UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549










FORM
10-Q





(Mark
      One)[X]
            Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period ended September 30, 2008OR[   ]
            Transition
      report pursuant to section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the transition period from ______________ to
  _____________





Commission
File Number 000-52947





United Financial Bancorp,
Inc.


(Exact
name of registrant as specified in its charter)





Maryland
            74-3242562(State
      or other jurisdiction of
            (I.R.S.
      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


17,707,580
shares outstanding as of November 7, 2008








United
Financial Bancorp, Inc.





INDEXPagePART I. FINANCIAL INFORMATIONItem 1
            Consolidated Financial Statements
    (unaudited)Consolidated
      Statements of ConditionSeptember 30, 2008 and December 31,
      2007
            1Consolidated
      Statements of EarningsThree Months and Nine Months Ended September
      30, 2008 and 2007
            2Consolidated
      Statements of Stockholders’ Equity and Comprehensive IncomeNine
      Months Ended September 30, 2008 and 2007
            3Consolidated
      Statements of Cash FlowsNine Months Ended September 30, 2008 and
      2007
            4Notes to Unaudited Consolidated Financial
      Statements
            5Item
      2
            Management's
      Discussion and Analysis of Financial Conditionand Results of
      Operations
            15Item 3
            Quantitative and Qualitative Disclosures About Market
      Risk
            31Item 4
            Controls and Procedures
            31PART II. OTHER INFORMATIONItem 1
            Legal Proceedings
            31Item 1A
            Risk Factors
            31Item 2
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            32Item 3
            Defaults Upon Senior Securities
            32Item 4.
            Submission of Matters to a Vote of Security
      Holders
            32Item 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)







September
      30,
              
              
              December
      31,2008
              
              
              2007(unaudited)ASSETSCash
      and due from banks
              
              $
              11,242
              
              
              $
              14,219Interest-bearing
      deposits
              
              
              1,802
              
              
              
              35Total
      cash and cash equivalents
              
              
              13,044
              
              
              
              14,254Short-term
      investments
              
              
              1,063
              
              
              
              1,030Securities
      available for sale, at fair value
              
              
              312,422
              
              
              
              201,257Securities
      to be held to maturity, at amortized cost  (fair value $3,236
      atSeptember
      30, 2008 and $3,631 at December 31, 2007)
              
              
              3,242
              
              
              
              3,632Loans,
      net of allowance for loan losses of  $8,385 at September 30,
      2008and
      $7,714 at December 31, 2007
              
              
              857,196
              
              
              
              819,117Other
      real estate owned
              
              
              330
              
              
              
              880Accrued
      interest receivable
              
              
              4,865
              
              
              
              4,477Deferred
      tax asset, net
              
              
              8,809
              
              
              
              4,953Stock
      in the Federal Home Loan Bank of Boston
              
              
              12,223
              
              
              
              10,257Banking
      premises and equipment, net
              
              
              12,323
              
              
              
              10,600Bank-owned
      life insurance
              
              
              6,960
              
              
              
              6,652Other
      assets
              
              
              2,613
              
              
              
              2,172TOTAL
      ASSETS
              
              $
              1,235,090
              
              
              $
              1,079,281LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilities:Deposits:Interest-bearing
              
              $
              653,858
              
              
              $
              616,672Non-interest-bearing
              
              
              107,029
              
              
              
              102,010Total
      deposits
              
              
              760,887
              
              
              
              718,682Federal
      Home Loan Bank of Boston advances
              
              
              226,130
              
              
              
              107,997Repurchase
      agreements
              
              
              11,365
              
              
              
              13,864Escrow
      funds held for borrowers
              
              
              1,809
              
              
              
              1,356Capitalized
      lease obligations
              
              
              3,149
              
              
              
              1,890Accrued
      expenses and other liabilities
              
              
              7,031
              
              
              
              9,372Total
      liabilities
              
              
              1,010,371
              
              
              
              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 September 30, 2008 and December 31, 2007
              
              
              178
              
              
              
              178Paid-in
      capital
              
              
              163,676
              
              
              
              165,920Retained
      earnings
              
              
              76,070
              
              
              
              73,026Unearned
      compensation
              
              
              (12,311
              )
              
              
              (12,835
              )Treasury
      stock, at cost (56,167 shares at September 30, 2008)
              
              
              (668
              )
              
              
              -Accumulated
      other comprehensive loss, net of taxes
              
              
              (2,226
              )
              
              
              (169
              )Total
      stockholders’ equity
              
              
              224,719
              
              
              
              226,120TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
              
              $
              1,235,090
              
              
              $
              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
              
              
              Nine
      Months EndedSeptember
      30,
              
              
              September
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Interest
      and dividend income:Loans
              
              $
              12,835
              
              
              $
              12,712
              
              
              $
              37,676
              
              
              $
              37,017Investments
              
              
              3,886
              
              
              
              2,017
              
              
              
              10,064
              
              
              
              5,849Other
      interest-earning assets
              
              
              90
              
              
              
              247
              
              
              
              450
              
              
              
              935Total
      interest and dividend income
              
              
              16,811
              
              
              
              14,976
              
              
              
              48,190
              
              
              
              43,801Interest
      expense:Deposits
              
              
              4,217
              
              
              
              5,672
              
              
              
              13,549
              
              
              
              16,330Borrowings
              
              
              2,058
              
              
              
              2,051
              
              
              
              5,166
              
              
              
              6,127Total
      interest expense
              
              
              6,275
              
              
              
              7,723
              
              
              
              18,715
              
              
              
              22,457Net
      interest income before provision for loan losses
              
              
              10,536
              
              
              
              7,253
              
              
              
              29,475
              
              
              
              21,344Provision
      for loan losses
              
              
              644
              
              
              
              436
              
              
              
              1,479
              
              
              
              1,040Net
      interest income after provision for loan losses
              
              
              9,892
              
              
              
              6,817
              
              
              
              27,996
              
              
              
              20,304Non-interest
      income:Fee
      income on depositors’ accounts
              
              
              1,219
              
              
              
              1,105
              
              
              
              3,452
              
              
              
              3,240Net
      (loss) gain on sale of securities
              
              
              -
              
              
              
              (141
              )
              
              
              8
              
              
              
              (170
              )Wealth
      management income
              
              
              313
              
              
              
              200
              
              
              
              599
              
              
              
              491Other
      income
              
              
              201
              
              
              
              248
              
              
              
              767
              
              
              
              684Total
      non-interest income
              
              
              1,733
              
              
              
              1,412
              
              
              
              4,826
              
              
              
              4,245Non-interest
      expense:Salaries
      and benefits
              
              
              4,523
              
              
              
              3,546
              
              
              
              12,763
              
              
              
              11,119Occupancy
      expenses
              
              
              636
              
              
              
              469
              
              
              
              1,723
              
              
              
              1,441Marketing
      expenses
              
              
              302
              
              
              
              277
              
              
              
              1,101
              
              
              
              1,048Data
      processing expenses
              
              
              804
              
              
              
              711
              
              
              
              2,338
              
              
              
              2,006Professional
      fees
              
              
              321
              
              
              
              220
              
              
              
              1,136
              
              
              
              872Other
      expenses
              
              
              1,220
              
              
              
              908
              
              
              
              3,471
              
              
              
              2,867Total
      non-interest expense
              
              
              7,806
              
              
              
              6,131
              
              
              
              22,532
              
              
              
              19,353Income
      before income taxes
              
              
              3,819
              
              
              
              2,098
              
              
              
              10,290
              
              
              
              5,196Income
      tax expense
              
              
              1,455
              
              
              
              807
              
              
              
              3,951
              
              
              
              2,093Net
      income
              
              $
              2,364
              
              
              $
              1,291
              
              
              $
              6,339
              
              
              $
              3,103Earnings
      per share:Basic
              
              $
              0.15
              
              
              $
              0.08
              
              
              $
              0.39
              
              
              $
              0.18Diluted
              
              $
              0.15
              
              
              $
              0.08
              
              
              $
              0.39
              
              
              $
              0.18Weighted
      average shares outstanding:Basic
              
              
              15,864,275
              
              
              
              16,930,395
              
              
              
              16,098,521
              
              
              
              16,922,830Diluted
              
              
              15,955,570
              
              
              
              16,989,353
              
              
              
              16,141,326
              
              
              
              16,986,250


See notes to unaudited consolidated
financial statements.


