United Financial Bancorp, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - United Financial Bancorp, Inc.	ubnk2015093015ex312.htm
EX-32.0 - EXHIBIT 32.0 - United Financial Bancorp, Inc.	ubnk2015093015ex320.htm
EX-31.1 - EXHIBIT 31.1 - United Financial Bancorp, Inc.	ubnk2015093015ex311.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



ý		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2015.

Commission File Number: 001-35028

UNITED FINANCIAL BANCORP, INC.

(Exact name of registrant as specified in its charter)



Connecticut		27-3577029
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

45 Glastonbury Boulevard, Glastonbury, Connecticut		06033
(Address of principal executive offices)		(Zip Code)

(860) 291-3600

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter prior that the registrant was required to submit and post such files). Yes ý No ¨

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



Large accelerated filer	¨	Accelerated filer	ý

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12B-2 of the Act). Yes ¨ No ý

As of October 30, 2015, there were 49,540,490 shares of Registrant’s no par value common stock outstanding.

Table of Contents



		Page
Part I - FINANCIAL INFORMATION

Item 1.	Interim Financial Statements

	Consolidated Statements of Condition as of September 30, 2015 and December 31, 2014	3

	Consolidated Statements of Net Income for the three and nine months ended September 30, 2015 and 2014	4

	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2015 and 2014	5

	Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2015 and 2014	6

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014	7

	Notes to Unaudited Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	72

Item 4.	Controls and Procedures	73

Part II - OTHER INFORMATION

Item 1.	Legal Proceedings	73

Item 1A.	Risk Factors	74

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	74

Item 3.	Defaults Upon Senior Securities	74

Item 4.	Mine Safety Disclosures	74

Item 5.	Other Information	74

Item 6.	Exhibits	74

SIGNATURES		76

Exhibits

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Part 1 - FINANCIAL INFORMATION

Item 1 - Interim Financial Statements

United Financial Bancorp, Inc. and Subsidiaries

Consolidated Statements of Condition



(In thousands, except share data) (Unaudited)	September 30, 2015			December 31, 2014
ASSETS
Cash and due from banks	$	38,534		$	43,416
Short-term investments	59,776			43,536
Total cash and cash equivalents	98,310			86,952
Available-for-sale securities - at fair value	1,080,393			1,053,011
Held-to-maturity securities - at amortized cost	14,715			15,368
Loans held for sale	13,511			8,220
Loans receivable (net of allowance for loan losses of $30,832 at September 30, 2015 and $24,809 at December 31, 2014)	4,185,032			3,877,063
Federal Home Loan Bank of Boston stock	40,814			31,950
Accrued interest receivable	15,477			14,212
Deferred tax asset, net	31,554			33,833
Premises and equipment, net	55,919			57,665
Goodwill	115,281			115,240
Core deposit intangible	7,939			9,302
Cash surrender value of bank-owned life insurance	125,186			122,622
Other real estate owned	258			2,239
Other assets	58,633			49,132
Total assets	$	5,843,022		$	5,476,809

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest-bearing	$	622,535		$	602,359
Interest-bearing	3,640,436			3,432,952
Total deposits	4,262,971			4,035,311
Mortgagors’ and investors’ escrow accounts	8,108			13,004
Advances from the Federal Home Loan Bank	746,549			580,973
Other borrowings	147,316			196,341
Accrued expenses and other liabilities	56,626			48,772
Total liabilities	5,221,570			4,874,401

Stockholders’ equity:
Preferred stock (no par value; 2,000,000 authorized; no shares issued)	—			—
Common stock (no par value; authorized 120,000,000 and 60,000,000 shares; 49,517,538 and 49,537,700 shares issued and outstanding, at September 30, 2015 and December 31, 2014, respectively)	513,831			514,189
Additional paid-in capital	14,000			16,007
Unearned compensation - ESOP	(5,979		)	(6,150		)
Retained earnings	107,788			84,852
Accumulated other comprehensive loss, net of tax	(8,188		)	(6,490		)
Total stockholders’ equity	621,452			602,408
Total liabilities and stockholders’ equity	$	5,843,022		$	5,476,809

See accompanying notes to unaudited consolidated financial statements.

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United Financial Bancorp, Inc. and Subsidiaries

Consolidated Statements of Net Income



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(In thousands, except share data) (Unaudited)	2015			2014			2015			2014
Interest and dividend income:
Loans	$	41,878		$	40,119		$	123,658		$	92,329
Securities - taxable interest	4,907			5,180			14,947			11,064
Securities - non-taxable interest	2,080			1,495			6,353			3,319
Securities - dividends	708			381			1,554			893
Interest-bearing deposits	52			26			119			65
Total interest and dividend income	49,625			47,201			146,631			107,670
Interest expense:
Deposits	5,319			3,990			15,643			9,294
Borrowed funds	2,663			1,018			7,099			2,396
Total interest expense	7,982			5,008			22,742			11,690
Net interest income	41,643			42,193			123,889			95,980
Provision for loan losses	3,252			2,633			9,225			5,163
Net interest income after provision for loan losses	38,391			39,560			114,664			90,817
Non-interest income:
Service charges and fees	5,960			3,657			15,434			9,179
Gain (loss) on sales of securities, net	(59		)	430			639			1,287
Income from mortgage banking activities	2,257			978			7,618			2,769
Bank-owned life insurance income	893			873			2,557			2,145
Net loss on limited partnership investments	(991		)	(2,176		)	(2,337		)	(2,176		)
Other income (loss)	(242		)	314			113			400
Total non-interest income	7,818			4,076			24,024			13,604
Non-interest expense:
Salaries and employee benefits	16,994			17,791			50,161			42,574
Service bureau fees	1,828			3,016			5,114			5,875
Occupancy and equipment	3,343			3,278			11,600			7,586
Professional fees	1,581			1,081			3,280			2,365
Marketing and promotions	587			367			1,843			876
FDIC insurance assessments	750			785			2,651			1,735
Other real estate owned	25			136			202			569
Core deposit intangible amortization	433			481			1,363			802
Merger related expense	—			4,008			—			26,782
Other	6,335			3,979			16,676			10,192
Total non-interest expense	31,876			34,922			92,890			99,356
Income before income taxes	14,333			8,714			45,798			5,065
Provision (benefit) for income taxes	952			(1,271		)	6,060			(296		)
Net income	$	13,381		$	9,985		$	39,738		$	5,361
Net income per share:
Basic	$	0.27		$	0.19		$	0.81		$	0.13
Diluted	$	0.27		$	0.19		$	0.81		$	0.13
Weighted-average shares outstanding:
Basic	48,931,203			52,162,635			48,829,193			40,301,620
Diluted	49,429,809			52,750,658			49,339,271			40,636,247

