
      in and out of Level 3
                
                
                -Balance
      as of June 30, 2008
                
                $
                129
  The fair
value of a financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. If a quoted market price is available for an
instrument, the fair value to be disclosed for that instrument is the product of
the number of trading units of the instrument times that market
price.
   12
 Index
  
  Also, the
Company may be required, from time to time, to measure certain other financial
assets on a nonrecurring basis in accordance with GAAP. These adjustments to
fair value usually result from application of lower-of-cost-or-fair value
accounting or write-downs of individual assets.
  NOTE  M  -
INCOME TAXES
 
 The
Internal Revenue Service (“IRS”) commenced an examination of the Company’s 2005
and 2006 federal income tax returns in the second quarter of
2007.  During the quarter ended March 31, 2008, the IRS proposed
certain adjustments challenging the methodology used by the Company to estimate
the fair market value of its residential mortgage portfolio under Internal
Revenue Code (“IRC”) Sec. 475.
 
 The
change in fair value calculated under IRC Sec. 475 is considered a temporary
difference in the Company’s FAS109 deferred income tax calculations. In
accordance with FASB Interpretation (FIN) No. 48 “Accounting for Uncertainty in
Income Taxes”, the Company determined in the first quarter of 2008 that a
portion of the deferred tax liability related to the mark-to-market temporary
difference for residential mortgage loans should be reclassified as an uncertain
tax position. This reclassification from the Company’s previously recorded
deferred tax liability account amounted to $2.2 million and was required as, in
management’s judgment, it was no longer more likely than not that the related
tax deduction would be treated as currently deductible by the IRS upon
resolution of the examination. This reclassification had no impact on the
reported results of operations for the quarter ended March 31,
2008.  At December 31, 2007 the Company determined that it had no
uncertain tax positions.
 
 In
connection with the IRS examination, the Company remitted a $1.6 million tax
payment in the first quarter of 2008 to suspend the potential accrual of
additional interest that may result upon ultimate resolution of the fair market
value measurement issue under examination.  The Company also recorded
an interest accrual of $168,000 associated with the proposed
adjustments.  The Company reports interest and penalties associated
with tax obligations in other non-interest expense.
 
 In June
2008, the Company agreed to a settlement of the proposed adjustments with the
IRS. As a result, for tax years 2005 and 2006 the Company has a tax deficiency
of $994,000 and related interest due of $76,000. Since the Company remitted $1.6
million to the IRS in the first quarter of 2008, the Company recorded a $551,000
income tax receivable at June 30, 2008. During the second quarter of 2008, the
Company reversed $92,000 of the interest accrual amount established in the first
quarter of 2008. In conjunction with the settlement, the Company has amended its
calculation of the fair market value of its residential mortgage portfolio
beginning with the 2007 tax year.
 
 
 
  13
 Index
  
 ITEM
2.    Management’s Discussion and Analysis of
Financial Condition and Results of Operations
 
 Forward-Looking
Statements
 
 From time
to time, the Company may publish forward-looking statements relating to such
matters as anticipated financial performance, business prospects, technological
developments, new products, and similar matters.  The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements provided that the Company notes that a variety of
factors could cause the Company’s actual results to differ materially from the
anticipated results expressed in the Company’s forward-looking statements.
Factors that may cause actual results to differ materially from those projected
in the forward-looking statements include, but are not limited to, general
economic conditions that are less favorable than expected, changes in market
interest rates that result in reduced interest margins, risks in the loan
portfolio, including prepayments that are greater than expected, the enactment
of legislation or regulatory changes that have a less than favorable impact on
the business of the Company, and significant increases in competitive pressures.
Forward-looking statements speak only as of the date they are made and the
Company does not undertake to update forward-looking statements to reflect
circumstances or events that occur after the date of the forward-looking
statements or to reflect the occurrence of unanticipated events. Accordingly,
past results and trends should not be used by investors to anticipate future
results or trends.
 
 Comparison
of Financial Condition at June 30, 2008 and December 31, 2007
  Total
assets increased $134.9 million, or 12.5%, to $1.2 billion at June 30, 2008 from
$1.1 billion at December 31, 2007 reflecting growth in securities available
for sale and loans, funded by increases in both deposits ($56.0 million) and
Federal Home Loan Bank advances ($82.4 million). Securities available for sale
increased $91.4 million, or 45.4%, to $292.7 million at June 30, 2008 from
$201.3 million at December 31, 2007, due to purchases of debt securities
available for sale totaling $167.5 million, partially offset by sales, calls and
maturities of certain debt securities and repayments of mortgage-backed
securities. The significant increase in securities available for sale was due to
the implementation of a strategy to deploy excess capital. During the first half
of 2008, management purchased agency mortgage-backed securities with predictable
cash flows and attractive spreads to U.S. treasury securities. Total loans
increased $33.3 million, or 4.0%, to $858.0 million at June 30, 2008 from
$824.7 million at December 31, 2007 reflecting growth in the residential (5.2%)
and commercial real estate (8.3%) portfolios as a result of business development
efforts and competitive products and pricing. Construction loan balances
declined $4.8 million, or 11.3%, to $37.3 million at June 30, 2008 as a result
of pay-downs and conservative underwriting standards. All other categories of
loans were essentially flat during the period reflecting sluggish loan
origination activity offset by prepayments and scheduled
amortization.
  Total deposits increased
$56.0 million, or 7.8%, to $774.7 million at June 30, 2008 compared to $718.7
million at December 31, 2007 mainly due to competitive products and pricing,
superior customer service, targeted promotional activities and the opening of
two new branches in 2008. Core deposit balances grew $34.9 million, or 9.4%, to
$405.9 million at June 30, 2008 from $371.0 million at December 31,
2007.
  14
 Index
  
 Total
stockholders’ equity increased $506,000, or 0.2%, to $226.6 million at June 30,
2008 from $226.1 million at December 31, 2007 as a result of net
income of $4.0 million for the six months ended June 30, 2008, stock-based
compensation totaling $761,000 and ESOP compensation expense of $349,000. These
increases were partially offset by payments of cash dividends amounting to $2.1
million, an increase of $1.9 million in net unrealized losses on securities
available for sale and repurchases of our common stock totaling $537,000 to fund
the 2008 Equity Incentive Plan.
 
  Credit
Quality
 
 The
Company actively manages credit quality through its underwriting practices and
collection operations and it does not offer nor has it historically offered,
residential mortgage loans to subprime or Alt-A borrowers. Non-performing assets
totaled $4.8 million, or 0.39% of total assets, at June 30, 2008 compared to
$2.7 million, or 0.25% of total assets, at December 31, 2007. Net loan
charge-offs for the six months ended June 30, 2008 totaled $387,000 compared to
$101,000 in the same period of 2007. Commercial and industrial loan charge-offs
represented $241,000 or 62%, of the total charge-offs, and the majority of such
charge-offs related to one commercial relationship.
  Delinquent Loans.The following table sets forth our loan delinquencies for sixty days and
over by type and by amount at the dates indicated.
 