2
 Index





UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY AND


COMPREHENSIVE
INCOME (unaudited)


FOR
      THE NINE MONTHS ENDED SEPTEMBER 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
                
                
                Income
      (Loss)
                
                
                TotalBalances
      at December 31, 2006
                
                
                17,154,550
                
                
                $
                172
                
                
                $
                75,520
                
                
                $
                70,406
                
                
                $
                (5,772
                )
                
                $
                (664
                )
                
                $
                (1,951
                )
                
                $
                137,711Net
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                3,103
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                3,103Other
      comprehensive income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,063
                
                
                
                1,063Total
      comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                4,166Cash
      dividends paid ($0.18 per share)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,319
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,319
                )Treasury
      stock purchases
                
                
                (86,390
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,250
                )
                
                
                -
                
                
                
                (1,250
                )Stock-based
      compensation
                
                
                -
                
                
                
                -
                
                
                
                1,476
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,476ESOP
      shares committed to be released
                
                
                -
                
                
                
                -
                
                
                
                131
                
                
                
                -
                
                
                
                333
                
                
                
                -
                
                
                
                -
                
                
                
                464Balances
      at September 30, 2007
                
                
                17,068,160
                
                
                $
                172
                
                
                $
                77,127
                
                
                $
                72,190
                
                
                $
                (5,439
                )
                
                $
                (1,914
                )
                
                $
                (888
                )
                
                $
                141,248Balances
      at December 31, 2007
                
                
                17,763,747
                
                
                $
                178
                
                
                $
                165,920
                
                
                $
                73,026
                
                
                $
                (12,835
                )
                
                $
                -
                
                
                $
                (169
                )
                
                $
                226,120Net
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                6,339
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                6,339Other
      comprehensive loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (2,057
                )
                
                
                (2,057
                )Total
      comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                4,282Net
      costs from issuance of common stockpursuant
      to second-step conversion
                
                
                -
                
                
                
                -
                
                
                
                (26
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (26
                )Repurchase
      of stock to fund the 2008 EquityIncentive
      Plan
                
                
                (359,581
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (4,240
                )
                
                
                -
                
                
                
                (4,240
                )Shares
      repurchased in connection with restrictedstock
      forfeited for tax purposes
                
                
                (10,086
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (125
                )
                
                
                -
                
                
                
                (125
                )Reissuance
      of treasury shares in connection withrestricted
      stock grants
                
                
                313,500
                
                
                
                -
                
                
                
                (3,697
                )
                
                
                -
                
                
                
                -
                
                
                
                3,697
                
                
                
                -
                
                
                
                -Cash
      dividends paid ($0.20 per share)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (3,295
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (3,295
                )Stock-based
      compensation
                
                
                -
                
                
                
                -
                
                
                
                1,380
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,380ESOP
      shares committed to be released
                
                
                -
                
                
                
                -
                
                
                
                99
                
                
                
                -
                
                
                
                524
                
                
                
                -
                
                
                
                -
                
                
                
                623Balances
      at September 30, 2008
                
                
                17,707,580
                
                
                $
                178
                
                
                $
                163,676
                
                
                $
                76,070
                
                
                $
                (12,311
                )
                
                $
                (668
                )
                
                $
                (2,226
                )
                
                $
                224,719


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





Nine
      Months Ended September 30,2008
              
              
              2007Change
      in unrealized holding (losses) gains on available-for-sale
      securities
              
              $
              (3,415
              )
              
              $
              1,591Reclassification
      adjustment for (gains) losses realized in income
              
              
              (8
              )
              
              
              170Net
      change in unrealized (losses) gains
              
              
              (3,423
              )
              
              
              1,761Tax
      effect
              
              
              (1,366
              )
              
              
              698Other
      comprehensive (loss) income
              
              $
              (2,057
              )
              
              $
              1,063





See notes to unaudited consolidated
financial statements.


3
 Index


UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF CASH FLOWS (unaudited)


FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2008 and 2007


(Dollars
in thousands)







2008
              
              
              2007Cash
      flows from operating activities:Net
      income
              
              $
              6,339
              
              
              $
              3,103Adjustments
      to reconcile net income to net cash provided by operating
      activities:Provision
      for loan losses
              
              
              1,479
              
              
              
              1,040ESOP
      expense
              
              
              623
              
              
              
              464Stock-based
      compensation
              
              
              1,380
              
              
              
              1,476Amortization
      of premiums and discounts
              
              
              138
              
              
              
              83Depreciation
      and amortization
              
              
              652
              
              
              
              638Amortization
      of intangible assets
              
              
              23
              
              
              
              23Net
      loss (gain) on sale of other real estate owned
              
              
              45
              
              
              
              (14
              )Net
      (gain) loss on sale of securities
              
              
              (8
              )
              
              
              170Net
      loss on sale of loans
              
              
              -
              
              
              
              5Increase
      in cash surrender value of bank-owned life insurance
              
              
              (308
              )
              
              
              (291
              )Increase
      in accrued interest receivable
              
              
              (388
              )
              
              
              (332
              )Increase
      in other assets
              
              
              (2,954
              )
              
              
              (1,023
              )Decrease
      in accrued expenses and other liabilities
              
              
              (2,237
              )
              
              
              (475
              )Net
      cash provided by operating activities
              
              
              4,784
              
              
              
              4,867Cash
      flows from investing activities:Purchases
      of securities available for sale
              
              
              (203,411
              )
              
              
              (65,230
              )Proceeds
      from sales of securities available for sale
              
              
              30,274
              
              
              
              14,449Proceeds
      from maturities, calls and principal repayments of securities available
      for sale
              
              
              58,425
              
              
              
              58,671Purchases
      of securities held to maturity
              
              
              -
              
              
              
              (675
              )Proceeds
      from  maturities, calls and principal repayments of securities
      held to maturity
              
              
              385
              
              
              
              225Investment
      in short term time deposits
              
              
              (33
              )
              
              
              (1,017
              )Purchases
      of Federal Home Loan Bank of Boston stock
              
              
              (1,966
              )
              
              
              (611
              )Proceeds
      from sales of other real estate owned
              
              
              655
              
              
              
              576Net
      loan originations and principal repayments
              
              
              (39,708
              )
              
              
              (55,755
              )Proceeds
      from sales of loans
              
              
              -
              
              
              
              1,898Purchases
      of property and equipment
              
              
              (1,059
              )
              
              
              (441
              )Cash
      paid to acquire Levine Financial Group
              
              
              -
              
              
              
              (55
              )Net
      cash used in investing activities
              
              
              (156,438
              )
              
              
              (47,965
              )Cash
      flows from financing activities:Net
      increase in deposits
              
              
              42,205
              
              
              
              37,432Increase
      in short-term borrowings from Federal Home Loan Bank of
    Boston
              
              
              52,145
              
              
              
              32,000Proceeds
      of Federal Home Loan Bank of Boston long-term advances
              
              
              85,000
              
              
              
              20,000Repayments
      of Federal Home Loan Bank of Boston long-term advances
              
              
              (19,012
              )
              
              
              (37,954
              )Net
      decrease in repurchase agreements
              
              
              (2,499
              )
              
              
              (2,906
              )Net
      increase in escrow funds held for borrowers
              
              
              453
              
              
              
              289Repurchases
      of common stock to fund the 2008 Equity Incentive Plan
              
              
              (3,697
              )
              
              
              -Treasury
      stock purchases
              
              
              (668
              )
              
              
              (1,250
              )Cash
      dividends paid
              
              
              (3,295
              )
              
              
              (1,319
              )Costs
      from issuance of common stock pursuant to second-step
      conversion
              
              
              (26
              )
              
              
              -Payments
      on capitalized lease obligations
              
              
              (162
              )
              
              
              (122
              )Net
      cash provided by financing activities
              
              
              150,444
              
              
              
              46,170(Decrease)
      increase in cash and cash equivalents
              
              
              (1,210
              )
              
              
              3,072Cash
      and cash equivalents at beginning of period
              
              
              14,254
              
              
              
              25,419Cash
      and cash equivalents at end of  period
              
              $
              13,044
              
              
              $
              28,491Supplemental
      Disclosure of Cash Flow Information:Cash
      paid during the period:Interest
      on deposits, borrowings and other interest bearing
    liabilities
              
              $
              18,531
              
              
              $
              22,418Income
      taxes – net
              
              
              9,676
              
              
              
              2,463Non-cash
      items:Capitalized
      lease asset and obligations
              
              $
              1,308
              
              
              $
              1,932Transfer
      of loans to other real estate owned
              
              
              150
              
              
              
              880




See notes to unaudited consolidated
financial statements.