See accompanying notes to unaudited consolidated financial statements.

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United Financial Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(In thousands) (Unaudited)	2015			2014			2015			2014
Net income	$	13,381		$	9,985		$	39,738		$	5,361
Other comprehensive income (loss):
Securities available for sale:
Unrealized holding gains (losses)	7,771			(3,858		)	2,719			9,022
Reclassification adjustment for (gains) losses realized in operations (1)	59			(430		)	(639		)	(1,287		)
Net unrealized gains (losses)	7,830			(4,288		)	2,080			7,735
Tax effect - benefit (expense)	(2,820		)	1,544			(756		)	(2,670		)
Net-of-tax amount - securities available for sale	5,010			(2,744		)	1,324			5,065
Interest rate swaps designated as cash flow hedges:
Unrealized gains (losses)	(4,898		)	36			(5,533		)	(4,851		)
Reclassification adjustment for expense realized in operations (2)	—			—			12			—
Net unrealized gains (losses)	(4,898		)	36			(5,521		)	(4,851		)
Tax effect - benefit (expense)	1,764			(13		)	1,989			1,672
Net-of-tax amount - interest rate swaps	(3,134		)	23			(3,532		)	(3,179		)
Defined benefit pension plans:
Reclassification adjustment for losses (gains) recognized in net periodic benefit cost (3)	185			—			554			—
Tax effect - benefit (expense)	(71		)	—			(64		)	—
Net-of-tax amount - pension plans	114			—			490			—
Post-retirement plans:
Reclassification adjustment for prior service costs recognized in net periodic benefit cost (4)	2			8			5			16
Reclassification adjustment for losses (gains) recognized in net periodic benefit cost (4)	6			—			16			(7		)
Losses arising during the period	—			(3		)	—			(1		)
Change in losses and prior service costs	8			5			21			8
Tax effect - benefit (expense)	(3		)	(1		)	(1		)	(2		)
Net-of-tax amount - post-retirement plans	5			4			20			6
Net-of-tax amount - pension and post-retirement plans	119			4			510			6
Total other comprehensive income (loss)	1,995			(2,717		)	(1,698		)	1,892
Comprehensive income	$	15,376		$	7,268		$	38,040		$	7,253


(1)	Amounts are included in gain (loss) on sales of securities, net in the unaudited Consolidated Statements of Net Income. Income tax (expense) benefit associated with the reclassification adjustment was $21 and $(162) for the three months ended September 30, 2015 and 2014, respectively, and $(230) and $(463) for the nine months ended September 30, 2015 and 2014, respectively.


(2)	Amounts are included in borrowed funds expense in the unaudited Consolidated Statements of Net Income. Income tax benefit associated with the reclassification adjustment for the nine months ended September 30, 2015 was $4.


(3)	Amounts are included in salaries and employee benefits in the unaudited Consolidated Statements of Net Income. Income tax expense associated with the reclassification adjustment for the three and nine months ended September 30, 2015 was $67 and $200, respectively.

(4)

Amounts are included in salaries and employee benefits expense in the unaudited Consolidated Statements of Net Income. Income tax benefit associated with the reclassification adjustment for prior period service costs for the three months ended September 30, 2015 and 2014 was $1 and $1, respectively, and $2 and $2, for the nine months ended September 30, 2015 and 2014, respectively. Income tax benefit (expense) associated with the reclassification adjustment of the losses (gains) recognized in net periodic benefit cost for the three and nine months ended September 30, 2015 and 2014, was $2 and $0, respectively and $6, and $(2), respectively.

See accompanying notes to unaudited consolidated financial statements.

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United Financial Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity



(In thousands, except share data) (Unaudited)	Common Stock					Additional Paid-in Capital			Unearned Compensation - ESOP			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock					Total Stockholders’ Equity
(In thousands, except share data) (Unaudited)	Shares		Amount			Additional Paid-in Capital			Unearned Compensation - ESOP			Retained Earnings			Accumulated Other Comprehensive Loss			Shares		Amount			Total Stockholders’ Equity
Balance at December 31, 2014	49,537,700		$	514,189		$	16,007		$	(6,150	)	$	84,852		$	(6,490	)	—		$	—		$	602,408
Comprehensive income	—		—			—			—			39,738			(1,698		)	—		—			38,040
Common stock repurchased	(377,700	)	(5,171		)	—			—			—			—			—		—			(5,171		)
Share-based compensation expense	—		—			689			—			—			—			—		—			689
ESOP shares released or committed to be released	—		—			51			171			—			—			—		—			222
Shares issued for stock options exercised and SARs	349,387		4,657			(2,047		)	—			—			—			—		—			2,610
Shares issued for restricted stock grants	27,330		340			(340		)	—			—			—			—		—			—
Cancellation of shares for tax withholding	(18,044	)	(184		)	(67		)	—			—			—			—		—			(251		)
Tax benefit from stock-based awards	—		—			(293		)	—			—			—			—		—			(293		)
Dividends paid ($0.34 per common share)	—		—			—			—			(16,802		)	—			—		—			(16,802		)
Forfeited unvested restricted stock	(1,135	)	—			—			—			—			—			—		—			—
Balance at September 30, 2015	49,517,538		$	513,831		$	14,000		$	(5,979	)	$	107,788		$	(8,188	)	—		$	—		$	621,452

