United Financial Bancorp, Inc. Announces Third Quarter Earnings, And Quarterly Dividend

GLASTONBURY, Conn., Oct. 20, 2015 /PRNewswire/ -- United Financial Bancorp, Inc. ("United Financial" or the "Company") (NASDAQ Global Select Stock Market: "UBNK"), the holding company for United Bank (the "Bank"), today announced results for the quarter ended September 30, 2015. The Company had net income of $13.4 million, or $0.27 per diluted share, for the quarter ended September 30, 2015, compared to net income for the linked quarter of $13.3 million, or $0.27 per diluted share. The Company reported net income of $10.0 million, or $0.19 per diluted share, for the quarter ended September 30, 2014.

"I am pleased to report that for the year-to-date 2015, United Financial Bancorp, Inc. has averaged a 0.95% return on average assets ("ROA"), an 8.67% return on average equity ("ROE"), and an 11.11% return on average tangible common equity ("ROTCE") along with consistent earnings per diluted share ("EPS"). We have demonstrated two consecutive quarters of strong commercial loan growth and three consecutive quarters of consistent mortgage banking activity income since completing our merger and data conversion in the second and fourth quarters of 2014, respectively," stated William H. W. Crawford, IV, Chief Executive Officer of United Financial Bancorp, Inc. and United Bank. "Further, since June 30, 2011, the Company has reported a 30% EPS compound annual growth rate. At United Financial, we are winning new clients every day, growing relationships with current clients, and growing both tangible book value per share and franchise value. As we continue to respond to the difficult operating and competitive environment, we will remain focused on serving our clients and increasing shareholder value."

Financial Highlights

• Third Quarter net income of $13.4 million, or $0.27 per diluted share
• Tangible book value per share increased to $10.06 from $9.87 in the linked quarter
• ROA of 0.93% for the third quarter
• ROE of 8.68% for the third quarter
• ROTCE of 11.08% for the third quarter
• Non-Interest Expense/Average Assets (NIE/AA) of 2.22%
• Efficiency ratio of 61%

Loan Production Highlights

• 13% annualized total loan growth
• 16% annualized third quarter commercial loan growth
• Three consecutive quarters of strong mortgage banking activity income

Earnings Results

The Company reported quarterly net income of $13.4 million, or $0.27 per diluted share, and ROA of 0.93% in the third quarter of 2015. Interest income totaled $49.6 million in the third quarter of 2015 and increased by $914,000, or 2%, in comparison to the linked quarter driven by strong earning asset growth during the quarter. Earning assets grew organically by $163.4 million, or 3%, during the quarter, while average interest-earning assets increased by $220.1 million, or 4%, from the linked quarter due primarily to two consecutive quarters of strong commercial loan growth. Compared to the linked quarter, interest expense increased by $174,000, or 2%, to $8.0 million for the third quarter of 2015. This interest expense increase was driven by the $109 million increase in average Federal Home Loan Bank advances and other borrowings, partially offset by the 2 basis points decline in the cost of interest-bearing deposits. Interest expense on deposits decreased despite the $89 million increase in average interest-bearing deposits.

The GAAP tax equivalent net interest margin for the third quarter of 2015 decreased by 10 basis points to 3.20% compared to 3.30% for the linked quarter. When excluding the impact of $783,000 lower loan prepayment penalty income in the third quarter of 2015 than the second quarter, the net interest margin declined by 4 basis points from the linked quarter. The yields on interest-earning assets decreased by 12 basis points in the third quarter of 2015 to 3.79% as compared to the linked quarter, largely reflective of the prepayment penalty income impact and additionally due to the continued strong execution of interest rate swaps. The result of these loan level hedges is that the Company originates more variable rate loans with lower loan yields, however greater fee income is recognized up front. The improvement in the interest-bearing cost of funds of 2 basis points, to 0.71%, was attributable to a decrease of 5 basis points in the cost of interest bearing deposits, which was partially offset by an increase of 14 basis points in the cost of Federal Home Loan Bank advances driven by the duration extension of this wholesale funding source. 

The provision for loan losses decreased by 27%, or $1.2 million, to $3.3 million for the quarter ended September 30, 2015 compared to $4.5 million for the linked quarter due to reduced expansion of the covered portfolio for the current period as compared to the linked quarter. The lower level of covered portfolio expansion results from lower linked quarter organic loan growth of $136 million during the third quarter of 2015, as compared to $165 million of growth in the second quarter, as well as slower migration of purchased loans. Net charge-offs for the third quarter of 2015 increased by $372,000 to $1.3 million, or 0.12% annualized as a percentage of average loans outstanding, from $904,000, or 0.09% annualized as a percentage of average loans outstanding, in the linked quarter. Factors considered in the provision for loan losses include, but are not limited to, historical charge-offs, the composition of the portfolio, the current level of non-performing loans and charge-offs, local economic and credit conditions, the direction of real estate values and delinquency trends.