4
 Index


UNITED
FINANCIAL BANCORP, INC. AND SUBSIDIARY


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
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 September 30, 2008 and the results of operations for the three
and nine months ended September 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
Emerging Issues Task Force (“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 Statement of Financial Accounting Standards
No.157 (“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
February 2008, the FASB issued FASB Staff Position (“FSP”) 157-2, “Effective
Date of FASB Statement No. 157,” which permits a one-year deferral in
applying the measurement provisions of SFAS No. 157 to non-financial assets
and non-financial liabilities (non-financial items) that are not recognized or
disclosed at fair value in an entity’s financial statements on a recurring basis
(at least annually). Therefore, if the change in fair value of a non-financial
item is not required to be recognized or disclosed in the financial statements
on an annual basis or more frequently, the effective date of application of SFAS
No. 157 to that item is deferred until fiscal years beginning after
November 15, 2008. The 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
              
              
              Nine
      Months EndedSeptember
      30,
              
              
              September
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Net
      income
              
              $
              2,364
              
              
              $
              1,291
              
              
              $
              6,339
              
              
              $
              3,103Weighted
      average common shares applicable tobasic EPS(1,
      4)
              
              
              15,864,275
              
              
              
              16,930,395
              
              
              
              16,098,521
              
              
              
              16,922,830Effect of dilutive potential
      common shares(2, 3)
              
              
              91,295
              
              
              
              58,958
              
              
              
              42,805
              
              
              
              63,420Weighted
      average common shares applicable todiluted
      EPS
              
              
              15,955,570
              
              
              
              16,989,353
              
              
              
              16,141,326
              
              
              
              16,986,250Earnings
      per share:Basic
              
              $
              0.15
              
              
              $
              0.08
              
              
              $
              0.39
              
              
              $
              0.18Diluted
              
              $
              0.15
              
              
              $
              0.08
              
              
              $
              0.39
              
              
              $
              0.18
  (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 syndicated offering. All share data inprior
      periods have been adjusted by the exhange ratio.(2)  For
      the nine months ended September 30, 2008 and September 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)  Excludes
      shares repurchased in June 2008 through September 2008 to fund the 2008
      Equity Incentive Plan.




7
 Index





NOTE
E – INVESTMENT SECURITIES





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





Amortized
              
              
              UnrealizedCost
              
              
              Gain
              
              
              Losses
              
              
              Fair
      ValueSecurities Available
      for SaleSeptember
      30, 2008:Debt
      Securities:Government-sponsored
      enterprises
              
              $
              5,479
              
              
              $
              -
              
              
              $
              (159
              )
              
              $
              5,320Mortgage-backed
      securities
              
              
              296,154
              
              
              
              1,033
              
              
              
              (1,960
              )
              
              
              295,227Municipal
      bonds
              
              
              10,599
              
              
              
              -
              
              
              
              (536
              )
              
              
              10,063Corporate
      bonds
              
              
              2,822
              
              
              
              -
              
              
              
              (1,010
              )
              
              
              1,812Total
      securities available for sale
              
              $
              315,054
              
              
              $
              1,033
              
              
              $
              (3,665
              )
              
              $
              312,422December
      31, 2007:Debt
      Securities:Government-sponsored
      enterprises
              
              $
              45,447
              
              
              $
              51
              
              
              $
              (24
              )
              
              $
              45,474Mortgage-backed
      securities
              
              
              146,764
              
              
              
              1,270
              
              
              
              (453
              )
              
              
              147,581Municipal
      bonds
              
              
              5,295
              
              
              
              8
              
              
              
              (19
              )
              
              
              5,284Corporate
      bonds
              
              
              2,820
              
              
              
              5
              
              
              
              (47
              )
              
              
              2,778Total
      debt securities
              
              
              200,326
              
              
              
              1,334
              
              
              
              (543
              )
              
              
              201,117Marketable
      equity securities
              
              
              140
              
              
              
              -
              
              
              
              -
              
              
              
              140Total
      securities available for sale
              
              $
              200,466
              
              
              $
              1,334
              
              
              $
              (543
              )
              
              $
              201,257
  Amortized
              
              
              UnrealizedCost
              
              
              Gain
              
              
              Losses
              
              
              Fair
      ValueSecurities Held to
      MaturitySeptember
      30, 2008:IRB
              
              $
              1,172
              
              
              $
              -
              
              
              $
              -
              
              
              $
              1,172Municipal
      bonds
              
              
              2,070
              
              
              
              20
              
              
              
              (26
              )
              
              
              2,064Total
              
              $
              3,242
              
              
              $
              20
              
              
              $
              (26
              )
              
              $
              3,236December
      31, 2007:IRB
              
              $
              1,197
              
              
              $
              -
              
              
              $
              -
              
              
              $
              1,197Municipal
      bonds
              
              
              2,435
              
              
              
              11
              
              
              
              (12
              )
              
              
              2,434Total
              
              $
              3,632
              
              
              $
              11
              
              
              $
              (12
              )
              
              $
              3,631





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





Management
has evaluated the securities in the preceding tables and concluded that none of
these securities have experienced impairments that are other-than
temporary.  In its evaluation, management considered the type of
security, the length of time the security was in a continuous loss position, the
size of the security’s loss position relative to its amortized cost, the
issuer’s and underlying entities credit rating and outlook, the bond’s payment
status, the issuer’s financial condition and the Company’s ability and intent to
hold the security until forecasted maturity or recovery date.


8
 Index


The
Company’s mortgage-backed securities portfolio had a net unrealized loss of
$927,000, or 0.3% of amortized cost, at September 30, 2008. Management believes
that the unrealized losses on these bonds are due to a significant widening in
spreads in connection with current market conditions. All of the Company’s
mortgage-backed securities are issued by government-owned or sponsored
enterprises. Management anticipates that these conditions will not affect the
expected cash flows of the underlying issuer and expects to collect all amounts
due according to the contractual terms.  The Company has the ability
and intent to hold these securities until forecasted maturity or recovery date
given its strong liquidity and capital positions and, accordingly, no declines
are deemed to be other than temporary.





At
September 30, 2008, the Company’s municipal bond portfolio had a net unrealized
loss of $536,000, or 5.1% of amortized cost. Management believes that these
unrealized losses are primarily due to the current credit and liquidity crises,
which have led to a significant widening in spreads. Management believes that
these market conditions will not affect the expected cash flows of the issuer.
All of the Company’s municipal bonds are rated upper medium grade or higher by
one of the rating agencies, with the exception of two securities, and continue
to perform in accordance with contractual terms.  Although conditions
in the insurance market have deteriorated, management also considers the
underlying guarantee of its municipal bonds based upon the insurer’s rating and
current financial condition. Because the Company has the ability and intent to
hold these securities to the forecasted maturity or recovery date and expects to
collect all amounts due according to the contractual terms, no declines are
deemed to be other than temporary.





The
Company’s variable rate trust preferred securities portfolio has an unrealized
loss of $1.0 million, equal to 35.8% of amortized cost, at September 30, 2008.
The Company holds two securities issued by large national banks, both of which
have high-grade credit ratings and strong financial positions. The Company also
holds a pooled trust preferred security with a stable credit rating of Aa2. The
pool is well diversified geographically and the largest single issuer within the
pool represents less than 4% of total holdings. The Company owns the AA tranche,
which maintains significant coverage for principal defaults and temporary
interest shortfalls. All of the Company’s trust preferred securities continue to
perform according to contractual terms.  Management believes that
these unrealized losses are primarily due to current market conditions which
have led to distressed-sale pricing and a significant widening in spreads to
LIBOR.  Management believes that these market conditions will not
affect the expected cash flows of the underlying issuers and expects to collect
all amounts due according to the contractual terms.  Because the
Company has the ability and intent to hold these securities to the forecasted
maturity or recovery date due to its strong liquidity and capital positions and
expects to collect all amounts due according to the contractual terms, no
declines are deemed to be other than temporary.