Balance at December 31, 2013	29,456,290		$	243,776		$	15,808		$	(7,151	)	$	96,078		$	(4,766	)	3,487,886		$	(44,363	)	$	299,382
Comprehensive income	—		—			—			—			5,361			1,892			—		—			7,253
Issuance of common stock for acquisition of United Financial Bancorp, Inc.	26,706,401		356,365			—			—			—			—			—		—			356,365
Cancellation of treasury shares	(3,476,270	)	(44,226		)	—			—			—			—			(3,476,270	)	44,226			—
Common stock repurchased	(304,895	)	(3,853		)	—			—			—			—			—		—			(3,853		)
Share-based compensation expense	—		—			3,608			—			—			—			—		—			3,608
ESOP shares released or committed to be released	—		—			530			751			—			—			—		—			1,281
Shares issued for stock options exercised	213,585		3,009			(1,923		)	—			—			—			(11,616	)	137			1,223
Shares issued for restricted stock grants	133,943		1,752			(1,752		)	—			—			—			—		—			—
Cancellation of shares for tax withholding	(97,370	)	(322		)	(992		)	—			—			—			—		—			(1,314		)
Tax benefit from stock-based awards	—		—			549			—			—			—			—		—			549
Dividends paid ($0.30 per common share)	—		—			—			—			(13,128		)	—			—		—			(13,128		)
Balance at September 30, 2014	52,631,684		$	556,501		$	15,828		$	(6,400	)	$	88,311		$	(2,874	)	—		$	—		$	651,366

See accompanying notes to unaudited consolidated financial statements.

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United Financial Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows

	For the Nine Months Ended September 30,
(In thousands) (Unaudited)	2015			2014
Cash flows from operating activities:
Net income	$	39,738		$	5,361
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization of premiums and discounts on investments, net	3,934			1,762
Accretion of intangible assets and purchase accounting marks	(9,034		)	(7,968		)
Amortization of subordinated debt issuance costs	95			3
Share-based compensation expense	689			3,608
ESOP expense	222			1,281
Loss on extinguishment of debt	—			288
Tax benefit from stock-based awards	293			(549		)
Provision for loan losses	9,225			5,163
Gain on sales of securities, net	(639		)	(1,287		)
Loans originated for sale	(290,795		)	(103,368		)
Principal balance of loans sold	285,504			99,841
(Increase) decrease in mortgage servicing asset	(1,266		)	39
Gain on sales of other real estate owned	(166		)	(209		)
Net change in mortgage banking fair value adjustments	(836		)	(486		)
Loss on disposal of equipment	193			—
Write-downs of other real estate owned	118			134
Depreciation and amortization	3,997			2,537
Loss on limited partnerships	2,337			2,176
Deferred income tax expense	3,447			5,631
Increase in cash surrender value of bank-owned life insurance	(2,557		)	(2,145		)
Net change in:
Deferred loan fees and premiums	(2,240		)	(932		)
Accrued interest receivable	(1,265		)	(2,737		)
Other assets	(16,834		)	(18,376		)
Accrued expenses and other liabilities	11,002			(442		)
Net cash provided by (used in) operating activities	35,162			(10,675		)
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities	195,335			308,603
Proceeds from calls and maturities of available-for-sale securities	16,655			15,043
Principal payments on available-for-sale securities	67,277			44,475
Principal payments on held-to-maturity securities	630			601
Purchases of available-for-sale securities	(308,253		)	(622,303		)
Purchases of held-to-maturity securities	—			(2,342		)
Cash acquired from United Financial Bancorp, Inc.	—			25,410
Redemption of FHLBB stock	—			2,297
Purchase of FHLBB stock	(8,864		)	—
Proceeds from sale of other real estate owned	2,232			3,359
Purchases of loans	(11,348		)	(8,298		)
Loan originations, net of principal repayments	(297,971		)	(203,691		)
Purchases of premises and equipment	(3,186		)	(10,036		)
Proceeds from sale of equipment	192			—

(Continued)

See accompanying notes to unaudited consolidated financial statements.