  Loans
      Delinquent For60
      - 89 Days
                
                
                90
      Days and Over
                
                
                TotalNumber
                
                
                Amount
                
                
                Number
                
                
                Amount
                
                
                Number
                
                
                Amount(Dollars
      in thousands)At June 30,
      2008Residential
      mortgages
                
                
                4
                
                
                $
                393
                
                
                
                6
                
                
                $
                1,500
                
                
                
                10
                
                
                $
                1,893Commercial
      mortgage
                
                
                6
                
                
                
                1,106
                
                
                
                11
                
                
                
                1,404
                
                
                
                17
                
                
                
                2,510Construction
                
                
                -
                
                
                
                -
                
                
                
                7
                
                
                
                800
                
                
                
                7
                
                
                
                800Home
      equity
                
                
                6
                
                
                
                377
                
                
                
                1
                
                
                
                75
                
                
                
                7
                
                
                
                452Commercial
      and industrial
                
                
                16
                
                
                
                290
                
                
                
                7
                
                
                
                307
                
                
                
                23
                
                
                
                597Automobile
                
                
                7
                
                
                
                45
                
                
                
                -
                
                
                
                -
                
                
                
                7
                
                
                
                45Other
      consumer
                
                
                1
                
                
                
                4
                
                
                
                1
                
                
                
                49
                
                
                
                2
                
                
                
                53Total
                
                
                40
                
                
                $
                2,215
                
                
                
                33
                
                
                $
                4,135
                
                
                
                73
                
                
                $
                6,350At December 31,
      2007Residential
      mortgages
                
                
                2
                
                
                $
                595
                
                
                
                4
                
                
                $
                328
                
                
                
                6
                
                
                $
                923Commercial
      mortgage
                
                
                11
                
                
                
                1,546
                
                
                
                5
                
                
                
                555
                
                
                
                16
                
                
                
                2,101Construction
                
                
                -
                
                
                
                -
                
                
                
                3
                
                
                
                578
                
                
                
                3
                
                
                
                578Home
      equity
                
                
                11
                
                
                
                489
                
                
                
                3
                
                
                
                52
                
                
                
                14
                
                
                
                541Commercial
      and industrial
                
                
                20
                
                
                
                948
                
                
                
                10
                
                
                
                272
                
                
                
                30
                
                
                
                1,220Automobile
                
                
                5
                
                
                
                46
                
                
                
                -
                
                
                
                -
                
                
                
                5
                
                
                
                46Other
      consumer
                
                
                4
                
                
                
                58
                
                
                
                -
                
                
                
                -
                
                
                
                4
                
                
                
                58Total
                
                
                53
                
                
                $
                3,682
                
                
                
                25
                
                
                $
                1,785
                
                
                
                78
                
                
                $
                5,467
 
   15
 Index
  Classified
Assets.The following table shows the aggregate amount of our
classified assets at the date indicated for both loans and foreclosed assets.
The amount of residential real estate loans classified as “substandard” in the
table includes three owner occupied mortgage loans classified due to the
commercial lending relationships, one of which is not making payments in
accordance with contractual loan terms.
 
 At
      June 30,
                
                
                At
      December 31,2008
                
                
                2007(In
      thousands)Residential Real Estate(1):Substandard
                
                $
                1,846
                (2)
                
                $
                1,278All
      Other Loans:Special
      mention
                
                
                18,960
                
                
                
                13,800Substandard
                
                
                20,505
                
                
                
                19,377Doubtful
                
                
                606
                
                
                
                244Loss
                
                
                -
                
                
                
                -Foreclosed
      Assets:Other
      real estate owned
                
                
                630
                
                
                
                880Total
      classified assets
                
                $
                42,547
                
                
                $
                35,579(1) Includes
      one-to-four family loans and home equity loans and lines of
      credit.(2) Includes
      nine residential loans, five of which are in foreclosure or liquidation
      proceedings.
 
 Comparison
of Operating Results for the Three Months Ended June 30, 2008and
2007
 
 Overview
  Our
results of operations depend primarily on our net interest income. Net interest
income is the difference between the interest income earned on interest-earning
assets, consisting primarily of loans, investment securities and other
interest-earning assets, and the interest paid on interest-bearing liabilities,
consisting primarily of deposits and Federal Home Loan Bank
advances.
 
 Our
results of operations also are affected by provisions for loan losses,
non-interest income and non-interest expense. Non-interest income consists
primarily of deposit account fees, wealth management fees, increases in the cash
surrender value of bank-owned life insurance and miscellaneous other income.
Non-interest expense consists primarily of compensation and employee benefits,
data processing, occupancy, marketing and public relations, professional
services, postage, printing, office supplies, and other operating expenses. Our
results of operations also may be affected significantly by general and local
economic and competitive conditions, changes in market interest rates,
governmental policies and actions of regulatory authorities.
 
 Net
Income.The Company’s net income was $2.0 million, or $0.12
per diluted share, for the second quarter of 2008 compared to net income of
$978,000, or $0.06 per diluted share, for the same period in 2007. The Company’s
improved results were largely due to a significant increase in net interest
income, driven by an increase in net interest margin of 56 basis points and
growth in average earning assets largely funded by net cash proceeds of $82.7
million from the Company’s December 2007 second-step stock offering. The
quarterly operating performance was also favorably affected by an increase in
fee income from deposit accounts, partially offset by higher provision for loan
losses and an increase in non-interest expenses.
   16
 Index
  Average balances
and yields.  The following table sets forth average balance
sheets, average yields and costs, and certain other information for the periods
indicated. No tax-equivalent yield adjustments were made, as the effect thereof
was not material. All average balances are daily average balances. Non-accrual
loans were included in the computation of average balances, but have been
reflected in the table as loans carrying a zero yield.
  Three
      Months Ended June 30,2008
                
                
                2007Interest
                
                
                
                
                
                
                
                
                InterestAverage
                
                
                and
                
                
                Yield/
                
                
                Average
                
                
                and
                
                
                Yield/Balance
                
                
                Dividends
                
                
                Cost
                
                
                Balance
                
                
                Dividends
                
                
                Cost(Dollars
      in thousands)Interest-earning
      assets:Loans:Residential
      real estate
                
                $
                356,721
                
                
                $
                4,926
                
                
                
                5.52
                %
                
                $
                340,716
                
                
                $
                4,809
                
                
                
                5.65
                %Commercial
      real estate
                
                
                257,831
                
                
                
                4,010
                
                
                
                6.22
                %
                
                
                236,840
                
                
                
                3,898
                
                
                
                6.58
                %Home
      equity
                
                
                117,106
                
                
                
                1,643
                
                
                
                5.61
                %
                
                
                118,140
                
                
                
                1,938
                
                
                
                6.56
                %Commercial
      and industrial
                
                
                83,228
                
                
                
                1,302
                
                
                
                6.26
                %
                
                
                71,990
                
                
                
                1,323
                
                
                
                7.35
                %Consumer
      and other
                
                
                30,418
                
                
                
                414
                
                
                
                5.44
                %
                
                
                30,065
                
                
                
                382
                
                
                
                5.08
                %Total
      loans
                
                
                845,304
                
                
                
                12,295
                
                
                
                5.82
                %
                
                
                797,751
                
                
                
                12,350
                
                
                
                6.19
                %Investment
      securities
                
                
                288,502
                
                
                
                3,560
                
                
                
                4.94
                %
                
                
                166,163
                
                
                
                1,850
                
                
                
                4.45
                %Other
      interest-earning assets
                
                
                12,591
                
                
                
                118
                
                
                
                3.75
                %
                
                
                21,605
                
                
                
                313
                
                
                
                5.79
                %Total
      interest-earning assets
                
                
                1,146,397
                
                
                
                15,973
                
                
                
                5.57
                %
                
                
                985,519
                
                
                
                14,513
                
                
                
                5.89
                %Noninterest-earning
      assets
                
                
                37,230
                
                
                
                
                
                
                
                
                
                
                
                32,990Total
      assets
                
                $
                1,183,627
                
                
                
                
                
                
                
                
                
                
                $
                1,018,509Interest-bearing
      liabilities:Savings
      accounts
                
                $
                82,335
                
                
                
                235
                
                
                
                1.14
                %
                
                $
                65,304
                
                
                
                149
                
                
                
                0.91
                %Money
      market accounts
                
                
                173,958
                
                
                
                784
                
                
                
                1.80
                %
                
                
                180,940
                
                
                
                1,442
                
                
                
                3.19
                %NOW
      accounts
                
                
                33,332
                
                
                
                45
                
                
                
                0.54
                %
                
                
                34,959
                
                
                
                47
                
                
                
                0.54
                %Certificates
      of deposit
                
                
                364,017
                
                
                
                3,295
                
                
                
                3.62
                %
                
                
                335,626
                
                
                
                3,839
                
                
                
                4.58
                %Total
      interest-bearing deposits
                
                
                653,642
                
                
                
                4,359
                
                
                
                2.67
                %
                
                
                616,829
                
                
                
                5,477
                
                
                
                3.55
                %FHLB
      advances
                
                
                170,052
                
                
                