9
 Index


NOTE
F – LOANS





The
components of loans were as follows at September 30, 2008 and December 31,
2007:





September
      30,
              
              
              December
      31,2008
              
              
              2007Residential
      mortgages
              
              $
              357,967
              
              
              $
              339,470Commercial
      real estate
              
              
              236,010
              
              
              
              214,776Construction
              
              
              34,499
              
              
              
              42,059Home
      equity
              
              
              121,166
              
              
              
              116,241Commercial
      and industrial
              
              
              84,612
              
              
              
              81,562Automobile
              
              
              18,809
              
              
              
              22,461Consumer
              
              
              10,136
              
              
              
              8,126Total
      loans
              
              
              863,199
              
              
              
              824,695Net
      deferred loan costs and fees
              
              
              2,382
              
              
              
              2,136Allowance
      for loan losses
              
              
              (8,385
              )
              
              
              (7,714
              )Loans,
      net
              
              $
              857,196
              
              
              $
              819,117


NOTE
G – NON-PERFORMING ASSETS





The table
below sets forth the amounts and categories of non-performing assets at
September 30, 2008 and December 31, 2007:





September
      30,
              
              
              December
      31,2008
              
              
              2007Non-accrual
      loans:Residential
      mortgages
              
              $
              1,231
              
              
              $
              328Commercial
      mortgages
              
              
              872
              
              
              
              553Construction
              
              
              586
              
              
              
              577Home
      equity
              
              
              75
              
              
              
              52Commercial
      and industrial
              
              
              531
              
              
              
              275Automobile
              
              
              -
              
              
              
              -Other
      consumer
              
              
              -
              
              
              
              -Total
      non-accrual loans
              
              
              3,295
              
              
              
              1,785Accruing
      loans 90 days or more past due
              
              
              -
              
              
              
              -Total
      non-performing loans
              
              
              3,295
              
              
              
              1,785Other
      real estate owned
              
              
              330
              
              
              
              880Total
      non-performing assets
              
              $
              3,625
              
              
              $
              2,665Ratios:Total
      non-performing loans to total loans
              
              
              0.38
              %
              
              
              0.22
              %Total
      non-performing assets to total assets
              
              
              0.29
              %
              
              
              0.25
              %








10
 Index


NOTE
H – ALLOWANCE FOR LOAN LOSSES





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





For
      the Nine Months Ended September 30,2008
              
              
              2007Balance
      at beginning of period
              
              $
              7,714
              
              
              $
              7,218Provision
      for loan losses
              
              
              1,479
              
              
              
              1,040Charge-offs
              
              
              (832
              )
              
              
              (654
              )Recoveries
              
              
              24
              
              
              
              8Balance
      at end of period
              
              $
              8,385
              
              
              $
              7,612Ratios:Net
      charge-offs to average loansoutstanding
      (annualized)
              
              
              0.13
              %
              
              
              0.11
              %Allowance
      for loan losses to non-performingloans
      at end of period
              
              
              254.48
              %
              
              
              755.16
              %Allowance
      for loan losses to totalloans
      at end of period
              
              
              0.97
              %
              
              
              0.93
              %





NOTE
I – COMMITMENTS





Financial
instruments with off-balance sheet risk at September 30, 2008 and December 31,
2007 were as follows:





September
      30,
              
              
              December
      31,2008
              
              
              2007Unused
      lines of credit
              
              $
              150,716
              
              
              $
              146,579Amounts
      due mortgagors
              
              
              19,065
              
              
              
              31,168Standby
      letters of credit
              
              
              932
              
              
              
              1,627Commitments
      to originate loans
              
              
              15,883
              
              
              
              15,890





NOTE
J – DEPOSITS





Deposit accounts, by type, are
summarized as follows atSeptember 30, 2008and December 31,
2007:





September
      30,
              
              
              December
      31,2008
              
              
              2007Demand
              
              $
              107,029
              
              
              $
              102,010NOW
              
              
              34,965
              
              
              
              35,207Savings
              
              
              96,884
              
              
              
              65,711Money
      market
              
              
              159,663
              
              
              
              168,107Certificates
      of deposit
              
              
              362,346
              
              
              
              347,647$
              760,887
              
              
              $
              718,682


11
 Index





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.





NOTE  L  -
FAIR VALUES OF ASSETS AND LIABILITIES





Effective
January 1, 2008, the Company adopted SFAS No. 157, 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, other U.S.
government and government-sponsored enterprises and agency mortgage-backed
securities that are traded by dealers or brokers in active
markets.  Valuations are obtained from readily available pricing
sources for market transactions involving identical assets or
liabilities.




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




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




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




At
      September 30, 2008Level
      1
              
              
              Level
      2
              
              
              Level
      3
              
              
              Total
      Fair ValueSecurities
      available for sale
              
              $
              5,320
              
              
              $
              305,290
              
              
              $
              1,812
              
              
              $
              312,422Mortgage
      servicing rights
              
              
              -
              
              
              
              -
              
              
              
              126
              
              
              
              126Total
              
              $
              5,320
              
              
              $
              305,290
              
              
              $
              1,938
              
              
              $
              312,548




The
Company has no liabilities measured at fair value on a recurring basis at
September 30, 2008.





12
 Index





The table
below presents the changes in Level 3 assets measured at fair value on a
recurring basis.





Balance
      as of January 1, 2008
              
              $
              136Total
      realized/unrealized losses included in net income
              
              
              (10
              )Change
      in unrealized loss
              
              
              (966
              )Purchases,
      sales, issuances and settlements
              
              
              -Transfers
      in and out of Level 3
              
              
              2,778Balance
      as of September 30, 2008
              
              $
              1,938





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.




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. The following table summarizes
the fair value hierarchy used to determine the adjustment and the carrying value
of the related individual asset for the three and nine months ended September
30, 2008.




Three
      Months Ended
              
              
              Nine
      Months EndedSeptember
      30,
              
              
              September
      30,2008
              
              
              2008At
      September 30, 2008
              
              
              Total
              
              
              TotalLevel
      1
              
              
              Level
      2
              
              
              Level
      3
              
              
              Gains/(Losses)
              
              
              Gains/(Losses)Assets:Loans
              
              $
              -
              
              
              $
              3,533
              
              
              $
              -
              
              
              $
              (62
              )
              
              $
              (112
              )Total
      assets
              
              $
              -
              
              
              $
              3,533
              
              
              $
              -
              
              
              $
              (62
              )
              
              $
              (112
              )




The
amount of loans represents the carrying value and related write-down and
valuation allowance of impaired loans for which adjustments are based on the
estimated fair value of the underlying collateral.




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.


13
 Index


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. 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
amended its calculation of the fair market value of its residential mortgage
portfolio beginning with the 2007 tax year.








14
 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 September 30, 2008 and December 31, 2007




Total
assets increased $155.8 million, or 14.4%, to $1.2 billion at September 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 ($42.2
million) and Federal Home Loan Bank advances ($118.1 million). Securities
available for sale increased $111.2 million, or 55.2%, to $312.4 million at
September 30, 2008 from $201.3 million at December 31, 2007, due to
purchases of debt securities available for sale totaling $203.4 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 nine months of 2008, management purchased agency
mortgage-backed securities with predictable cash flows and attractive spreads to
U.S. Treasury securities. Total loans increased $38.5 million, or 4.7%, to
$863.2 million at September 30, 2008 from $824.7 million at December 31,
2007 reflecting growth in the commercial real estate (9.9%), residential real
estate (5.5%), home equity (4.2%) and commercial (3.7%) portfolios as a result
of business development efforts and competitive products and pricing.
Construction loan balances declined $7.6 million, or 18.0%, to $34.5 million at
September 30, 2008 as a result of pay-downs and a slow-down in the underlying
market.




Total deposits increased
$42.2 million, or 5.9%, to $760.9 million at September 30, 2008 compared to
$718.7 million at December 31, 2007 mainly due to competitive products and
pricing, excellent customer service, targeted promotional activities and the
opening of two new branches in 2008. Core deposit balances grew $27.5 million,
or 7.4%, to $398.5 million at September 30, 2008 from $371.0 million at December
31, 2007.


15
 Index





Total
stockholders’ equity decreased $1.4 million, or 0.6%, to $224.7 million at
September 30, 2008 from $226.1 million at December 31, 2007 as a
result of repurchases of our common stock totaling $4.2 million to fund
restricted stock awards granted under the 2008 Equity Incentive Plan, cash
dividend payments amounting to $3.3 million and an increase of $2.1 million in
net unrealized losses on securities available for sale. These decreases were
partially offset by net income of $6.3 million for the nine months ended
September 30, 2008, stock-based compensation totaling $1.4 million and ESOP
compensation expense of $623,000.