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United Financial Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows - Concluded

	For the Nine Months Ended September 30,
(In thousands) (Unaudited)	2015			2014
Net cash used in investing activities	(347,301		)	(446,882		)
Cash flows from financing activities:
Net increase in non-interest-bearing deposits	20,176			60,050
Net increase in interest-bearing deposits	210,249			292,715
Net decrease in mortgagors’ and investors’ escrow accounts	(4,896		)	(1,751		)
Net increase in short-term FHLBB advances	57,200			73,790
Repayments of long-term FHLBB advances	(6,977		)	(15,239		)
Proceeds from long-term FHLBB advances	116,800			—
Net change in other borrowings	(49,148		)	30,506
Proceeds from issuance of subordinated debt, net of issuance costs	—			73,759
Proceeds from exercise of stock options and SARs	2,610			1,223
Common stock repurchased	(5,171		)	(3,853		)
Cancellation of shares for tax withholding	(251		)	(1,314		)
Tax benefit from share-based awards	(293		)	549
Cash dividend paid on common stock	(16,802		)	(13,128		)
Net cash provided by financing activities	323,497			497,307
Net increase in cash and cash equivalents	11,358			39,750
Cash and cash equivalents, beginning of period	86,952			45,235
Cash and cash equivalents, end of period	$	98,310		$	84,985

Supplemental Disclosures of Cash Flow Information:
Cash paid (refunded) during the year for:
Interest	$	25,757		$	14,773
Income taxes, net	(6,719		)	3,599
Transfer of loans to other real estate owned	318			2,018
Decrease in due to broker, investment purchases	(1,105		)	(5,893		)
(Decrease) increase in due to broker, common stock buyback	(523		)	995

See accompanying notes to unaudited consolidated financial statements.

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United Financial Bancorp, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements



Note 1.	Summary of Significant Accounting Policies

Nature of Operations

On April 30, 2014, Rockville Financial, Inc. (“Rockville”) completed its merger with United Financial Bancorp, Inc. (“Legacy United”) and changed its legal entity name to United Financial Bancorp, Inc. (the “Company”). In connection with this merger, Rockville Bank, the Company’s principal asset and wholly-owned subsidiary, completed its merger with Legacy United’s banking subsidiary, United Bank, and changed its name to United Bank (the “Bank”). Discussions throughout this report related to the merger with Legacy United are referred to as the “Merger.”

The consolidated financial statements for periods prior to April 30, 2014 do not reflect the operations of Legacy United.

The Company, headquartered in Glastonbury, Connecticut, through United Bank and various subsidiaries, delivers financial services to individuals, families and businesses primarily throughout Connecticut and Massachusetts through 52 banking offices, its commercial loan production offices, its mortgage loan production offices, 63 ATMs, telephone banking, mobile banking and online banking (www.bankatunited.com).

Basis of Presentation

The consolidated interim financial statements and the accompanying notes presented in this report include the accounts of the Company, the Bank and the Bank’s wholly-owned subsidiaries, United Bank Mortgage Company, United Bank Investment Corp., Inc., United Bank Commercial Properties, Inc., United Bank Residential Properties, Inc., United Northeast Financial Advisors, Inc., United Bank Investment Sub, Inc., UCB Securities, Inc. II and UB Properties, LLC.

The consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included in the interim unaudited consolidated financial statements. Interim results are not necessarily indicative of the results that may be expected for the year ending December 31, 2015 or any future period. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s 2014 audited consolidated financial statements and notes thereto included in United Financial Bancorp, Inc.’s Annual Report on Form 10-K as of and for the year ended December 31, 2014.

Common Share Repurchases

The Company is chartered in the state of Connecticut. Connecticut law does not provide for treasury shares, rather shares repurchased by the Company constitute authorized but unissued shares. GAAP states that accounting for treasury stock shall conform to state law. Therefore, the cost of shares repurchased by the Company has been allocated to common stock balances. Notwithstanding the foregoing, prior to June 30, 2014, the Consolidated Statement of Condition refers to repurchased shares as “treasury stock.”

Reclassifications

Certain reclassifications have been made in prior periods’ consolidated financial statements to conform to the 2015 presentation. These reclassifications had no impact on the Company’s consolidated financial position, results of operations or net change in cash equivalents. All significant intercompany transactions have been eliminated.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results in the future could vary from the amounts derived from management’s estimates and assumptions. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, realizability of deferred tax assets, the evaluation of securities for other-than-temporary impairment, the valuation of derivative instruments and hedging activities and goodwill impairment valuations.



Note 2.	Recent Accounting Pronouncements

Interest-Imputation of Interest.

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2015-03, (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, as part of its simplification initiative. The ASU changes the presentation of debt issuance costs in financial statements. Under the ASU, an entity presents such costs in

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the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. For public business entities, the guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Entities would apply the new guidance retrospectively to all prior periods (i.e., the balance sheet for each period is adjusted). This ASU is not expected to have a material impact on the Company’s Consolidated Financial Statements.

Business Combinations

In September 2015, the FASB issued ASU No. 2015-16 Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments which aims to simplify accounting for adjustments made to provisional amounts recognized in a business combination. The requirement to retrospectively apply measurement-period adjustments to provisional amounts was eliminated. The new guidance requires that the acquiring company recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. In addition, an entity is required to present separately, on the face of the income statement or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this ASU with earlier application permitted for financial statements that have not yet been made available for issuance. This ASU is not expected to have an impact on the Company’s historical Consolidated Financial Statements.

Intangibles-Goodwill and Other-Internal-Use Software

In April 2015, the FASB issued ASU No. 2015-05, Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. The ASU provides criteria for customers in a cloud computing arrangement to determine whether the arrangement includes a license of software. When a cloud computing arrangement includes a license of software, the customer will capitalize the fee attributable to the software license portion of the arrangement when the criteria for capitalization of internal-use software are met. When a cloud computing arrangement does not include a license of software, the customer will account for the arrangement as a service contract and expense the cost as the services are received. The ASU supersedes the guidance that required companies to analogize to lease accounting when determining the asset acquired in a software licensing arrangement. Entities may elect to adopt the ASU either prospectively for all arrangements entered into or materially modified after the effective date, or retrospectively. For public business entities, the standard is effective for annual and interim periods in fiscal years beginning after December 15, 2015. For all other entities, the standard is effective for annual periods beginning after December 15, 2015, and interim periods in fiscal years beginning after December 15, 2016. Early adoption is permitted for all entities. Entities that elect prospective transition should disclose the nature of, and reason for, the change in accounting policy, the transition method, and a qualitative description of the financial statement line items affected by the change. Entities that elect retrospective transition should also disclose quantitative information about the effects of the accounting change. This information should include the cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the earliest period presented. This ASU is not expected to have a material impact on the Company’s Consolidated Financial Statements.