                1,603
                
                
                
                3.77
                %
                
                
                149,853
                
                
                
                1,779
                
                
                
                4.75
                %Other
      interest-bearing liabilities
                
                
                12,579
                
                
                
                103
                
                
                
                3.28
                %
                
                
                10,997
                
                
                
                122
                
                
                
                4.44
                %Total
      interest-bearing liabilities
                
                
                836,273
                
                
                
                6,065
                
                
                
                2.90
                %
                
                
                777,679
                
                
                
                7,378
                
                
                
                3.79
                %Demand
      deposits
                
                
                108,348
                
                
                
                
                
                
                
                
                
                
                
                98,343Other
      noninterest-bearing liabilities
                
                
                10,765
                
                
                
                
                
                
                
                
                
                
                
                3,591Total
      liabilities
                
                
                955,386
                
                
                
                
                
                
                
                
                
                
                
                879,613Stockholders'
      equity
                
                
                228,241
                
                
                
                
                
                
                
                
                
                
                
                138,896Total
      liabilities and stockholders' equity
                
                $
                1,183,627
                
                
                
                
                
                
                
                
                
                
                $
                1,018,509Net
      interest income
                
                
                
                
                
                $
                9,908
                
                
                
                
                
                
                
                
                
                
                $
                7,135Interest
      rate spread(1)
                
                
                
                
                
                
                
                
                
                
                2.67
                %
                
                
                
                
                
                
                
                
                
                
                2.10
                %Net
      interest-earning assets(2)
                
                $
                310,124
                
                
                
                
                
                
                
                
                
                
                $
                207,840Net
      interest margin(3)
                
                
                
                
                
                
                
                
                
                
                3.46
                %
                
                
                
                
                
                
                
                
                
                
                2.90
                %Average
      interest-earning assets toaverage
      interest-bearing liabilities
                
                
                
                
                
                
                
                
                
                
                137.08
                %
                
                
                
                
                
                
                
                
                
                
                126.73
                %
  (1)
              Net
      interest rate spread represents the difference between the yield on
      average interest-earning assets and the cost of average
      interest-bearing   liabilities.
 (2)
              Net
      interest-earning assets represents total interest-earning assets less
      total interest-bearing liabilities.
 (3)
              Net
      interest margin represents annualized net interest income divided by
      average total interest-earning
assets.
 
  17
 Index
  
 Rate/Volume
Analysis. The following table presents the effects of changing rates
and volumes on our net interest income for the periods indicated. The rate
column shows the effects attributable to changes in rate (changes in rate
multiplied by prior volume). The volume column shows the effects attributable to
changes in volume (changes in volume multiplied by prior rate). The net column
represents the sum of the prior columns. For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately, based on the changes due to rate and the changes due
to volume.
  Three
      Months Ended June 30,2008
      vs. 2007Increase
      (Decrease) Due toVolume
                
                
                Rate
                
                
                Net(In
      thousands)Interest-earning
      assets:Loans:Residential
      real estate
                
                $
                223
                
                
                $
                (106
                )
                
                $
                117Commercial
      real estate
                
                
                333
                
                
                
                (221
                )
                
                
                112Home
      equity
                
                
                (17
                )
                
                
                (278
                )
                
                
                (295
                )Commercial
      and industrial
                
                
                191
                
                
                
                (212
                )
                
                
                (21
                )Consumer
      and other
                
                
                4
                
                
                
                28
                
                
                
                32Total
      loans
                
                
                734
                
                
                
                (789
                )
                
                
                (55
                )Investment
      securities
                
                
                1,491
                
                
                
                219
                
                
                
                1,710Other
      interest-earning assets
                
                
                (106
                )
                
                
                (89
                )
                
                
                (195
                )Total
      interest-earning assets
                
                
                2,119
                
                
                
                (659
                )
                
                
                1,460Interest-bearing
      liabilities:Savings
      accounts
                
                
                44
                
                
                
                42
                
                
                
                86Money
      market accounts
                
                
                (54
                )
                
                
                (604
                )
                
                
                (658
                )NOW
      accounts
                
                
                (2
                )
                
                
                -
                
                
                
                (2
                )Certificates
      of deposit
                
                
                305
                
                
                
                (849
                )
                
                
                (544
                )Total
      interest-bearing deposits
                
                
                293
                
                
                
                (1,411
                )
                
                
                (1,118
                )FHLB
      advances
                
                
                221
                
                
                
                (397
                )
                
                
                (176
                )Other
      interest-bearing liabilities
                
                
                16
                
                
                
                (35
                )
                
                
                (19
                )Total
      interest-bearing liabilities
                
                
                530
                
                
                
                (1,843
                )
                
                
                (1,313
                )Change
      in net interest income
                
                $
                1,589
                
                
                $
                1,184
                
                
                $
                2,773
  Net Interest
Income Before Provision for Loan Losses.Net interest income
before provision for loan losses increased $2.8 million, or 38.9%, to
$9.9 million for the three months ended June 30, 2008 from the same period
in 2007 as a result of net interest margin expansion and growth in average
earning assets. Net interest margin increased 56 basis points to 3.46% for the
three-month period ended June 30, 2008 compared to 2.90% for the same period in
2007 due to the use of net proceeds from the Company’s second-step offering
completed in December 2007 to fund asset growth as well as a significant
decrease in the cost of deposits as a result of the 3.25% reduction in the
federal funds rate from 5.25% at September 1, 2007 to 2.00% at June 30,
2008.
  18
 Index
  
  Interest
Income.  Interest income increased $1.5 million, or 10.1%, to
$16.0 million for the three months ended June 30, 2008 from $14.5 million for
the prior year period, reflecting an increase in total average interest-earning
asset balances, partially offset by a lower yield on average interest-earning
assets. Total average interest-earning asset balances increased $160.9 million,
or 16.3%, to $1.1 billion for the three months ended June 30, 2008 mainly due to
loan growth and purchases of mortgage-backed securities. Total average loans
increased $47.6 million, or 6.0%, to $845.3 million for the second quarter of
2008 as a result of origination activity in the residential real estate,
commercial real estate and commercial and industrial portfolios, partially
offset by scheduled amortization and prepayments of existing loans. Total
average investment securities increased by $122.3 million, or 73.6%, to $288.5
million due to the purchases of bonds, partially offset by maturities, calls,
sales and principal repayments of existing securities. The yield on average
interest-earning assets decreased by 32 basis points to 5.57% for the second
quarter of 2008 in connection with the lower interest rate environment. The
decrease in market rates contributed to the downward repricing of a portion of
the Company’s existing assets and to lower rates for new assets. Since a
significant amount of the Company’s average interest-earning assets are fixed
rate and the impact of Federal Reserve Board actions was less pronounced on the
long end of the yield curve, the effect of the decrease in market rates was
limited. The impact of the decrease in market rates was partially offset by the
purchases of higher yielding mortgage backed securities.
  Interest
Expense.Interest expense decreased $1.3 million, or 17.8%, to
$6.1 million for the three months ended June 30, 2008 from
$7.4 million for the prior year period reflecting a decrease in the average
rate paid on interest-bearing liabilities, partially offset by an increase in
average interest-bearing liabilities. The average rate paid on interest-bearing
liabilities declined 89 basis points to 2.90% for the three months ended June
30, 2008 reflecting the impact of lower market rates related to the interest
rate decreases initiated by the Federal Reserve Board beginning in December
2007. Since a large portion of the Company’s interest-bearing liabilities are
short-term, the impact of the decrease in market rates was significant. Average
interest-bearing liabilities increased $58.6 million, or 7.5%, to
$836.3 million for the three months ended June 30, 2008 from
$777.7 million for the prior year period reflecting growth in
interest-bearing deposits and FHLB advances. Total average interest-bearing
deposits increased $36.8 million, or 6.0%, to $653.6 million for the second
quarter of 2008 as compared to $616.8 million for the three months ended June
30, 2007, mainly attributable to an increase in savings account and certificate
of deposit balances. Total average FHLB advances increased $20.2 million, or
13.5%, to $170.1 million to fund asset growth and to take advantage of the lower
interest rates.
  Provision for
Loan Losses.The provision for loan losses increased $331,000 to $651,000
for the three months ended June 30, 2008 as compared to $320,000 for the same
period in 2007 resulting primarily from a $9.6 million increase in classified
assets in the second quarter of 2008 compared to a $2.7 million increase in the
2007 period as well as an increase in net charge-offs of $109,000. The allowance
for loan losses is based on management’s estimate of the probable losses
inherent in the portfolio, considering the impact of certain factors. Among the
factors management may consider are prior loss experience, current economic
conditions and their effect on borrowers, the character and size of the
portfolio, trends in nonperforming loans and delinquency rates and the
performance of individual loans in relation to contractual terms. The provision
for loan losses reflects adjustments to the allowance based on management’s
review of the loan portfolio in light of those conditions. The allowance for
loan losses was $8.2 million, or 0.95%, of loans outstanding at June 30,
2008.
   19
 Index
  