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 $3.6 million, or 0.29% of total assets, at September 30, 2008 compared
to $2.7 million, or 0.25% of total assets, at December 31, 2007. Net loan
charge-offs increased $162,000, or 25.1%, to $808,000 for the nine months ended
September 30, 2008 compared to $646,000 in the same period of 2007. Commercial
and industrial loan net charge-offs represented $424,000 or 52.5%, of the
overall net charge-offs, primarily related to three relationships.




Delinquent Loans.The following table sets forth our loan delinquencies 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 September 30,
      2008Residential
      mortgages
              
              
              13
              
              
              $
              1,494
              
              
              
              6
              
              
              $
              1,231
              
              
              
              19
              
              
              $
              2,725Commercial
      mortgage
              
              
              7
              
              
              
              1,333
              
              
              
              12
              
              
              
              872
              
              
              
              19
              
              
              
              2,205Construction
              
              
              -
              
              
              
              -
              
              
              
              4
              
              
              
              586
              
              
              
              4
              
              
              
              586Home
      equity
              
              
              -
              
              
              
              -
              
              
              
              1
              
              
              
              75
              
              
              
              1
              
              
              
              75Commercial
      and industrial
              
              
              8
              
              
              
              494
              
              
              
              14
              
              
              
              531
              
              
              
              22
              
              
              
              1,025Automobile
              
              
              1
              
              
              
              7
              
              
              
              -
              
              
              
              -
              
              
              
              1
              
              
              
              7Other
      consumer
              
              
              3
              
              
              
              215
              
              
              
              -
              
              
              
              -
              
              
              
              3
              
              
              
              215Total
              
              
              32
              
              
              $
              3,543
              
              
              
              37
              
              
              $
              3,295
              
              
              
              69
              
              
              $
              6,838At December 31,
      2007Residential
      mortgages
              
              
              1
              
              
              $
              558
              
              
              
              4
              
              
              $
              328
              
              
              
              5
              
              
              $
              886Commercial
      mortgage
              
              
              3
              
              
              
              671
              
              
              
              5
              
              
              
              553
              
              
              
              8
              
              
              
              1,224Construction
              
              
              -
              
              
              
              -
              
              
              
              5
              
              
              
              577
              
              
              
              5
              
              
              
              577Home
      equity
              
              
              2
              
              
              
              200
              
              
              
              2
              
              
              
              52
              
              
              
              4
              
              
              
              252Commercial
      and industrial
              
              
              7
              
              
              
              454
              
              
              
              8
              
              
              
              275
              
              
              
              15
              
              
              
              729Automobile
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Other
      consumer
              
              
              2
              
              
              
              50
              
              
              
              -
              
              
              
              -
              
              
              
              2
              
              
              
              50Total
              
              
              15
              
              
              $
              1,933
              
              
              
              24
              
              
              $
              1,785
              
              
              
              39
              
              
              $
              3,718





16
 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 two owner-occupied mortgage loans classified due to the
commercial lending relationships. These loans are current in their payments. All
other loans include $8.9 million in condominium construction loans, all of which
are current in payments.





At
      September 30,
              
              
              At
      December 31,2008
              
              
              2007(In
      thousands)Residential Real Estate(1):Special
      mention
              
              $
              382
              
              
              $
              -Substandard
              
              
              1,931
              (2)
              
              
              1,278All Other Loans(3):Special
      mention
              
              
              16,956
              
              
              
              13,800Substandard
              
              
              20,169
              
              
              
              19,377Doubtful
              
              
              858
              
              
              
              244Loss
              
              
              -
              
              
              
              -Foreclosed
      Assets:Other
      real estate owned
              
              
              330
              
              
              
              880Total
      classified assets
              
              $
              40,626
              
              
              $
              35,579
 (1) Includes
      one-to-four family loans and home equity loans and lines of
      credit.(2) Includes
      eight residential relationships, five of which are in foreclosure or
      liquidation proceedings.(3) Includes
      $11.2 million of construction loans for single family or condominium
      contruction.




Comparison
of Operating Results for the Three Months Ended September 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 $2.4 million, or $0.15
per diluted share, for the third quarter of 2008 compared to net income of $1.3
million, or $0.08 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 65 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 and wealth management accounts, partially offset by
higher provision for loan losses and an increase in non-interest
expenses.




17
 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 September 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
                
                $
                361,428
                
                
                $
                5,151
                
                
                
                5.70
                %
                
                $
                346,357
                
                
                $
                4,910
                
                
                
                5.67
                %Commercial
      real estate
                
                
                268,026
                
                
                
                4,235
                
                
                
                6.32
                %
                
                
                238,013
                
                
                
                3,963
                
                
                
                6.66
                %Home
      equity
                
                
                120,793
                
                
                
                1,704
                
                
                
                5.64
                %
                
                
                118,604
                
                
                
                1,966
                
                
                
                6.63
                %Commercial
      and industrial
                
                
                84,595
                
                
                
                1,312
                
                
                
                6.20
                %
                
                
                78,659
                
                
                
                1,460
                
                
                
                7.42
                %Consumer
      and other
                
                
                30,211
                
                
                
                433
                
                
                
                5.73
                %
                
                
                31,123
                
                
                
                413
                
                
                
                5.31
                %Total
      loans
                
                
                865,053
                
                
                
                12,835
                
                
                
                5.93
                %
                
                
                812,756
                
                
                
                12,712
                
                
                
                6.26
                %Investment
      securities
                
                
                306,499
                
                
                
                3,886
                
                
                
                5.07
                %
                
                
                168,498
                
                
                
                2,017
                
                
                
                4.79
                %Other
      interest-earning assets
                
                
                13,692
                
                
                
                90
                
                
                
                2.63
                %
                
                
                17,082
                
                
                
                247
                
                
                
                5.78
                %Total
      interest-earning assets
                
                
                1,185,244
                
                
                
                16,811
                
                
                
                5.67
                %
                
                
                998,336
                
                
                
                14,976
                
                
                
                6.00
                %Noninterest-earning
      assets
                
                
                40,006
                
                
                
                
                
                
                
                
                
                
                
                33,889Total
      assets
                
                $
                1,225,250
                
                
                
                
                
                
                
                
                
                
                $
                1,032,225Interest-bearing
      liabilities:Savings
      accounts
                
                $
                92,919
                
                
                
                300
                
                
                
                1.29
                %
                
                $
                62,005
                
                
                
                139
                
                
                
                0.90
                %Money
      market accounts
                
                
                166,772
                
                
                
                773
                
                
                
                1.85
                %
                
                
                180,563
                
                
                
                1,462
                
                
                
                3.24
                %NOW
      accounts
                
                
                33,208
                
                
                
                45
                
                
                
                0.54
                %
                
                
                34,070
                
                
                
                46
                
                
                
                0.54
                %Certificates
      of deposit
                
                
                363,886
                
                
                
                3,099
                
                
                
                3.41
                %
                
                
                342,573
                
                
                
                4,025
                
                
                
                4.70
                %Total
      interest-bearing deposits
                
                
                656,785
                
                
                
                4,217
                
                
                
                2.57
                %
                
                
                619,211
                
                
                
                5,672
                
                
                
                3.66
                %FHLB
      advances
                
                
                214,005
                
                
                
                1,959
                
                
                
                3.66
                %
                
                
                156,150
                
                
                
                1,914
                
                
                
                4.90
                %Other
      interest-bearing liabilities
                
                
                12,461
                
                
                
                99
                
                
                
                3.18
                %
                
                
                12,434
                
                
                
                137
                
                
                
                4.41
                %Total
      interest-bearing liabilities
                
                
                883,251
                
                
                
                6,275
                
                
                
                2.84
                %
                
                
                787,795
                
                
                
                7,723
                
                
                
                3.92
                %Demand
      deposits
                
                
                109,013
                
                
                
                
                
                
                
                
                
                
                
                101,119Other
      noninterest-bearing liabilities
                
                
                8,971
                
                
                
                
                
                
                
                
                
                
                
                3,491Total
      liabilities
                
                
                1,001,235
                
                
                
                
                
                
                
                
                
                
                
                892,405Stockholders'
      equity
                
                
                224,015
                
                
                
                
                
                
                
                
                
                
                
                139,820Total
      liabilities and stockholders' equity
                
                $
                1,225,250
                
                
                
                
                
                
                
                
                
                
                $
                1,032,225Net
      interest income
                
                
                
                
                
                $
                10,536
                
                
                
                
                
                
                
                
                
                
                $
                7,253Interest
      rate spread(1)
                
                
                
                
                
                
                
                
                
                
                2.83
                %
                
                
                
                
                
                
                
                
                
                
                2.08
                %Net
      interest-earning assets(2)
                
                $
                301,993
                
                
                
                
                
                
                
                
                
                
                $
                210,541Net
      interest margin(3)
                
                
                
                
                
                
                
                
                
                
                3.56
                %
                
                
                
                
                
                
                
                
                
                
                2.91
                %Average
      interest-earning assets toaverage
      interest-bearing liabilities
                
                
                
                
                
                
                
                
                
                
                134.19
                %
                
                
                
                
                
                
                
                
                
                
                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.