Total non-interest income decreased by $1.6 million, or 17%, to $7.8 million for the quarter ended September 30, 2015 from $9.4 million recognized in the linked quarter. The most significant factors attributing to the decline in the third quarter's non-interest income were the $733,000 decline in mortgage banking activities income and the $706,000 decline in other income, both of which were related to the decline in long-term interest rates during the third quarter which negatively impacted the mortgage servicing rights and loan level hedge valuations. The mortgage servicing rights valuation declined by $1.3 million  as compared to the linked quarter.

Non-interest income in the third quarter of 2015 includes the recognition of a $1.0 million loss related to limited partnership investments, and is consistent with the linked quarter. The most recent limited partnership investments are primarily related to alternative energy tax credits which provide an attractive risk adjusted return on capital ("RAROC"); noting that RAROC is an on-going focus for all activities the Company pursues. The loss correlates with the utilization of tax benefits and is more than offset in the tax provision for both the third quarter of 2015 and the linked quarter.

Non-Interest Expense

Non-interest expense for the quarter ended September 30, 2015 totaled $31.9 million and increased by $1.5 million, or 5%, from the linked quarter. The Company's cost structure continues to be favorable with non-interest expense as a percentage of average assets reported at 2.22% and the efficiency ratio at 61% in the third quarter of 2015. While many non-interest categories declined from the linked quarter, the Company experienced elevated expenses pertaining to information technology consulting services which will remain in the run-rate through the end of the year. Investments in our technology is fundamental to the success of our Company. The Company also experienced elevated one-time expenses pertaining to the deployment of EMV-compliant debit cards. Finally, as seen across the industry, the Company experienced a significant increase in debit card related fraud. While consumer losses cannot be predicted, investments in EMV cards and new fraud technology and expertise will likely mitigate this expense in the future. Excluding each of these noted expense categories totaling $1.4 million, net interest expense was flat in comparison to the linked quarter. 

Business Line Discussions

Commercial Banking

Total commercial loans increased by $104 million, or 16% annualized, during the third quarter of 2015 while average commercial loans increased during the quarter by $174 million. The increase in average commercial loans reflects that in addition to the current quarter production, a majority of the 19% annualized second quarter production was introduced late in that quarter when commercial loan originations benefited from the production ramp up of new teams introduced in late 2014 and early 2015. For the quarter ended September 30, 2015, commercial loan activity was comprised of a $114 million, or 6%, increase in the commercial real estate portfolio and a $5 million, or 3%, increase in the commercial construction portfolio, partially offset by a $15 million, or 2%, decrease in the commercial business portfolio. Commercial banking profitability was augmented further by the third consecutive quarter of strong loan level hedging fee income which was $2.4 million and $2.3 million for the quarters ended September 30, 2015 and June 30, 2015, respectively. The Company has been able to successfully meet the customer preference for fixed rate loans in this low interest rate environment, while prudently managing interest rate risk and increasing fee income.

Consumer Lending

In the third quarter of 2015, the Company produced residential mortgage originations of $188 million. Having recognized three consecutive quarters of strong mortgage banking activity income, for the year to date, residential mortgage originations totaled $559 million, an increase of $303 million, or 118%, from $256 million in the same period of the prior year. Purchase mortgage activity represented 70% of the production during the third quarter of 2015, and 46% of the quarter's production was comprised of adjustable rate mortgages. The Company sold residential mortgage loans totaling $123 million during the third quarter of 2015, and $285 million during the year to date.

Funding & Deposits

Deposits totaled $4.26 billion at September 30, 2015 and increased by $81 million, or 2%, from $4.18 billion at June 30, 2015, reflecting a $12 million, or 2%, increase in non-interest bearing deposits and a $68 million, or 2% increase in interest bearing deposits. The cost of total interest bearing deposits decreased by 5 basis points to 0.58% in the quarter ending September 30, 2015 from 0.63% in the linked quarter, comprised of decreases in the costs of both money market and time deposit accounts. Money market account specials expiring and seasonal increases in lower cost municipal money market deposits both drove down the cost of money market accounts during the third quarter of 2015, while the maturities of higher cost time deposits decreased the average cost of those accounts during the period.

Asset Quality

Non-performing assets increased by $1.5 million to $37.1 million at September 30, 2015 from $35.6 million at June 30, 2015. The ratio of non-performing assets to total assets remained unchanged at 0.63% at September 30, 2015 and June 30, 2015. The allowance for loan losses as a percentage of total covered loans outstanding decreased to 1.04% at September 30, 2015 from 1.06% at June 30, 2015.  The Company maintains a disciplined approach to asset quality and will not match extremely favorable pricing or underwriting and structure pressures from competitor banks if those considerations do not meet the Company's asset quality and return standards.