  Non-interest
Income.  Non-interest income increased $139,000, or 9.7%, to
$1.6 million for the three months ended June 30, 2008 due in large part to
growth of $59,000, or 5.4%, in deposit account fees and a $43,000 loss on the
sale of securities in the second quarter of 2007.
  Non-interest
Expense.  Non-interest expense increased $975,000, or 14.8%, to
$7.6 million for the three months ended June 30, 2008 from
$6.6 million for the prior year period. Total salaries and benefits
increased $464,000, or 12.4%, mainly due to staffing costs for two new branches
opened in 2008, new employees hired to support and facilitate the growth of the
Company, a higher cash incentive accrual associated with improved financial
performance and annual wage increases. Occupancy costs expanded $97,000, or
20.2%, mainly due to the two branches opened in 2008. Data processing expenses
increased $162,000, or 24.8%, as a result of growth in the total number of loan
and deposit accounts serviced, new branches opened in 2008 and costs for the
branch imaging process introduced in all branches beginning in 2008.
Professional services increased $109,000, or 41.4%, related to the annual
stockholders meeting at which the 2008 incentive plan was approved. Other
expenses rose $151,000, or 15.2%, in connection with a higher quarterly Federal
Deposit Insurance Corporation insurance assessment as a result of the expiration
of the credit used to reduce the premium each quarter.
  Income Tax
Expense.Income tax expense
increased $575,000 to $1.3 million for three months ended June 30, 2008 from
$697,000 for the comparable 2007 period as a result of an increase in taxable
income, offset to some extent by a lower effective tax rate. The effective tax
rate decreased from 41.6% in the second quarter of 2007 to 38.8% for the same
period in 2008 primarily due to the increased portion of income earned in the
securities corporation at the lower state tax rate and a decrease in the
relative impact (due to the projected increase in pre-tax income in 2008) of
stock-based compensation.
  
  Comparison
of Operating Results for the Six Months Ended June 30, 2008 and
2007
  Net
Income.The Company’s net income for the six months ended June
30, 2008 amounted to $4.0 million, or $0.24 per diluted share, compared to $1.8
million, or $0.11 per diluted share, for the same period in 2007. The Company’s
higher net income and earnings per share were due in large part to net interest
margin expansion and growth in average earning assets, partially offset by
increases in provision for loan losses and non-interest expenses.
  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.
   20
 Index
  
 Six
      Months Ended June 30,2008
                
                
                2007Interest
                
                
                
                
                
                
                
                
                InterestAverage
                
                
                and
                
                
                Yield/
                
                
                Average
                
                
                and
                
                
                Yield/Balance
                
                
                Dividends
                
                
                Cost
                
                
                Balance
                
                
                Dividends
                
                
                Cost(Dollars
      in thousands)Interest-earning
      assets:Loans:Residential
      real estate
                
                $
                352,739
                
                
                $
                9,849
                
                
                
                5.58
                %
                
                $
                338,814
                
                
                $
                9,555
                
                
                
                5.64
                %Commercial
      real estate
                
                
                253,397
                
                
                
                8,032
                
                
                
                6.34
                %
                
                
                231,046
                
                
                
                7,601
                
                
                
                6.58
                %Home
      equity loans
                
                
                117,181
                
                
                
                3,437
                
                
                
                5.87
                %
                
                
                116,934
                
                
                
                3,812
                
                
                
                6.52
                %Commercial
      and industrial
                
                
                82,803
                
                
                
                2,690
                
                
                
                6.50
                %
                
                
                70,363
                
                
                
                2,581
                
                
                
                7.34
                %Consumer
      and other
                
                
                30,684
                
                
                
                834
                
                
                
                5.44
                %
                
                
                29,929
                
                
                
                756
                
                
                
                5.05
                %Total
      loans
                
                
                836,804
                
                
                
                24,842
                
                
                
                5.94
                %
                
                
                787,086
                
                
                
                24,305
                
                
                
                6.18
                %Investment
      securities
                
                
                250,191
                
                
                
                6,178
                
                
                
                4.94
                %
                
                
                173,287
                
                
                
                3,832
                
                
                
                4.42
                %Other
      interest-earning assets
                
                
                17,193
                
                
                
                359
                
                
                
                4.18
                %
                
                
                24,944
                
                
                
                688
                
                
                
                5.52
                %Total
      interest-earning assets
                
                
                1,104,188
                
                
                
                31,379
                
                
                
                5.68
                %
                
                
                985,317
                
                
                
                28,825
                
                
                
                5.85
                %Noninterest-earning
      assets
                
                
                35,558
                
                
                
                
                
                
                
                
                
                
                
                32,128Total
      assets
                
                $
                1,139,746
                
                
                
                
                
                
                
                
                
                
                $
                1,017,445Interest-bearing
      liabilities:Savings
      accounts
                
                $
                74,943
                
                
                
                400
                
                
                
                1.07
                %
                
                $
                65,114
                
                
                
                289
                
                
                
                0.89
                %Money
      market accounts
                
                
                174,380
                
                
                
                1,793
                
                
                
                2.06
                %
                
                
                177,586
                
                
                
                2,799
                
                
                
                3.15
                %NOW
      accounts
                
                
                32,629
                
                
                
                85
                
                
                
                0.52
                %
                
                
                34,547
                
                
                
                91
                
                
                
                0.53
                %Certificates
      of deposit
                
                
                359,024
                
                
                
                7,054
                
                
                
                3.93
                %
                
                
                329,837
                
                
                
                7,479
                
                
                
                4.53
                %Total
      interest-bearing deposits
                
                
                640,976
                
                
                
                9,332
                
                
                
                2.91
                %
                
                
                607,084
                
                
                
                10,658
                
                
                
                3.51
                %FHLB
      advances
                
                
                143,285
                
                
                
                2,904
                
                
                
                4.05
                %
                
                
                160,232
                
                
                
                3,802
                
                
                
                4.75
                %Other
      interest-bearing liabilities
                
                
                12,085
                
                
                
                204
                
                
                
                3.38
                %
                
                
                11,812
                
                
                
                274
                
                
                
                4.64
                %Total
      interest-bearing liabilities
                
                
                796,346
                
                
                
                12,440
                
                
                
                3.12
                %
                
                
                779,128
                
                
                
                14,734
                
                
                
                3.78
                %Demand
      deposits
                
                
                105,066
                
                
                
                
                
                
                
                
                
                
                
                96,333Other
      noninterest-bearing liabilities
                
                
                10,507
                
                
                
                
                
                
                
                
                
                
                
                3,386Total
      liabilities
                
                
                911,919
                
                
                
                
                
                
                
                
                
                
                
                878,847Stockholders'
      equity
                
                
                227,827
                
                
                
                
                
                
                
                
                
                
                
                138,598Total
      liabilities and stockholders' equity
                
                $
                1,139,746
                
                
                
                
                
                
                
                
                
                
                $
                1,017,445Net
      interest income
                
                
                
                
                
                $
                18,939
                
                
                
                
                
                
                
                
                
                
                $
                14,091Interest
      rate spread(1)
                
                
                
                
                
                
                
                
                
                
                2.56
                %
                
                
                