18
 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 September 30,2008
      vs. 2007Increase
      (Decrease) Due toVolume
              
              
              Rate
              
              
              Net(In
      thousands)Interest-earning
      assets:Loans:Residential
      real estate
              
              $
              215
              
              
              $
              26
              
              
              $
              241Commercial
      real estate
              
              
              481
              
              
              
              (209
              )
              
              
              272Home
      equity
              
              
              35
              
              
              
              (297
              )
              
              
              (262
              )Commercial
      and industrial
              
              
              104
              
              
              
              (252
              )
              
              
              (148
              )Consumer
      and other
              
              
              (12
              )
              
              
              32
              
              
              
              20Total
      loans
              
              
              823
              
              
              
              (700
              )
              
              
              123Investment
      securities
              
              
              1,743
              
              
              
              126
              
              
              
              1,869Other
      interest-earning assets
              
              
              (42
              )
              
              
              (115
              )
              
              
              (157
              )Total
      interest-earning assets
              
              
              2,524
              
              
              
              (689
              )
              
              
              1,835Interest-bearing
      liabilities:Savings
      accounts
              
              
              85
              
              
              
              76
              
              
              
              161Money
      market accounts
              
              
              (105
              )
              
              
              (584
              )
              
              
              (689
              )NOW
      accounts
              
              
              (1
              )
              
              
              -
              
              
              
              (1
              )Certificates
      of deposit
              
              
              237
              
              
              
              (1,163
              )
              
              
              (926
              )Total
      interest-bearing deposits
              
              
              216
              
              
              
              (1,671
              )
              
              
              (1,455
              )FHLB
      advances
              
              
              602
              
              
              
              (557
              )
              
              
              45Other
      interest-bearing liabilities
              
              
              -
              
              
              
              (38
              )
              
              
              (38
              )Total
      interest-bearing liabilities
              
              
              818
              
              
              
              (2,266
              )
              
              
              (1,448
              )Change
      in net interest income
              
              $
              1,706
              
              
              $
              1,577
              
              
              $
              3,283




Net Interest
Income Before Provision for Loan Losses.Net interest income
before provision for loan losses increased $3.3 million, or 45.3%, to
$10.5 million for the three months ended September 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 65 basis points to 3.56%
for the three-month period ended September 30, 2008 compared to 2.91% 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
September 30, 2008.


19
 Index







Interest
Income.  Interest income increased $1.8 million, or 12.3%, to
$16.8 million for the three months ended September 30, 2008 from $15.0 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
$186.9 million, or 18.7%, to $1.2 billion for the three months ended September
30, 2008 mainly due to loan growth and purchases of mortgage-backed securities.
Total average loans increased $52.3 million, or 6.4%, to $865.1 million for the
third quarter of 2008 as a result of solid origination activity, partially
offset by scheduled amortization and prepayments of existing loans. Total
average investment securities increased by $138.0 million, or 81.9%, to $306.5
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 33 basis points to 5.67% for the third
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 $1.4 million, or 18.8%, to
$6.3 million for the three months ended September 30, 2008 from
$7.7 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 108 basis points to 2.84% for the three months ended
September 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 $95.5 million,
or 12.1%, to $883.3 million for the three months ended September 30, 2008
from $787.8 million for the prior year period reflecting growth in
interest-bearing deposits and FHLB advances. Total average interest-bearing
deposits increased $37.6 million, or 6.1%, to $656.8 million for the third
quarter of 2008 as compared to $619.2 million for the three months ended
September 30, 2007, mainly attributable to an increase in savings account and
certificate of deposit balances. Total average FHLB advances increased $57.9
million, or 37.1%, to $214.0 million to fund asset growth and to take advantage
of the lower interest rates.




Provision for
Loan Losses.The provision for loan losses increased $208,000 to $644,000
for the three months ended September 30, 2008 as compared to $436,000 for the
same period in 2007 mainly resulting from an increase of $188,000 in the reserve
for classified loans. The allowance for loan losses is based on management’s
estimate of the probable losses inherent in the portfolio, considering the
impact of certain factors. Among the factors management may consider are prior
loss experience, current economic conditions and their effect on borrowers, the
character and size of the portfolio, trends in nonperforming loans and
delinquency rates and the performance of individual loans in relation to
contractual terms. The provision for loan losses reflects adjustments to the
allowance based on management’s review of the loan portfolio in light of those
conditions. The allowance for loan losses was $8.4 million, or 0.97%, of
loans outstanding at September 30, 2008.




20
 Index







Non-interest
Income.  Non-interest income increased $321,000, or 22.7%, to
$1.7 million for the three months ended September 30, 2008 from $1.4 million for
the comparable period in 2007 due in large part to growth of $114,000, or 10.3%,
in deposit account fees and $113,000, or 56.5%, from wealth management income,
as well as a $141,000 loss on the sale of securities in the third quarter of
2007.




Non-interest
Expense.  Non-interest expense increased $1.7 million, or
27.3%, to $7.8 million for the three months ended September 30, 2008 from
$6.1 million for the prior year period. Total salaries and benefits
increased $977,000, or 27.6%, mainly due to staffing costs for new branches
opened in 2008, new employees hired to support and facilitate the growth of the
Company, a higher cash incentive accrual associated with improved financial
performance and annual wage increases. Occupancy costs expanded $167,000, or
35.6%, mainly due to new branches opened in 2008. Data processing expenses
increased $93,000, or 13.1%, 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 $101,000, or 45.9%, principally due to higher
legal and consulting costs. Other expenses rose $312,000, or 34.4%, mainly in
connection with higher quarterly Federal Deposit Insurance Corporation insurance
premiums as a result of the expiration of the credit used to reduce the premium
each quarter. Since June 2007, the  Company’s insurance premiums have
been substantially reduced by the special one-time credit, which was exhausted
in June, 2008. Accordingly, the Company’s insurance premiums were substantially
higher for the three months ended September 30, 2008.




Income Tax
Expense.Income tax expense
increased $648,000 to $1.5 million for three months ended September 30, 2008
from $807,000 for the comparable 2007 period as a result of an increase in
taxable income. The effective tax rate of 38.1% in the third quarter of 2008 was
essentially flat compared to the same period in 2007.




Comparison
of Operating Results for the Nine Months Ended September 30, 2008 and
2007




Net
Income.The Company’s net income for the nine months ended
September 30, 2008 amounted to $6.3 million, or $0.39 per diluted share,
compared to $3.1 million, or $0.18 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, growth in average earning assets and an
increase in non-interest income, partially offset by increases in the provision
for loan losses and non-interest expenses.





21
 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.





Nine
      Months Ended September 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
              
              $
              355,655
              
              
              $
              14,999
              
              
              
              5.62
              %
              
              $
              341,355
              
              
              $
              14,465
              
              
              
              5.65
              %Commercial
      real estate
              
              
              258,309
              
              
              
              12,266
              
              
              
              6.33
              %
              
              
              233,394
              
              
              
              11,564
              
              
              
              6.61
              %Home
      equity loans
              
              
              118,394
              
              
              
              5,140
              
              
              
              5.79
              %
              
              
              117,498
              
              
              
              5,777
              
              
              
              6.56
              %Commercial
      and industrial
              
              
              83,406
              
              
              
              4,002
              
              
              
              6.40
              %
              
              
              73,157
              
              
              
              4,041
              
              
              
              7.36
              %Consumer
      and other
              
              
              30,525
              
              
              
              1,269
              
              
              
              5.54
              %
              
              
              30,332
              
              
              
              1,170
              
              
              
              5.14
              %Total
      loans
              
              
              846,289
              
              
              
              37,676
              
              
              
              5.94
              %
              
              
              795,736
              
              
              
              37,017
              
              
              
              6.20
              %Investment
      securities
              
              
              269,097
              
              
              
              10,064
              
              
              
              4.99
              %
              
              
              171,575
              
              
              
              5,849
              
              
              