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Note 3.	Securities

The amortized cost, gross unrealized gains, gross unrealized losses and fair value of investment securities at September 30, 2015 and December 31, 2014 are as follows:



(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2015
Available for sale:
Debt securities:
U.S. Government and government-sponsored enterprise obligations	$	10,156	$	41	$	(127	)	$	10,070
Government-sponsored residential mortgage-backed securities	109,138		1,111		(127		)	110,122
Government-sponsored residential collateralized debt obligations	297,566		3,874		(148		)	301,292
Government-sponsored commercial mortgage-backed securities	53,825		1,538		(12		)	55,351
Government-sponsored commercial collateralized debt obligations	130,740		2,000		(16		)	132,724
Asset-backed securities	164,764		572		(1,331		)	164,005
Corporate debt securities	66,947		44		(2,097		)	64,894
Obligations of states and political subdivisions	201,447		326		(2,508		)	199,265
Total debt securities	1,034,583		9,506		(6,366		)	1,037,723
Marketable equity securities, by sector:
Banks	39,612		414		(573		)	39,453
Industrial	109		24		—			133
Mutual funds	2,847		87		(3		)	2,931
Oil and gas	131		22		—			153
Total marketable equity securities	42,699		547		(576		)	42,670
Total available-for-sale securities	$	1,077,282	$	10,053	$	(6,942	)	$	1,080,393
Held to maturity:
Debt securities:
Obligations of states and political subdivisions	$	12,369	$	823	$	—		$	13,192
Government-sponsored residential mortgage-backed securities	2,346		258		—			2,604
Total held-to-maturity securities	$	14,715	$	1,081	$	—		$	15,796

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(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2014
Available for sale:
Debt securities:
U.S. Government and government-sponsored enterprise obligations	$	6,965	$	94	$	(237	)	$	6,822
Government-sponsored residential mortgage-backed securities	165,199		2,379		(159		)	167,419
Government-sponsored residential collateralized debt obligations	237,128		1,365		(360		)	238,133
Government-sponsored commercial mortgage-backed securities	67,470		1,081		(253		)	68,298
Government-sponsored commercial collateralized debt obligations	129,547		737		(598		)	129,686
Asset-backed securities	181,198		272		(2,715		)	178,755
Corporate debt securities	43,907		35		(1,697		)	42,245
Obligations of states and political subdivisions	194,857		1,572		(657		)	195,772
Total debt securities	1,026,271		7,535		(6,676		)	1,027,130
Marketable equity securities, by sector:
Banks	22,645		277		(340		)	22,582
Industrial	109		76		—			185
Mutual funds	2,824		89		(3		)	2,910
Oil and gas	131		73		—			204
Total marketable equity securities	25,709		515		(343		)	25,881
Total available-for-sale securities	$	1,051,980	$	8,050	$	(7,019	)	$	1,053,011
Held to maturity:
Debt securities:
Obligations of states and political subdivisions	$	12,397	$	1,006	$	—		$	13,403
Government-sponsored residential mortgage-backed securities	2,971		339		—			3,310
Total held-to-maturity securities	$	15,368	$	1,345	$	—		$	16,713

At September 30, 2015, the net unrealized gain on securities available for sale of $3.1 million, net of an income tax expense of $1.1 million, or $2.0 million, was included in accumulated other comprehensive loss in the unaudited Consolidated Statement of Condition. The amortized cost and fair value of debt securities at September 30, 2015 by contractual maturities are presented below. Actual maturities may differ from contractual maturities because some securities may be called or repaid without any penalties. Also, because mortgage-backed securities require periodic principal paydowns, they are not included in the maturity categories in the following maturity summary.

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	Available for Sale				Held to Maturity
(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity:
Within 1 year	$	350	$	350	$	—	$	—
After 1 year through 5 years	11,526		11,360		1,196		1,222
After 5 years through 10 years	62,814		62,183		—		—
After 10 years	203,860		200,336		11,173		11,970
	278,550		274,229		12,369		13,192
Government-sponsored residential mortgage-backed securities	109,138		110,122		2,346		2,604
Government-sponsored residential collateralized debt obligations	297,566		301,292		—		—
Government-sponsored commercial mortgage-backed securities	53,825		55,351		—		—
Government-sponsored commercial collateralized debt obligations	130,740		132,724		—		—
Asset-backed securities	164,764		164,005		—		—
Total debt securities	$	1,034,583	$	1,037,723	$	14,715	$	15,796

At September 30, 2015, the Company had 91 securities with a fair value of $364.7 million pledged as derivative collateral, collateral for reverse repurchase borrowings and collateral for Federal Home Loan Bank of Boston (“FHLBB”) borrowing capacity. At December 31, 2014, the Company had 219 securities with a fair value of $336.3 million pledged as derivative collateral, collateral for reverse repurchase borrowings, and collateral for FHLBB borrowing capacity.

For the three months ended September 30, 2015 and 2014, gross gains of $185,000 and $629,000, respectively, were realized on the sales of available-for-sale securities. There were gross losses of $244,000 and $199,000 realized on the sale of available-for-sale securities for the three months ended September 30, 2015 and 2014. For the nine months ended September 30, 2015 and 2014, gross gains of $2.4 million and $1.9 million, respectively, were realized on the sales of available-for-sale securities. There were gross losses of $1.8 million and $645,000 realized on the sale of available-for-sale securities for the nine months ended September 30, 2015 and 2014, respectively.