                
                
                
                
                
                
                
                2.07
                %Net
      interest-earning assets(2)
                
                $
                307,842
                
                
                
                
                
                
                
                
                
                
                $
                206,189Net
      interest margin(3)
                
                
                
                
                
                
                
                
                
                
                3.43
                %
                
                
                
                
                
                
                
                
                
                
                2.86
                %Average
      interest-bearing assets toaverage
      interest-bearing liabilities
                
                
                
                
                
                
                
                
                
                
                138.66
                %
                
                
                
                
                
                
                
                
                
                
                126.46
                %
 
 (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.
  21
 Index
  Six
      Months Ended June 30,2008
      vs. 2007Increase
      (Decrease) Due toVolume
                
                
                Rate
                
                
                Net(In
      thousands)Interest-earning
      assets:Loans:Residential
      real estate
                
                $
                390
                
                
                $
                (96
                )
                
                $
                294Commercial
      real estate
                
                
                715
                
                
                
                (284
                )
                
                
                431Home
      equity loans
                
                
                8
                
                
                
                (383
                )
                
                
                (375
                )Commercial
      and industrial
                
                
                424
                
                
                
                (315
                )
                
                
                109Consumer
      and other
                
                
                19
                
                
                
                59
                
                
                
                78Total
      loans
                
                
                1,556
                
                
                
                (1,019
                )
                
                
                537Investment
      securities
                
                
                1,858
                
                
                
                488
                
                
                
                2,346Other
      interest-earning assets
                
                
                (185
                )
                
                
                (144
                )
                
                
                (329
                )Total
      interest-earning assets
                
                
                3,229
                
                
                
                (675
                )
                
                
                2,554Interest-bearing
      liabilities:Savings
      accounts
                
                
                48
                
                
                
                63
                
                
                
                111Money
      market accounts
                
                
                (50
                )
                
                
                (956
                )
                
                
                (1,006
                )NOW
      accounts
                
                
                (5
                )
                
                
                (1
                )
                
                
                (6
                )Certificates
      of deposit
                
                
                627
                
                
                
                (1,052
                )
                
                
                (425
                )Total
      interest-bearing deposits
                
                
                620
                
                
                
                (1,946
                )
                
                
                (1,326
                )FHLB
      advances
                
                
                (377
                )
                
                
                (521
                )
                
                
                (898
                )Other
      interest-bearing liabilities
                
                
                6
                
                
                
                (76
                )
                
                
                (70
                )Total
      interest-bearing liabilities
                
                
                249
                
                
                
                (2,543
                )
                
                
                (2,294
                )Change
      in net interest income
                
                $
                2,980
                
                
                $
                1,868
                
                
                $
                4,848
  Net Interest
Income Before Provision for Loan Losses.Net interest income
before provision for loan losses increased $4.8 million, or 34.4%, to $18.9
million for the six months ended June 30, 2008 from $14.1 million for the
comparable 2007 period reflecting growth in average earning assets and net
interest margin expansion. Net interest margin increased 57 basis points to
3.43% for the six months ended June 30, 2008 due to the use of net proceeds from
the Company’s second-step stock offering completed in December 2007 to fund
asset growth as well as a significant decrease in the cost of deposits as a
result of the 3.25% reduction in the federal funds rate from 5.25% at September
1, 2007 to 2.00% at June 30, 2008.
  Interest
Income.  Interest income increased $2.6 million, or 8.9%, to
$31.4 million for the six months ended June 30, 2008 from $28.8 million for the
prior year period reflecting expansion in total average interest-earning asset
balances, partially offset by a slight decrease in the yield on average
interest-earning assets. Total average interest-earning asset balances increased
$118.9 million, or 12.1%, to $1.1 billion for the six months ended June 30,
2008 due in large part to purchases of investment securities and strong loan
growth, funded largely by deposit growth and the proceeds of the December 2007
second-step stock offering. Total average loans increased $49.7 million, or
6.3%, to $836.8 million for the first six months of 2008 as a result of
origination activity, partially offset by prepayments and normal amortization.
Total average investment securities increased by $76.9 million, or 44.4%, to
$250.2 million for the first six months of 2008 primarily due to the
implementation of a strategy to deploy excess capital and liquidity resulting
from the Company’s 2007 second-step stock offering. The yield on average
interest-earning assets decreased 17 basis points to 5.68% for the six months
ended June 30, 2008 in connection with the lower interest rate environment.
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 deflation in market rates
was limited. The impact of the decrease in market rates was partially offset by
the purchases of higher yielding mortgage backed securities.
   22
 Index
  
  Interest
Expense.Interest expense decreased $2.3 million, or 15.6%, to
$12.4 million for the six months ended June 30, 2008 from
$14.7 million for the prior year period due to a decrease in the average
rate paid on interest-bearing liabilities, partially offset by growth in average
interest-bearing liabilities. The average rate paid on interest-bearing
liabilities declined 66 basis points to 3.12% for the six months ended June 30,
2008 reflecting interest rate cuts initiated by the Federal Reserve Board. Since
a large portion of the Company’s interest-bearing liabilities are short-term,
the impact of the expansion in market rates was significant. Average
interest-bearing liabilities increased $17.2 million, or 2.2%, to
$796.3 million for the six months ended June 30, 2008 reflecting growth in
interest-bearing deposits, somewhat offset by lower FHLB advances. Total average
interest-bearing deposits increased $36.9 million, or 6.1%, to $641.0 million
for the first six months of 2008 mainly attributable to an increase in savings
accounts and certificate of deposit balances. Total average FHLB advances
decreased $16.9 million, or 10.6%, to $143.3 million reflecting the use of
proceeds from the second step offering to pay-down certain outstanding
borrowings.
  Provision for
Loan Losses.The provision
for loan losses was $835,000 for the six months ended June 30, 2008 as compared
to $604,000 for the same period in 2007 reflecting an increase in reserves for
classified loans and higher net charge-offs.The allowance
for loan losses was $8.2 million, or 0.95%, of loans outstanding at June
30, 2008.
 
 Non-interest
Income.  Non-interest income increased $260,000, or 9.2%, to
$3.1 million for the six months ended June 30, 2008 reflecting growth in
fee income on deposit and loan accounts, a $49,000 gain in the first quarter of
2008 from VISA Inc.’s redemption of its Class B stock as part of its initial
public offering and an increase in bank-owned life insurance
income.
  Non-interest
Expense.  Non-interest expense increased $1.5 million, or
11.4%, to $14.7 million for the six months ended June 30, 2008 from
$13.2 million for the prior year period. Total salaries and benefits
increased $667,000, or 8.8%, mainly due to staffing costs for the two new
branches opened in 2008, new employees hired to support and facilitate the
growth of the Company, a higher cash incentive accrual associated with improved
financial performance and annual wage increases, partially offset by lower stock
related compensation expense. Occupancy costs grew $115,000, or 11.8%,
principally attributable to the two new branches opened in 2008. Data processing
costs expanded $239,000, or 18.5%, reflecting a larger loan and deposit base,
new branches opened in 2008 and costs for the new branch imaging process.
Professional services increased $163,000, or 25.0%, as a result of costs
incurred in connection with the Company’s annual stockholders meeting at which
the 2008 incentive plan was approved. Other expenses expanded $292,000, or 14.9%
as a result of an increase of $144,000 in Federal Deposit Insurance Corporation
insurance assessments and a $100,000 interest accrual related to the IRS exam
and related adjustments.
  Income Tax
Expense.Income tax expense
increased $1.2 million to $2.5 million for six months ended June 30, 2008 from
$1.3 million for the comparable 2007 period. This increase was due to higher
income before income taxes partially offset by a deduction in the effective tax
rate from 41.5% in 2007 to 38.6% in 2008. This deduction was due to the
increased portion of income earned in the securities corporation at the lower
state tax rate and a decrease in the relative impact (due to the projected
increase in pre-tax income in 2008) of stock-based compensation.
   23
 Index
  
 Market
Risk, Liquidity and Capital Resources
 
 Market
Risk
 
 The
majority of our assets and liabilities are monetary in nature. Consequently, our
most significant form of market risk is interest rate risk (“IRR”). Our assets,
consisting primarily of mortgage loans, have longer maturities than our
liabilities, consisting primarily of deposits. As a result, a principal part of
our business strategy is to manage IRR and reduce the exposure of our net
interest income (“NII”) to changes in market interest rates. Accordingly, our
Board of Directors has established an Asset/Liability Management Committee which
is responsible for evaluating the IRR inherent in our assets and liabilities,
for determining the level of risk that is appropriate given our business
strategy, operating environment, capital, liquidity and performance objectives,
and for managing this risk consistent with the guidelines approved by the Board
of Directors.  With the assistance of an IRR management consultant,
the committee monitors the level of IRR on a regular basis and meets at least on
a quarterly basis to review our asset/liability policies and IRR
position.
 