              4.55
              %Other
      interest-earning assets
              
              
              16,017
              
              
              
              450
              
              
              
              3.75
              %
              
              
              22,393
              
              
              
              935
              
              
              
              5.57
              %Total
      interest-earning assets
              
              
              1,131,403
              
              
              
              48,190
              
              
              
              5.68
              %
              
              
              989,704
              
              
              
              43,801
              
              
              
              5.90
              %Noninterest-earning
      assets
              
              
              37,053
              
              
              
              
              
              
              
              
              
              
              
              32,722Total
      assets
              
              $
              1,168,456
              
              
              
              
              
              
              
              
              
              
              $
              1,022,426Interest-bearing
      liabilities:Savings
      accounts
              
              $
              80,979
              
              
              
              701
              
              
              
              1.15
              %
              
              $
              64,066
              
              
              
              427
              
              
              
              0.89
              %Money
      market accounts
              
              
              171,825
              
              
              
              2,566
              
              
              
              1.99
              %
              
              
              178,590
              
              
              
              4,262
              
              
              
              3.18
              %NOW
      accounts
              
              
              32,824
              
              
              
              130
              
              
              
              0.53
              %
              
              
              34,386
              
              
              
              137
              
              
              
              0.53
              %Certificates
      of deposit
              
              
              360,656
              
              
              
              10,152
              
              
              
              3.75
              %
              
              
              334,129
              
              
              
              11,504
              
              
              
              4.59
              %Total
      interest-bearing deposits
              
              
              646,284
              
              
              
              13,549
              
              
              
              2.80
              %
              
              
              611,171
              
              
              
              16,330
              
              
              
              3.56
              %FHLB
      advances
              
              
              167,031
              
              
              
              4,863
              
              
              
              3.88
              %
              
              
              158,857
              
              
              
              5,716
              
              
              
              4.80
              %Other
      interest-bearing liabilities
              
              
              12,213
              
              
              
              303
              
              
              
              3.31
              %
              
              
              12,020
              
              
              
              411
              
              
              
              4.56
              %Total
      interest-bearing liabilities
              
              
              825,528
              
              
              
              18,715
              
              
              
              3.02
              %
              
              
              782,048
              
              
              
              22,457
              
              
              
              3.83
              %Demand
      deposits
              
              
              106,391
              
              
              
              
              
              
              
              
              
              
              
              97,946Other
      noninterest-bearing liabilities
              
              
              9,990
              
              
              
              
              
              
              
              
              
              
              
              3,422Total
      liabilities
              
              
              941,909
              
              
              
              
              
              
              
              
              
              
              
              883,416Stockholders'
      equity
              
              
              226,547
              
              
              
              
              
              
              
              
              
              
              
              139,010Total
      liabilities and stockholders' equity
              
              $
              1,168,456
              
              
              
              
              
              
              
              
              
              
              $
              1,022,426Net
      interest income
              
              
              
              
              
              $
              29,475
              
              
              
              
              
              
              
              
              
              
              $
              21,344Interest
      rate spread(1)
              
              
              
              
              
              
              
              
              
              
              2.66
              %
              
              
              
              
              
              
              
              
              
              
              2.07
              %Net
      interest-earning assets(2)
              
              $
              305,875
              
              
              
              
              
              
              
              
              
              
              $
              207,656Net
      interest margin(3)
              
              
              
              
              
              
              
              
              
              
              3.47
              %
              
              
              
              
              
              
              
              
              
              
              2.88
              %Average
      interest-bearing assets toaverage
      interest-bearing liabilities
              
              
              
              
              
              
              
              
              
              
              137.05
              %
              
              
              
              
              
              
              
              
              
              
              126.55
              %





(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.


22
 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.




Nine
      Months Ended September 30,2008
      vs. 2007Increase
      (Decrease) Due toVolume
              
              
              Rate
              
              
              Net(In
      thousands)Interest-earning
      assets:Loans:Residential
      real estate
              
              $
              603
              
              
              $
              (69
              )
              
              $
              534Commercial
      real estate
              
              
              1,197
              
              
              
              (495
              )
              
              
              702Home
      equity loans
              
              
              44
              
              
              
              (681
              )
              
              
              (637
              )Commercial
      and industrial
              
              
              528
              
              
              
              (567
              )
              
              
              (39
              )Consumer
      and other
              
              
              7
              
              
              
              92
              
              
              
              99Total
      loans
              
              
              2,379
              
              
              
              (1,720
              )
              
              
              659Investment
      securities
              
              
              3,601
              
              
              
              614
              
              
              
              4,215Other
      interest-earning assets
              
              
              (226
              )
              
              
              (259
              )
              
              
              (485
              )Total
      interest-earning assets
              
              
              5,754
              
              
              
              (1,365
              )
              
              
              4,389Interest-bearing
      liabilities:Savings
      accounts
              
              
              129
              
              
              
              145
              
              
              
              274Money
      market accounts
              
              
              (155
              )
              
              
              (1,541
              )
              
              
              (1,696
              )NOW
      accounts
              
              
              (6
              )
              
              
              (1
              )
              
              
              (7
              )Certificates
      of deposit
              
              
              862
              
              
              
              (2,214
              )
              
              
              (1,352
              )Total
      interest-bearing deposits
              
              
              830
              
              
              
              (3,611
              )
              
              
              (2,781
              )FHLB
      advances
              
              
              282
              
              
              
              (1,135
              )
              
              
              (853
              )Other
      interest-bearing liabilities
              
              
              7
              
              
              
              (115
              )
              
              
              (108
              )Total
      interest-bearing liabilities
              
              
              1,119
              
              
              
              (4,861
              )
              
              
              (3,742
              )Change
      in net interest income
              
              $
              4,635
              
              
              $
              3,496
              
              
              $
              8,131




Net Interest
Income Before Provision for Loan Losses.Net interest income
before provision for loan losses increased $8.1 million, or 38.1%, to $29.5
million for the nine months ended September 30, 2008 from $21.3 million for the
comparable 2007 period reflecting growth in average earning assets and net
interest margin expansion. Net interest margin increased 59 basis points to
3.47% for the nine months ended September 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 September 30, 2008.




Interest
Income.  Interest income increased $4.4 million, or 10.0%, to
$48.2 million for the nine months ended September 30, 2008 from $43.8 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
$141.7 million, or 14.3%, to $1.1 billion for the nine months ended
September 30, 2008 due in large part to purchases of investment securities and
loan growth, funded largely by deposit growth and the proceeds of the December
2007 second-step stock offering. Total average loans increased $50.6 million, or
6.4%, to $846.3 million for the nine months ended September




23
 Index


30, 2008
as a result of solid origination activity, partially offset by prepayments and
normal amortization. Total average investment securities increased by $97.5
million, or 56.8%, to $269.1 million for the nine months ended September 30,
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 22 basis points to 5.68% for
the nine months ended September 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 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 $3.8 million, or 16.7%, to
$18.7 million for the nine months ended September 30, 2008 from
$22.5 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 81 basis points to 3.02% for the nine months ended
September 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 reduction in market rates was
significant. Average interest-bearing liabilities increased $43.5 million,
or 5.6%, to $825.5 million for the nine months ended September 30, 2008
reflecting growth in interest-bearing deposits and FHLB advances. Total average
interest-bearing deposits increased $35.1 million, or 5.8%, to $646.3 million
for the nine months ended September 30, 2008 mainly attributable to an increase
in savings accounts and certificate of deposit balances. Total average FHLB
advances increased $8.2 million, or 5.2%, to $167.0 million reflecting the use
of proceeds from the second-step offering to fund asset growth.




Provision for
Loan Losses.The provision
for loan losses was $1.5 million for the nine months ended September 30, 2008 as
compared to $1.0 million for the same period in 2007 reflecting an increase in
reserves for classified loans and a higher level of net charge-offs. The
allowance for loan losses was $8.4 million, or 0.97%, of loans outstanding
at September 30, 2008.





Non-interest
Income.  Non-interest income increased $581,000, or 13.7%, to
$4.8 million for the nine months ended September 30, 2008 reflecting growth
of $212,000, or 6.5%, in fee income on deposit and loan accounts, an increase of
$108,000, or 22.0%, from wealth management income, 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 a $170,000 loss on the sale of securities in the
third quarter of 2007.