Dividend

The Board of Directors declared a cash dividend on the Company's common stock of $0.12 per share to shareholders of record at the close of business on October 30, 2015 and payable on November 12, 2015. This dividend equates to a 3.65% annualized yield based on the $13.15 average closing price of the Company's common stock in the third quarter of 2015. In April 2015, the Board increased the dividend by $0.02, or 20%, from the $0.10 quarterly amount which was in effect throughout 2014. The Company has paid dividends for 38 consecutive quarters.

Tangible Book Value

Tangible book value per share increased to $10.06 at September 30, 2015 from $9.87 at June 30, 2015; primarily due to the impact of the Company's net income of $13.4 million, offset in part by the cash dividend payment to shareholders of $0.12 per share.

Capital Management

The Company reported Tangible Common Equity ("TCE") of $498 million, or 8.66% of average assets, at September 30, 2015. The Company obtained approval for and initiated a third buyback plan on October 15, 2014. Under this plan, the Company is authorized to repurchase up to 2,566,283 shares, or 5% of the outstanding shares at the time the plan was approved. The Company did not repurchase any shares during the quarter ended September 30, 2015, and has remaining authorization to purchase an additional 254,394 shares. The Company anticipates leveraging its capital through organic loan growth.

Investor Conference Call

United Financial Bancorp, Inc. will host a conference call on Wednesday, October 21, 2015 at 10:00 a.m. Eastern Time (ET) to discuss the Company's third quarter results. Those wishing to participate in the call may dial toll-free 1-888-339-0797. A telephone replay of the call will be available through November 4, 2015 by calling 1-877-344-7529 and entering conference number 10073650. A podcast will be available on the Company's website for an extended period of time, as well as on the Company's investor relations app.

Investor Presentation

United Financial Bancorp, Inc. has prepared and furnished a visual slide presentation to accompany the earnings press release and investor conference call. The presentation has been furnished as an exhibit to the SEC Form 8-K, but is not included in this press release. Copies of the presentation may be accessed on the Company's investor relations website (www.unitedfinancialinc.com) by selecting "News & Market Data," then "Presentations;" or via the IRapp and selecting "Presentations;" or directly from SEC EDGAR.

About United Financial Bancorp, Inc.

United Financial Bancorp, Inc. is the holding company for United Bank, a full service financial services firm offering a complete line of commercial, business, and consumer banking products and services to customers throughout Connecticut and Massachusetts. On April 30, 2014, United Bank and Rockville Bank completed a transformational merger of equals bringing together two financially strong, well-respected institutions and creating a leading New England bank with more than 50 branches in two states and over $5.8 billion in assets. Through the merger, Rockville Financial, Inc. completed the acquisition of United Financial Bancorp, Inc. The combined Company, known as United Financial Bancorp, Inc. trades on the NASDAQ Global Select Stock Exchange under the ticker symbol "UBNK".

For more information about United Bank's services and products call (866) 959-BANK or visit www.bankatunited.com. For more information about United Financial Bancorp, Inc., visit www.unitedfinancialinc.com or download the Company's free Investor Relations app on your Apple or Android device.

To download United Financial Bancorp, Inc.'s investor relations app on your iPhone or on your iPad, which offers access to SEC documents, press releases, videos, audiocasts and more, please visit:
https://itunes.apple.com/WebObjects/MZStore.woa/wa/viewSoftware?id=725271098&mt=8 or https://play.google.com/store/apps/details?id=com.theirapp.ubnk for your Android mobile device.

Forward Looking Statements

This press release may contain certain forward-looking statements about the Company. Forward-looking statements include statements regarding anticipated future events and can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as "believe," "expect," "anticipate," "estimate," and "intend" or future or conditional verbs such as "will," "would," "should," "could," or "may." Forward-looking statements, by their nature, are subject to risks and uncertainties. Certain factors that could cause actual results to differ materially from expected results include increased competitive pressures, changes in the interest rate environment, general economic conditions or conditions within the securities markets, and legislative and regulatory changes that could adversely affect the business in which the Company and its subsidiaries are engaged.

(1)       Non-GAAP Ratios are not financial measurements required by generally accepted accounting principles; however, management believes such information is useful to investors in evaluating Company performance.

(2)       The efficiency ratio represents the ratio of non-interest expense before other real estate owned expense, amortization of intangibles, and goodwill impairment as a percent of net interest income (fully taxable equivalent) and non-interest income, excluding gains from securities transactions and nonrecurring items.

(3)       The cost of funds ratio represents interest incurred on liabilities as a percentage of average non-interest bearing deposits and interest-bearing liabilities.

(4)       The Pre-Provision net revenue to average assets ratio represents the ratio of net interest income, on a fully tax-equivalent basis, fees and other non-interest income, as a percent of average assets.

(5)       The Pre-Provision net revenue to average equity ratio represents the ratio of net interest income, on a fully tax-equivalent basis, fees and other non-interest income, as a percent of average equity.