 We have
sought to manage our IRR in order to minimize the exposure of our earnings and
capital to changes in interest rates. As part of our ongoing asset-liability
management, we currently use the following strategies to manage our IRR:
(i) using alternative funding sources, such as advances from the Federal
Home Loan Bank of Boston, to “match fund” certain longer-term one- to
four-family residential mortgage loans; (ii) continued emphasis on
increasing core deposits; (iii) offering adjustable rate and shorter-term
home equity loans, commercial real estate loans, construction loans and
commercial and industrial loans; (iv) offering a variety of consumer loans,
which typically have shorter-terms and (v ) investing in mortgage-backed
securities with variable rates or fixed rates with shorter durations. Reducing
the average maturity of our interest-earning assets by increasing our
investments in shorter-term loans and securities, as well as loans and
securities with variable rates of interest, helps to better match the maturities
and interest rates of our assets and liabilities, thereby reducing the exposure
of our NII to changes in market interest rates.
 
 Net
interest income at-risk measures the risk of a decline in earnings due to
potential short-term and long term changes in interest rates. The table below
represents an analysis of our IRR as measured by the estimated changes in NII,
resulting from an instantaneous and sustained parallel shift in the yield curve
(+200 and -200 basis points) at June 30, 2008 and December 31,
2007.
  Net
      Interest Income At-RiskEstimated
      Increase (Decrease)
                
                Estimated
      Increase (Decrease)Change
      in Interest Rates
                
                in
      NII
                
                in
      NII(Basis
      Points)
                
                (June
      30, 2008)
                
                (December
      31, 2007)-100
                
                1.6%
                
                1.7%Stable
                
                0.0%
                
                0.0%+200
                
                (3.1)%
                
                (4.2)%
   24
 Index
  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.
 
 Net Portfolio
Value Simulation Analysis.  The Office of
Thrift Supervision requires the computation of amounts by which the net present
value of an institution’s cash flow from assets, liabilities and off balance
sheet items (the institution’s net portfolio value or “NPV”) would change in the
event of a range of assumed changes in market interest rates. The Office of
Thrift Supervision provides all institutions that file a Consolidated
Maturity/Rate Schedule as a part of their quarterly Thrift Financial Report an
interest rate sensitivity report of net portfolio value. The Office of Thrift
Supervision simulation model uses a discounted cash flow analysis and an
option-based pricing approach to measuring the interest rate sensitivity of net
portfolio value. Historically, the Office of Thrift Supervision model estimated
the economic value of each type of asset, liability and off-balance sheet
contract under the assumption that the United States Treasury yield curve
increases or decreases instantaneously by 100 to 300 basis points in 100 basis
point increments. However, given the current low level of market interest rates,
we did not prepare a net portfolio value calculation for an interest rate
decrease of greater than 100 basis points. A basis point equals one-hundredth of
one percent, and 200 basis points equals two percent. An increase in interest
rates from 3% to 5% would mean, for example, a 200 basis point increase in the
“Change in Interest Rates” column below. The Office of Thrift Supervision
provides us the results of the interest rate sensitivity model, which is based
on information we provide to the Office of Thrift Supervision to estimate the
sensitivity of our net portfolio value.
 
 The tables below set forth, at the
dates indicated, the estimated changes in our net portfolio value that would
result from the designated instantaneous changes in the United States Treasury
yield curve. Computations of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, loan prepayments and deposit decay, and should not be relied
upon as indicative of actual results. This data is for United Bank and its
subsidiary only and does not include any yield curve changes in the assets of
United Financial Bancorp, Inc.
 
 June
      30, 2008NPV
      as a Percentage of PresentValue
      of Assets (3)Change
      in
                
                
                
                
                Estimated
      Increase (Decrease) inNPV
                
                
                
                
                
                IncreaseInterest
      Rates
                
                Estimated
                
                
                
                
                
                
                
                
                
                
                
                (Decrease)(basis
      points) (1)
                
                NPV (2)
                
                
                Amount
                
                
                Percent
                
                
                NPV
      Ratio (4)
                
                
                (basis
      points)(Dollars
      in thousands)+300
                
                
                $
                95,461
                
                
                $
                (74,021
                )
                
                
                (44
                )%
                
                
                8.81
                %
                
                
                (534
                )+200
                
                
                
                119,966
                
                
                
                (49,516
                )
                
                
                (29
                )
                
                
                10.72
                
                
                
                (343
                )+100
                
                
                
                145,251
                
                
                
                (24,231
                )
                
                
                (14
                )
                
                
                12.54
                
                
                
                (160
                )0
                
                
                
                169,482
                
                
                
                
                
                
                
                
                
                
                
                14.15-100
                
                
                
                186,745
                
                
                
                17,263
                
                
                
                10
                
                
                
                15.15
                
                
                
                101
 (1)
                Assumes
      an instantaneous uniform change in interest rates at all
      maturities.(2)
                NPV
      is the discounted present value of expected cash flows from assets,
      liabilities and off-balance sheet contracts.(3)
                Present
      value of assets represents the discounted present value of incoming cash
      flows on interest-earning assets.(4)
                NPV
      ratio represents NPV divided by the present value of
    assets.
 
  25
 Index
  
 December
      31, 2007NPV
      as a Percentage of PresentValue
      of Assets (3)Change
      in
                
                
                
                
                Estimated
      Increase (Decrease) inNPV
                
                
                
                
                
                IncreaseInterest
      Rates
                
                Estimated
                
                
                
                
                
                
                
                
                
                
                
                (Decrease)(basis
      points) (1)
                
                NPV (2)
                
                
                Amount
                
                
                Percent
                
                
                NPV
      Ratio (4)
                
                
                (basis
      points)(Dollars
      in thousands)+300
                
                
                $
                108,167
                
                
                $
                (64,752
                )
                
                
                (37
                )%
                
                
                11.24
                %
                
                
                (504
                )+200
                
                
                
                130,569
                
                
                
                (42,351
                )
                
                
                (24
                )
                
                
                13.13
                
                
                
                (316
                )+100
                
                
                
                153,090
                
                
                
                (19,829
                )
                
                
                (11
                )
                
                
                14.88
                
                
                
                (140
                )0
                
                
                
                172,919
                
                
                
                
                
                
                
                
                
                
                
                16.29-100
                
                
                
                186,881
                
                
                
                13,962
                
                
                
                8
                
                
                
                17.14
                
                
                
                86
 (1)
                Assumes
      an instantaneous uniform change in interest rates at all
      maturities.(2)
                NPV
      is the discounted present value of expected cash flows from assets,
      liabilities and off-balance sheet contracts.(3)
                Present
      value of assets represents the discounted present value of incoming cash
      flows on interest-earning assets.(4)
                NPV
      ratio represents NPV divided by the present value of
    assets.
 
 The
tables above indicate that at June 30, 2008 and December 31, 2007, in the event
of a 100 basis point decrease in interest rates, we would experience a 10% and
8%, respectively, increase in net portfolio value. In the event of a 300 basis
point increase in interest rates, we would experience a 44% and 37%,
respectively, decrease in net portfolio value.
 