As of September 30, 2015, the Company did not have any exposure to private-label mortgage-backed securities. The Company also did not own any single security with an aggregate book value in excess of 10% of the Company’s stockholders’ equity.

As of September 30, 2015, the fair value of the obligations of states and political subdivisions portfolio was $212.5 million, with no significant geographic/issuer exposure concentrations. Of the total revenue and general obligations of $212.5 million, $101.1 million were representative of general obligation bonds for which $78.2 million are general obligations of political subdivisions of the respective state, rather than general obligations of the state itself.

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The following table summarizes gross unrealized losses and fair value, aggregated by category and length of time the securities have been in a continuous unrealized loss position, as of September 30, 2015 and December 31, 2014:



	Less Than 12 Months					12 Months or More					Total
(In thousands)	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
September 30, 2015
Available for sale:
Debt Securities:
U.S. Government and government-sponsored enterprise obligations	$	—	$	—		$	4,866	$	(127	)	$	4,866	$	(127	)
Government-sponsored residential mortgage-backed securities	29,768		(103		)	7,437		(24		)	37,205		(127		)
Government-sponsored residential collateralized debt obligations	27,326		(136		)	3,700		(12		)	31,026		(148		)
Government-sponsored commercial mortgage-backed securities	—		—			2,994		(12		)	2,994		(12		)
Government-sponsored commercial collateralized debt obligations	3,564		(16		)	—		—			3,564		(16		)
Asset-backed securities	57,609		(499		)	34,197		(832		)	91,806		(1,331		)
Corporate debt securities	45,670		(447		)	9,522		(1,650		)	55,192		(2,097		)
Obligations of states and political subdivisions	127,048		(2,023		)	19,241		(485		)	146,289		(2,508		)
Total debt securities	290,985		(3,224		)	81,957		(3,142		)	372,942		(6,366		)
Marketable equity securities	24,294		(376		)	5,408		(200		)	29,702		(576		)
Total available-for-sale securities	$	315,279	$	(3,600	)	$	87,365	$	(3,342	)	$	402,644	$	(6,942	)

December 31, 2014
Available for sale:
Debt Securities:
U.S. Government and government-sponsored enterprise obligations	$	—	$	—		$	4,757	$	(237	)	$	4,757	$	(237	)
Government-sponsored residential mortgage-backed securities	1,492		(11		)	19,785		(148		)	21,277		(159		)
Government-sponsored residential collateralized debt obligations	35,769		(124		)	17,443		(236		)	53,212		(360		)
Government-sponsored commercial mortgage-backed securities	14,118		(15		)	16,337		(238		)	30,455		(253		)
Government-sponsored commercial collateralized debt obligations	62,477		(551		)	4,991		(47		)	67,468		(598		)
Asset-backed securities	128,808		(2,080		)	20,146		(635		)	148,954		(2,715		)
Corporate debt securities	30,634		(501		)	5,054		(1,196		)	35,688		(1,697		)
Obligations of states and political subdivisions	55,029		(419		)	18,568		(238		)	73,597		(657		)
Total debt securities	328,327		(3,701		)	107,081		(2,975		)	435,408		(6,676		)
Marketable equity securities	12,716		(340		)	140		(3		)	12,856		(343		)
Total available-for-sale securities	$	341,043	$	(4,041	)	$	107,221	$	(2,978	)	$	448,264	$	(7,019	)

Of the securities summarized above as of September 30, 2015, 119 issues had unrealized losses equaling 1.1% of the amortized cost basis for less than twelve months and 75 issues had an unrealized loss of 3.7% of the amortized cost basis for twelve months or more. There were no unrealized losses on debt securities held to maturity at September 30, 2015. As of December 31, 2014, 155 issues had unrealized losses equaling 1.2% of the cost basis for less than twelve months and 78 issues had unrealized losses equaling 2.7% of the amortized cost basis for twelve months or more.

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Management believes that no individual unrealized loss as of September 30, 2015 represents an other-than-temporary impairment, based on its detailed quarterly review of the securities portfolio. Among other things, the other-than-temporary impairment review of the investment securities portfolio focuses on the combined factors of percentage and length of time by which an issue is below book value as well as consideration of issuer specific information (present value of cash flows expected to be collected, issuer rating changes and trends, credit worthiness and review of underlying collateral), broad market details and the Company’s intent to sell the security or if it is more likely than not that the Company will be required to sell the debt security before recovering its cost. The Company also considers whether the depreciation is due to interest rates, market changes, or credit risk.

The following paragraphs outline the Company’s position related to unrealized losses in its investment securities portfolio at September 30, 2015.

U.S. Government and government-sponsored enterprises. The unrealized losses on the Company’s U.S. Government and government-sponsored securities were caused by spread widening to the government curve. The Company does not expect these securities to settle at a price less than the par value of the securities.

U.S. Government and government-sponsored collateralized mortgage obligations and commercial mortgage- backed securities. The unrealized losses on the Company’s U.S. Government and government-sponsored collateralized debt obligations and commercial mortgage backed securities were caused by the pickup of prepayment speeds given the overall drop in the government curve over the period, which encouraged further refinancing. The Company monitors this risk, and therefore, strives to minimize premiums within this security class. The Company does not expect these securities to settle at a price less than the par value of the securities.

Asset-backed securities. The unrealized losses on the Company’s asset-backed securities were largely driven by increases in the spreads of the respective sectors’ asset classes over comparable securities. The majority of these securities have resetting coupons that adjust on a quarterly basis and the market spreads on similar securities have increased. Based on the credit profiles and asset qualities of the individual securities, management does not believe that the securities have suffered from any credit related losses. The Company does not expect these securities to settle at a price less than the par value of the securities.