Non-interest
Expense.  Non-interest expense increased $3.1 million, or
16.4%, to $22.5 million for the nine months ended September 30, 2008 from
$19.4 million for the prior year period. Total salaries and benefits
increased $1.6 million, or 14.8%, mainly due to staffing costs for new branches
opened in 2008, new employees hired to support and facilitate the growth of the
Company, a higher cash incentive accrual associated with improved financial
performance and annual wage increases. Occupancy costs grew $282,000, or 19.6%,
principally attributable to new branches opened in 2008. Data processing costs
expanded $332,000, or 16.6%, reflecting a larger loan and deposit base, new
branches opened in 2008 and costs for the new branch imaging process.
Professional services increased $264,000, or 30.3%, as a result of higher legal
and consulting expenses and costs incurred in connection with the Company’s
annual stockholders meeting at which the 2008 incentive plan was approved. Other
expenses expanded $604,000, or 21.1%, primarily due to an increase of $320,000
in Federal Deposit Insurance Corporation insurance premiums as well as a
$113,000 interest accrual related to an income tax payment
deficiency.




Income Tax
Expense.Income tax expense
increased $1.9 million to $4.0 million for nine months ended September 30, 2008
from $2.1 million for the comparable 2007 period due to higher income before
income taxes, partially offset by a reduction in the effective tax rate from
40.3% in 2007 to 38.4% in 2008. The reduction in the effective tax rate is
attributable 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.




24
 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 -100 basis points) at September 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)
              
              (September
      30, 2008)
              
              (December
      31, 2007)-100
              
              0.2%
              
              1.7%Stable
              
              0.0%
              
              0.0%+200
              
              (3.4)%
              
              (4.2)%




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.


25
 Index





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





September
      30, 2008NPV
      as a Percentage of PresentValue
      of Assets (3)Estimated
      Increase (Decrease) inChange
      in
              
              
              
              
              NPV
              
              
              
              IncreaseInterest
      Rates
              
              Estimated
              
              
              
              
              
              
              
              
              
              
              (Decrease)(basis
      points) (1)
              
              NPV (2)
              
              Amount
              
              Percent
              
              NPV
      Ratio (4)
              
              (basis
      points)(Dollars
      in thousands)+300
              
              
              $
              105,833
              
              
              $
              (77,274
              )
              
              
              (42
              )%
              
              
              9.52
              %
              
              
              (537
              )+200
              
              
              
              131,399
              
              
              
              (51,708
              )
              
              
              (28
              )
              
              
              11.44
              
              
              
              (346
              )+100
              
              
              
              157,928
              
              
              
              (25,179
              )
              
              
              (14
              )
              
              
              13.28
              
              
              
              (161
              )0
              
              
              
              183,107
              
              
              
              
              
              
              
              
              
              
              
              14.89-100
              
              
              
              199,966
              
              
              
              16,859
              
              
              
              9
              
              
              
              15.81
              
              
              
              92
  (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.


26
 Index





December
      31, 2007NPV
      as a Percentage of PresentValue
      of Assets (3)Estimated
      Increase (Decrease) inChange
      in
              
              
              
              
              NPV
              
              
              
              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 September 30, 2008 and December 31, 2007, in the
event of a 100 basis point decrease in interest rates, we would experience a 9%
and 8%, respectively, increase in net portfolio value. In the event of a 300
basis point increase in interest rates, we would experience a 42% 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 September 30, 2008 our
liquidity ratio was 36.24%, 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.




27
 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
September 30, 2008, cash and cash equivalents totaled $13.0 million. Securities
classified as available-for-sale, which provide additional sources of liquidity,
totaled $312.4 million at September 30, 2008. In addition, at September 30,
2008, we had the ability to borrow a total of approximately $514.4 million from
the Federal Home Loan Bank of Boston. On that date, we had $226.1 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
September 30, 2008, we had $15.9 million in loan commitments outstanding. In
addition to commitments to originate loans, we had $150.7 million in unused
lines of credit to borrowers and $19.1 million to be disbursed under existing
construction loan commitments. Certificates of deposit due within one year of
September 30, 2008 totaled $282.5 million, or 37.1% of total deposits. If these
deposits do not remain with us, we will be required to seek other sources of
funds, including other certificates of deposit and Federal Home Loan Bank
advances. Depending on market conditions, we may be required to pay higher rates
on such deposits or other borrowings than we currently pay on the certificates
of deposit due on or before September 30, 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 nine months ended September 30, 2008, we originated $235.5
million of loans and purchased $203.4 million of securities. In the comparable
2007 period, we originated $235.1 million of loans and purchased $65.9 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 $42.2
million and $37.4 million for the nine months ended September 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 $118.1 million
during the nine months ended September 30, 2008 to fund purchases of
mortgage-backed securities. For the same period in 2007, Federal Home Loan Bank
advances increased $14.0 million. Federal Home Loan Bank advances have primarily
been used to fund loan demand and to purchase securities. We have also used
Federal Home Loan Bank advances to “match-fund” certain longer-term one- to
four-family residential mortgage loans and commercial real estate loans. The
Bank’s unused borrowing capacity with the FHLBB, excluding its $12.4 million
line of credit, was approximately $275.9 at September 30, 2008 and $293.2 at
December 31, 2007. At September 30, 2008 and December 31, 2007, the Bank had no
borrowing against the line of credit.


28
 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 September 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
              
              $
              282,535
              
              
              $
              69,258
              
              
              $
              10,553
              
              
              $
              -
              
              
              $
              362,346Federal
      Home Loan Bank advances
              
              
              69,869
              
              
              
              70,975
              
              
              
              50,763
              
              
              
              34,523
              
              
              
              226,130Repurchase
      agreements
              
              
              11,365
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              11,365Standby
      letters of credit
              
              
              932
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              932Operating
      leases
              
              
              547
              
              
              
              979
              
              
              
              703
              
              
              
              2,877
              
              
              
              5,106Capitalized
      leases
              
              
              252
              
              
              
              504
              
              
              
              503
              
              
              
              4,074
              
              
              
              5,333Future
      benefits to be paid underretirement
      plans
              
              
              196
              
              
              
              -
              
              
              
              3,257
              
              
              
              610
              
              
              
              4,063Total
              
              $
              365,696
              
              
              $
              141,716
              
              
              $
              65,779
              
              
              $
              42,084
              
              
              $
              615,275Commitments
      to extend credit
              
              $
              186,596
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              186,596





29
 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 September 30, 2008, the Bank exceeded all regulatory capital
requirements. United Bank is considered “well capitalized” under regulatory
requirements.




To
      Be Well CapitalizedFor
      Capital
              
              Under
      RegulatoryActual
              
              Adequacy
      Purposes
              
              FrameworkAs
      of September 30, 2008:Total
      risk-based capital
              
              19.17%
              
              8.00%
              
              10.00%Tier
      1 risk-based capital
              
              18.17%
              
              4.00%
              
              6.00%Tier
      1 (core) capital
              
              12.36%
              
              4.00%
              
              5.00%Tangible
      equity
              
              12.36%
              
              1.50%
              
              1.50%As
      of December 31, 2007:Total
      risk-based capital
              
              20.25%
              
              8.00%
              
              10.00%Tier
      1 risk-based capital
              
              19.25%
              
              4.00%
              
              6.00%Tier
      1 (core) capital
              
              14.00%
              
              4.00%
              
              5.00%Tangible
      equity
              
              14.00%
              
              1.50%
              
              1.50%




30
 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
September 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
September 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.








31
 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
September 30, 2008.





(b)
Not applicable





(c)
On June 20, 2008, the Company announced that its Board of Directors had 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 announced its intention 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. On July 24, the Company completed the
repurchase plan 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 third 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 ProgramsJuly
      1 - 31, 2008
              
              
              311,647
              
              
              $
              11.88
              
              
              
              311,647
              
              
              
              -August
      1 - 31, 2008
              
              
              10,086
              (1)
              
              
              12.37
              
              
              
              -
              
              
              
              -September
      1 - 30, 2008
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
              
              
              321,733
              
              
              $
              11.90
              
              
              
              311,647(1) The
      Company purchased these shares in connection with restricted stock
      forfeited for tax purposes.




ITEM
3.   Defaults Upon Senior
Securities





Not
applicable.




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





Not
applicable.




ITEM
5.   Other Information





Not
applicable.


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:
      November
      7, 2008
            By:
            /s/ Richard B.
      CollinsRichard
      B. CollinsChairman,
      President and Chief Executive OfficerDate:
      November
      7, 2008
            By:
            /s/ Mark A.
      RobertsMark
      A. RobertsExecutive
      Vice President and Chief Financial
Officer








34