 Certain
shortcomings are inherent in the methodology used in the above interest rate
risk measurement. Modeling changes in net portfolio value require making certain
assumptions that may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the net
portfolio value table presented assumes that the composition of our
interest-sensitive assets and liabilities existing at the beginning of a period
remains constant over the period being measured and assumes that a particular
change in interest rates is reflected uniformly across the yield curve
regardless of the duration or repricing of specific assets and liabilities.
Accordingly, although the net portfolio value table provides an indication of
our interest rate risk exposure at a particular point in time, such measurements
are not intended to and do not provide a precise forecast of the effect of
changes in market interest rates on our net interest income and will differ from
actual results.
 
 Liquidity
  Liquidity is the ability to meet
current and future financial obligations of a short-term nature. Our primary
sources of funds consist of deposit inflows, advances from the Federal Home Loan
Bank of Boston, loan and mortgage-backed securities repayments and maturities
and sales of loans and other investment securities. While maturities and
scheduled amortization of loans and securities are predictable sources of funds,
deposit flows and mortgage prepayments are greatly influenced by market interest
rates, economic conditions and competition. Our Asset/Liability Management
Committee is responsible for establishing and monitoring our liquidity targets
and strategies in order to ensure that sufficient liquidity exists for meeting
the borrowing needs of our customers as well as unanticipated contingencies. We
seek to maintain a liquidity ratio of 10% or greater. At June 30, 2008 our
liquidity ratio was 34.27%, compared to 26.13% at December 31,
2007.
  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.
   26
 Index
  
 
 Our most liquid assets are cash and
cash equivalents. The levels of these assets are dependent on our operating,
financing, lending and investing activities during any given period. At June 30,
2008, cash and cash equivalents totaled $17.1 million. Securities classified as
available-for-sale, which provide additional sources of liquidity, totaled
$274.0 million, excluding those pledged as collateral for various purposes, at
June 30, 2008. In addition, at June 30, 2008, we had the ability to borrow a
total of approximately $496.1 million from the Federal Home Loan Bank of Boston.
On that date, we had $190.4 million in advances outstanding.
 
 Our cash
flows are derived from operating activities, investing activities and financing
activities as reported in our Consolidated Statements of Cash Flows included in
our Consolidated Financial Statements.
 
 At June
30, 2008, we had $10.7 million in loan commitments outstanding. In addition to
commitments to originate loans, we had $150.4 million in unused lines of credit
to borrowers and $24.1 million to be disbursed under existing construction loan
commitments. Certificates of deposit due within one year of June 30, 2008
totaled $294.0 million, or 38.0% 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, 2009. We believe however, based on past experience, that a
significant portion of our certificates of deposit will remain with us. We have
the ability to attract and retain deposits by adjusting the interest rates
offered.
 
 Our
primary investing activities are the origination of loans and the purchase of
securities. For the six months ended June 30, 2008, we originated $165.2 million
of loans and purchased $170.0 million of securities. In the comparable 2007
period, we originated $156.5 million of loans and purchased $21.9 million of
securities.
 
 Financing
activities consist primarily of activity in deposit accounts and Federal Home
Loan Bank advances. We experienced a net increase in total deposits of $56.0
million and $40.1 million for the six months ended June 30, 2008 and 2007,
respectively. Deposit flows are affected by the overall level of interest rates,
the interest rates and products offered by us and our local competitors and
other factors.
 
 Liquidity
management is both a daily and long-term function of business management. If we
require funds beyond our ability to generate them internally, borrowing
agreements exist with the Federal Home Loan Bank, which provides an additional
source of funds. Federal Home Loan Bank advances increased by $82.4 million
during the six months ended June 30, 2008 and decreased $27.3 million during the
comparable 2007 period. Federal Home Loan Bank advances have primarily been used
to fund loan demand and to purchase securities. We have also used Federal Home
Loan Bank advances to “match-fund” certain longer-term one- to four-family
residential mortgage loans and commercial real estate loans. The Bank’s unused
borrowing capacity with the FHLBB, excluding its $12.4 million line of credit,
was approximately $293.3 at June 30, 2008 and $293.2 at December 31, 2007. At
June 30, 2008 and December 31, 2007, the Bank had no borrowing against the line
of credit.
  27
 Index
  
 Off-Balance
Sheet Arrangements and Aggregate Contractual Obligations
 
 Commitments
 
 As a
financial services provider, we routinely are a party to various financial
instruments with off-balance-sheet risks, such as commitments to extend credit,
standby letters of credit and unused lines of credit. While these contractual
obligations represent our future cash requirements, a significant portion of
commitments to extend credit may expire without being drawn upon. Such
commitments are subject to the same credit policies and approval process
accorded to loans made by us. We consider commitments to extend credit in
determining our allowance for loan losses.
 
 Contractual
Obligations
 
 In the
ordinary course of our operations, we enter into certain contractual
obligations. Such obligations include operating leases for premises and
equipment. The following table summarizes our significant fixed and determinable
contractual obligations and other funding needs by payment date at June 30,
2008. The payment amounts represent those amounts due to the recipient and do
not include any unamortized premiums or discounts or other similar carrying
amount adjustments.
 
 Payments
      Due by Period (in thousands)Less
      Than
                
                
                One
      to Three
                
                
                Three
      to Five
                
                
                More
      thanOne
      Year
                
                
                Years
                
                
                Years
                
                
                Five
      Years
                
                
                TotalContractual
      Obligations:Certificates
      of deposit
                
                $
                294,006
                
                
                $
                69,330
                
                
                $
                5,428
                
                
                $
                -
                
                
                $
                368,764Federal
      Home Loan Bank advances
                
                
                58,687
                
                
                
                55,339
                
                
                
                46,362
                
                
                
                30,001
                
                
                
                190,389Repurchase
      agreements
                
                
                8,963
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                8,963Standby
      letters of credit
                
                
                863
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                863Operating
      leases
                
                
                544
                
                
                
                1,002
                
                
                
                726
                
                
                
                2,935
                
                
                
                5,207Capitalized
      leases
                
                
                252
                
                
                
                504
                
                
                
                503
                
                
                
                4,137
                
                
                
                5,396Future
      benefits to be paid underretirement
      plans
                
                
                196
                
                
                
                -
                
                
                
                3,257
                
                
                
                610
                
                
                
                4,063Total
                
                $
                363,511
                
                
                $
                126,175
                
                
                $
                56,276
                
                
                $
                37,683
                
                
                $
                583,645Commitments
      to extend credit
                
                $
                186,026
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                186,026
 
  28
 Index
  Capital
Resources
  United
Bank is subject to various regulatory capital requirements, including a
risk-based capital measure. The risk-based capital guidelines include both a
definition of capital and a framework for calculating risk-weighted assets by
assigning balance sheet assets and off-balance sheet items to broad risk
categories. At June 30, 2008, the Bank exceeded all regulatory capital
requirements. United Bank is considered “well capitalized” under regulatory
requirements.
  
 As
      of June 30, 2008:Total
      risk-based capital
                
                
                19.49
                %Tier
      1 risk-based capital
                
                
                18.51
                %Tier
      1 (core) capital
                
                
                12.70
                %Tangible
      equity
                
                
                12.70
                %As
      of December 31, 2007:Total
      risk-based capital
                
                
                20.25
                %Tier
      1 risk-based capital
                
                
                19.25
                %Tier
      1 (core) capital
                
                
                14.00
                %Tangible
      equity
                
                
                14.00
                %
   29
 Index
  
  ITEM
3.   Quantitative and Qualitative Disclosures
About Market Risk
 
 The
information required by this item is included above in Item 2, Management’s
Discussion and Analysis of Financial Condition and Results of Operations, under
the caption “Market Risk, Liquidity and Capital Resources.”
 
 ITEM
4.   Controls and Procedures
 
 Under the
supervision and with the participation of the Company’s management, including
the Company’s Chief Executive Officer and Chief Financial Officer, the Company
has evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under
the Exchange Act) as of the end of the period covered by this report. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that, as of the end of the period covered by this report, the
Company’s disclosure controls and procedures were effective to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SEC’s rules and forms and in a timely
manner alerting them to material information relating to the Company (or its
consolidated subsidiary) required to be filed in its periodic SEC
filings.
 