Corporate debt securities. The unrealized losses on corporate debt securities is primarily related to one pooled trust preferred security, Preferred Term Security XXVIII, Ltd (“PRETSL XXVIII”). The unrealized loss on this security is caused by the low interest rate environment, as the security reprices quarterly to the three month LIBOR and market spreads on similar newly issued securities have increased. No loss of principal is projected. Based on the existing credit profile, management does not believe that this security has suffered from any credit related losses. The unrealized loss on the remainder of the corporate credit portfolio has been driven primarily by overall wider credit spreads.

Obligations of states and political subdivisions. The unrealized loss on obligations of states and political subdivisions relates to several securities, with no geographic concentration. The unrealized loss was largely due to a shift in the credit spreads of the long end of the municipal bond spread curve that resulted in a negative impact to the respective bonds’ pricing, relative to the time of purchase.

Marketable equity securities. The unrealized loss on marketable equity securities largely pertains to widening credit spreads for trust preferred and preferred equity investments (similar to the corporate debt investments mentioned above) that resulted in a negative impact to the respective securities’ pricing, relative to the time of purchase.

The Company will continue to review its entire portfolio for other-than-temporarily impaired securities with additional attention being given to high risk securities such as the one pooled trust preferred security that the Company owns.

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Note 4.	Loans Receivable and Allowance for Loan Losses

A summary of the Company’s loan portfolio is as follows:



(In thousands)	September 30, 2015			December 31, 2014
Real estate loans:
Residential	$	1,525,966		$	1,413,739
Commercial	1,878,231			1,678,936
Construction	180,622			185,843
Total real estate loans	3,584,819			3,278,518
Commercial business loans	619,563			613,596
Installment and collateral loans	5,236			5,752
Total loans	4,209,618			3,897,866
Net deferred loan costs and premiums	6,246			4,006
Allowance for loan losses	(30,832		)	(24,809		)
Loans - net	$	4,185,032		$	3,877,063

Acquired Loans

Gross loans acquired from the Legacy United merger on April 30, 2014 totaled $1.88 billion. Acquired performing loans totaled $1.86 billion with a fair value of $1.83 billion. Loans acquired and determined to be impaired totaled $18.5 million.

The impaired loans are accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”). At September 30, 2015, the net recorded carrying amount of loans accounted for under ASC 310-30 was $5.7 million and the aggregate outstanding principal balance was $9.3 million.

Information about the acquired loan portfolio subject to Purchased Credit Impaired (“PCI”) accounting guidance (ASC 310-30) as of April 30, 2014 is as follows:



(In thousands)
	April 30, 2014
Contractually required principal and interest at acquisition	$	18,540
Contractual cash flows not expected to be collected (nonaccretable)	(6,415		)
Expected cash flows at acquisition (1)	12,125
Interest component of expected cash flows (accretable)	(2,235		)
Fair value of acquired PCI loans	$	9,890


(1)	Prepayments were not factored into the expected cash flows

The following table summarizes the activity in the the accretable yield balance for PCI loans for the three and nine months ended September 30, 2015 and 2014:



(In thousands)	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2015			2014			2015			2014
Balance at beginning of period	$	(570	)	$	(1,908	)	$	(1,587	)	$	—
Acquisition	—			—			—			(2,235		)
Accretion	1			260			178			587
Reclassification to nonaccretable balance	42			—			882			—
Paid off	114			—			114			—
Balance at end of period	$	(413	)	$	(1,648	)	$	(413	)	$	(1,648	)

A reclassification of $882,000 from the accretable balance to the nonaccretable balance occurred during the nine months ended September 30, 2015 due to the impact on the accretable marks caused by reductions in expected cash flows for the ASC 310-30 loans.

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Allowance for Loan Losses

Management has established a methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. The allowance for loan losses is established as embedded losses are estimated to have occurred through the provisions for losses charged against operations and is maintained at a level that management considers adequate to absorb losses in the loan portfolio. Management’s judgment in determining the adequacy of the allowance is inherently subjective and is based on past loan loss experience, known and inherent losses and size of the loan portfolios, an assessment of current economic and real estate market conditions, estimates of the current value of underlying collateral, review of regulatory authority examination reports and other relevant factors. An allowance is maintained for impaired loans to reflect the difference, if any, between the carrying value of the loan and the present value of the projected cash flows, observable fair value or collateral value. Loans are charged-off against the allowance for loan losses when management believes that the uncollectibility of principal is confirmed. Any subsequent recoveries are credited to the allowance for loan losses when received. In connection with the determination of the allowance for loan losses, management obtains independent appraisals for significant properties, when considered necessary.

The allowance for loan losses is maintained at a level estimated by management to provide for probable losses inherent within the loan portfolio. Probable losses are estimated based upon a quarterly review of the loan portfolio, which includes historic default and loss experience, specific problem loans, risk rating profile, economic conditions and other pertinent factors which, in management’s judgment, warrant current recognition in the loss estimation process.

The adequacy of the allowance for loan losses is subject to considerable assumptions and judgment used in its determination. Therefore, actual losses could differ materially from management’s estimate if actual conditions differ significantly from the assumptions utilized. These conditions include economic factors in the Company’s market and nationally, industry trends and concentrations, real estate values and trends, and the financial condition and performance of individual borrowers.