 No change
in our internal controls over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934) occurred during the
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, our internal control over financial
reporting.  In the ordinary course of business, we routinely enhance
our internal controls and procedures for financial reporting by either upgrading
our current systems or implementing new systems. Changes have been made and will
be made to our internal controls and procedures for financial reporting as a
result of these efforts.
 
 PART
II.  OTHER INFORMATION
 
 ITEM
1.   Legal Proceedings
 
 At June
30, 2008, 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, 2008, 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,
2007.
 
 
  30
 Index
  ITEM
2.   Unregistered Sales of Equity Securities and
Use of Proceeds
 
 (a)
No unregistered securities were sold by the Company during the quarter ended
June 30, 2008.
 
 (b)
Not applicable
 
 (c)
On June 20, 2008, the Company announced that its Board of Directors has approved
a stock repurchase plan to fund awards of restricted stock contemplated under
the Company's 2008 Equity Incentive Plan, which was approved by stockholders at
the Company's 2008 Annual Meeting held on June 10, 2008. Under the plan, the
Company intends to repurchase up to 359,581 shares from time to time, depending
on market conditions, at prevailing market prices in open-market or privately
negotiated transactions. The Company anticipates conducting such repurchases in
accordance with a Rule 10b5-1 trading plan.
 
 The
following table provides certain information with regard to shares repurchased
by the Company in the second quarter of 2008.
 
 (c)
                
                
                (d)Total
      Number of
                
                
                Maximum
      NumberShares
                
                
                (or
      Approximate(a)
                
                
                (b)
                
                
                (or
      Units)
                
                
                Dollar
      Value) ofTotal
      Number
                
                
                Average
      Price
                
                
                Purchased
      as Part
                
                
                Shares
      (or Units) thatof
      Shares
                
                
                Paid
      Per
                
                
                of
      Publicly
                
                
                May
      Yet Be(or
      Units)
                
                
                Share
                
                
                Announced
      Plans
                
                
                Purchased
      Under thePeriod:
                
                Purchased
                
                
                (or
      Unit)
                
                
                or
      Programs
                
                
                Plans
      or ProgramsApril
      1 - 30, 2008
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                
                -May
      1 - 31, 2008
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -June
      1 - 30, 2008
                
                
                47,934
                
                
                
                11.19
                
                
                
                47,934
                
                
                
                311,647Total
                
                
                47,934
                
                
                $
                11.19
                
                
                
                47,934
 
  ITEM
3.   Defaults Upon Senior
Securities
 
 Not
applicable.
 
  
  31
 Index
  ITEM
4.   Submission of Matters to a Vote of Security
Holders
 
 The
      annual meeting of the stockholders of the Company was held on June 10,
      2008.1.
                The
      following individuals were elected as directors, each for a three-year
      term by the following vote:FOR
                
                WITHHELDRichard
      B. Collins
                
                14,491,491
                
                788,279G.
      Todd Marchant
                
                14,547,372
                
                732,398Michael
      F. Werenski
                
                14,549,182
                
                730,588The
      terms of office of the following directors continued after the annual
      meeting of stockholders:TERM EXPIRINGKevin
      E. Ross
                
                2009Robert
      A. Stewart, Jr.
                
                2009Thomas
      H. Themistos
                
                2009Michael
      F. Crowley
                
                2010Carol
      Moore Cutting
                
                2010Carol
      A. Leary
                
                20102.
                The
      approval of the United Financial Bancorp, Inc. 2008 Equity Incentive Plan
      by the following vote:BROKERFOR
                
                AGAINST
                
                ABSTENTIONS
                
                NON-VOTE10,619,507
                
                1,031,874
                
                923,989
                
                2,704,400
 
 ITEM
5. Other Information
 
 Not
applicable.
  32
 Index
  
 ITEM
6.   Exhibits.
  3.1
              Articles
      of Incorporation of United Financial Bancorp, Inc. (1)3.2
              Bylaws
      of United Financial Bancorp, Inc. (2)4
              Form
      of Common Stock Certificate of United Financial Bancorp, Inc.
      (1)10.1
              Form
      of Employee Stock Ownership Plan (3)10.2
              Employment
      Agreement by and between United Bank and Richard B. Collins
      (4)10.3
              Change
      in Control Agreement by and between United Bank and Keith E. Harvey
      (4)10.4
              Change
      in Control Agreement by and between United Bank and J. Jeffrey Sullivan
      (4)10.5
              Change
      in Control Agreement by and between United Bank and Mark A. Roberts
      (4)10.6
              United
      Bank 2007 Supplemental Retirement Plan for Senior Executives
      (4)10.7
              Split
      Dollar Life Insurance Agreement by and between United Bank and Richard B.
      Collins (5)10.8
              Split
      Dollar Life Insurance Agreement by and between United Bank and Keith E.
      Harvey (5)10.9
              Split
      Dollar Life Insurance Agreement by and between United Bank and John J.
      Patterson (5)10.10
              United
      Bank 2006 Stock-Based Incentive Plan (6)10.11
              United
      Bank 2008 Annual Incentive Plan (7)10.12
              United
      Bank 2007 Director Retirement Plan (8)10.13
              Directors
      Fee Continuation Plan (3)10.14
              Deferred
      Income Agreement by and between United Bank and Donald G. Helliwell
      (3)10.15
              Deferred
      Income Agreement by and between United Bank and Robert W. Bozenhard, Jr.
      (3)10.16
              Deferred
      Income Agreement by and between United Bank and George W. Jones
      (3)10.17
              United
      Financial Bancorp, Inc. 2008 Equity Incentive Plan (9)11
              Statement
      Regarding Computation of Per Share Earnings (refer to Note D of Part
      I,Item
      1- Consolidated Financial Statements21
              Subsidiaries
      of Registrant (1)31.1
              Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
              Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232.1
              Certification
      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 200232.2
              Certification
      of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002(1)
              Incorporated
      by reference to the Registration Statement on Form S-1 of United Financial
      Bancorp, Inc. (File No. 333-144245), originally filed with the Securities
      and Exchange Commission on June 29, 2007.(2)
              Incorporated
      by reference to the Form 8-K of United Financial Bancorp, Inc. filed with
      the Securities and Exchange Commission on April 22,
  2008.(3)
              Incorporated
      by reference to the Registration Statement on Form S-1 of United Financial
      Bancorp, Inc. (File No. 333-123371), originally filed with the
      Securities and Exchange Commission on March 16,
  2005.(4)
              Incorporated
      by reference to the Form 8-K of United Financial Bancorp, Inc. filed with
      the Securities and Exchange Commission on November 29,
    2007.(5)
              Incorporated
      by reference to the Form 8-K of United Financial Bancorp, Inc. filed with
      the Securities and Exchange Commission on January 2,
  2008.(6)
              Incorporated
      by reference to Appendix B to the proxy statement for the 2006 Annual
      Meeting of Stockholders of United Financial Bancorp, Inc. (File No.
      000-51369), filed by United Financial Bancorp, Inc. under the Securities
      Exchange Act of 1934, on June 12, 2006.(7)
              Incorporated
      by reference to the Form 10-K of United Financial Bancorp, Inc. filed with
      the Securities and Exchange Commission on March 17,
  2008.(8)
              Incorporated
      by reference to the Form 8-K of United Financial Bancorp, Inc. filed with
      the Securities and Exchange Commission on November 21,
    2007.(9)
              Incorporated
      by reference to Appendix A of the Company's Definitive Proxy Statement for
      the Annual Meeting of Stockholders (File No. 000-52947), as filed with the
      SEC on April 29, 2008).
 
  33
 Index
  
 
 SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed by the undersigned thereunto duly
authorized.
 
 
 United Financial Bancorp, Inc.Date:
      August
      8, 2008
              By:      /s/ Richard B.
      CollinsRichard
      B. CollinsChairman,
      President and Chief Executive OfficerDate:
      August
      8, 2008
              By:      /s/ Mark A.
      RobertsMark
      A. RobertsExecutive
      Vice President and Chief Financial
Officer
 
 
 
 34