The Company’s general practice is to identify problem credits early and recognize full or partial charge-offs as promptly as practicable when it is determined that the collection of loan principal is unlikely. The Company recognizes full or partial charge-offs on collateral dependent impaired loans when the collateral is deemed to be insufficient to support the carrying value of the loan. The Company does not recognize a recovery when an updated appraisal indicates a subsequent increase in value.

At September 30, 2015, the Company had a loan loss allowance of $30.8 million, or 0.73%, of total loans as compared to a loan loss allowance of $24.8 million, or 0.64%, of total loans at December 31, 2014. Management believes that the allowance for loan losses is adequate and consistent with asset quality indicators and that it represents the best estimate of probable losses inherent in the loan portfolio.

There are three components for the allowance for loan loss calculation:

General component

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the loan segments. Management uses a rolling average of historical losses based on a three-year loss history to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: levels and trends in delinquencies; level and trend of charge-offs and recoveries; trends in volume and types of loans; effects of changes in risk selection and underwriting standards, changes in risk selection and underwriting standards; experience and depth of lending weighted average risk rating; and national and local economic trends and conditions.

The qualitative factors are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

Residential real estate – The Bank establishes maximum loan-to-value and debt-to-income ratios and minimum credit scores as an integral component of the underwriting criteria. Loans in these segments are collateralized by owner-occupied residential real estate and repayment is dependent on the income and credit quality of the individual borrower. Within the qualitative allowance factors, national and local economic trends including unemployment rates and potential declines in property value, are key elements reviewed as a component of establishing the appropriate allocation. Overall economic conditions, unemployment rates and housing price trends will influence the underlying credit quality of these segments.

Commercial real estate – Loans in this segment are primarily income-producing properties throughout Connecticut, western Massachusetts, and other select markets in the Northeast. The underlying cash flows generated by the properties could be adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment. Management obtains rent rolls annually, continually monitors the cash flows of these loans and performs stress testing.

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Construction loans – Loans in this segment primarily include commercial real estate development and residential subdivision loans for which payment is derived from the sale of the property. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.

Commercial business loans – Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy and its effect on business profitability and cash flow could have an effect on the credit quality in this segment.

Installment and collateral loans – Loans in this segment are generally unsecured and repayment is dependent on the credit quality of the individual borrower.

For acquired loans, our allowance for loan losses is estimated based upon our evaluation of the credit quality of the acquired loan portfolio or expected cash flows for the acquired PCI loans. To the extent that we experience a deterioration in borrower credit quality resulting in a decrease in our expected cash flows subsequent to the acquisition of the loans, an allowance for loan losses would be established based on our estimate of future credit losses over the remaining life of the loans, in excess of any existing purchase accounting discounts.

Allocated component

The allocated component relates to loans that are classified as impaired. Impairment is measured on a loan by loan basis for commercial, commercial real estate and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral, less estimated costs to sell, if the loan is collateral dependent. An allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan. Residential and installment and collateral loans are evaluated for impairment if payments are 90 days or more delinquent. Updated property evaluations are obtained at time of impairment and serve as the basis for the loss allocation if foreclosure is probable or the loan is collateral dependent.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

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

The majority of the Company’s loans are collateralized by real estate located in central and eastern Connecticut and western Massachusetts in addition to a portion of the commercial real estate loan portfolio located in the Northeast region of the United States. Accordingly, the collateral value of a substantial portion of the Company’s loan portfolio and real estate acquired through foreclosure is susceptible to changes in market conditions in these areas.

Unallocated component

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.

Credit Quality Information

The Company utilizes a nine-grade internal loan rating system for residential and commercial real estate, construction, commercial and installment and collateral loans as follows:

Loans rated 1 – 5: Loans in these categories are considered “pass” rated loans with low to average risk.

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Loans rated 6: Loans in this category are considered “special mention.” These loans reflect signs of potential weakness and are being closely monitored by management.

Loans rated 7: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor and there is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

Loans rated 8: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loans rated 9: Loans in this category are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted.

At the time of loan origination, a risk rating based on this nine point grading system is assigned to each loan based on the loan officer’s assessment of risk. For residential real estate and installment and collateral loans, the Company considers factors such as updated FICO scores, employment status, home prices, loan to value and geography. Residential real estate and installment loans are pass rated unless their payment history reveals signs of deterioration, which may result in modifications to the original contractual terms. In situations which require modification to the loan terms, the internal loan grade will typically be reduced to substandard. More complex loans, such as commercial business loans and commercial real estate loans require that our internal credit area further evaluate the risk rating of the individual loan, with the credit area and Chief Credit Officer having final determination of the appropriate risk rating. These more complex loans and relationships receive an in-depth analysis and periodic review to assess the appropriate risk rating on a post-closing basis with changes made to the risk rating as the borrower’s and economic conditions warrant. The credit quality of the Company’s loan portfolio is reviewed by a third-party risk assessment firm throughout the year and by the Company’s internal credit management function. The internal and external analysis of the loan portfolio is utilized to identify and quantify loans with higher than normal risk. Loans having a higher risk profile are assigned a risk rating corresponding to the level of weakness identified in the loan. All loans risk rated Special Mention, Substandard or Doubtful are reviewed by management not less than on a quarterly basis to assess the level of risk and to ensure that appropriate actions are being taken to minimize potential loss exposure. Loans identified as being loss are normally fully charged off.

The following table presents the Company’s loans by risk rating at September 30, 2015 and December 31, 2014:



(In thousands)	Residential Real Estate		Commercial Real Estate		Construction		Commercial Business		Installment and Collateral
September 30, 2015
Loans rated 1-5	$	1,504,201	$	1,795,507	$	166,986	$	589,901	$ <

United Financial Bancorp, Inc. - FORM 10-Q - November 6, 2015

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