United Financial Bancorp, Inc. Announces Record Revenue, Record Earnings, 19% Annualized Commercial Loan Growth And Quarterly Dividend

GLASTONBURY, Conn., July 21, 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 June 30, 2015. These results represent the fourth full fiscal quarter as the combined United Financial [merger of Rockville Financial, Inc. ("Rockville") and legacy United Financial Bancorp, Inc. ("legacy United")]. Rockville was the legal acquirer in the merger of equals with legacy United, in a transaction that closed on April 30, 2014, and Rockville changed its name to United Financial Bancorp, Inc. at that time.

The Company had net income of $13.3 million, or $0.27 per diluted share, for the quarter ended June 30, 2015, compared to net income for the linked quarter of $13.0 million, or $0.26 per diluted share. The Company reported a net loss of $5.6 million, or $(0.13) per diluted share, for the quarter ended June 30, 2014. The results for the quarter ended June 30, 2014 included one month of the pre-merger Rockville net income and net income of the combined entity beginning on May 1, 2014.

"I am pleased to report that during the second quarter of 2015, United Financial Bancorp, Inc. delivered record results for earnings, revenue, fee income, commercial loan growth and residential mortgage production. We continue to make substantial progress toward our merger goals announced in November 2013. The quarter's results included a 0.96% return on average assets ("ROA"), an 8.69% return on average equity ("ROE"), an 11.12% return on average tangible common equity ("ROTCE"), a 57% efficiency ratio, 17%  annualized total loan growth and $0.27 earnings per diluted share for the quarter ended June 30, 2015," stated William H. W. Crawford, IV, Chief Executive Officer of United Financial Bancorp, Inc. and United Bank. "These results were driven by 4% linked quarter revenue growth combined with a 1% decrease in non-interest expense compared to the linked quarter."

"The quarter ended June 30, 2015 represents United Financial's second consecutive quarter of record revenue and record earnings. Non-interest expense exceeded our earlier forecast due to higher costs related to record mortgage production, significantly increased consumer loan originations and greater loan level hedge expense, all of which are variable expenses that increased commensurate with higher than projected revenue," further stated Chief Executive Officer Crawford. "Commercial and residential mortgage loan pipelines remain robust, continuing the expectation that the Company will achieve high single digit total loan growth for 2015. The Company's capital and infrastructure investments will support continued commercial loan growth."

Financial Highlights

• Second quarter net income of $13.3 million, or $0.27 per diluted share
• ROA of 0.96% for the second quarter
• ROE of 8.69% for the second quarter
• ROTCE of 11.12% for the second quarter
• 4% increase in total revenue, compared to the linked quarter
• 1% decrease in operating expense compared to the linked quarter
• Second consecutive quarter of positive operating leverage resulting from increase in revenue and decrease in operating expense
• Non-Interest Expense/Average Assets (NIE/AA) decreased to 2.19%
• Efficiency ratio decreased to 57%

Loan Production Highlights

• 17% record annualized total loan growth
• 19% annualized commercial loan growth compared to the linked quarter
• Four consecutive quarters of record residential mortgage production
• 73% increase in non-mortgage consumer loan production compared to the linked quarter

Earnings Results

The Company reported record quarterly net income of $13.3 million, or $0.27 per diluted share, and ROA of 0.96% in the second quarter of 2015. These results reflect the Company's second consecutive quarter of reporting earnings as a combined entity without items prevalent in the prior year related to merger and acquisition expenses and redundant back office expenses before the data conversion was completed. Operating leverage was improved as a result of total operating revenues increasing by 4%, and reaching a record $50.3 million for the quarter ended June 30, 2015 while total operating expenses decreased by 1% during the same period. The Company's cost structure continues to improve and non-interest expense as a percentage of average assets declined to 2.19% in the second quarter of 2015 from 2.23% in the linked quarter. The efficiency ratio declined to 57% in the second quarter of 2015 from 61% in the linked quarter.

Interest income totaled $48.7 million in the second quarter of 2015 and increased by $416,000, or 1%, in comparison to the linked quarter. Earning assets grew organically by $144 million, or 3%, during the quarter, while average interest-earning assets increased less significantly, by $28 million, from the linked quarter due to the introduction of commercial loan growth toward the end of the quarter. Increased yields on  commercial real estate and commercial business loans include the positive impact of prepayment penalty income totaling $848,000 during the second quarter of 2015 compared to $339,000 in the linked quarter. Interest expense increased by $856,000, or 12%, to $7.8 million for the second quarter of 2015.  The increase was primarily driven by the impact of growth in money market deposits utilized in target market areas at special rates during the second quarter of 2015. Average interest bearing liabilities increased slightly by $5 million from the linked quarter as increases in average interest bearing deposit balances were offset by declines in average borrowings.

The GAAP tax equivalent net interest margin for the second quarter of 2015 decreased by 7 basis points to 3.30% compared to 3.37% for the linked quarter, primarily as a result of the increased interest expense associated with growth of money market deposits and certificates of deposit which was partially offset by the positive yield impact of loan prepayment fees. Commercial loan yields are further impacted by the commercial team becoming more effective in executing interest rate swaps. The result is that the Company originates more variable rate loans with lower loan yields, however greater fee income is recognized up front. On a GAAP basis, the yield on interest-earning assets decreased by 1 basis point in the second quarter of 2015 to 3.91%, while the cost of interest-bearing liabilities increased by 7 basis points during the quarter to 0.73%.

The provision for loan losses increased by $3.0 million to $4.5 million for the quarter ended June 30, 2015 compared to $1.5 million for the linked quarter due to expansion of the covered loan portfolio, including strong organic commercial loan growth during the quarter. This increase in provision expense impacted earnings in the second quarter to some degree as the full provision recognition was incurred as the loans were originated, however the growth was largely late in the quarter and therefore the offsetting positive impact on interest income was inconsequential to the quarter's results. Net charge-offs for the second quarter of 2015 decreased by $119,000 to $904,000, or 0.09% annualized as a percentage of average loans outstanding, from $1.0 million, or 0.10% 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, the composition of the portfolio, the 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 increased by $2.5 million, or 37%, to $9.4 million for the quarter ended June 30, 2015 from $6.8 million recognized in the linked quarter. The most significant factor attributing to the growth in the second quarter's non-interest income was the $1.8 million, or 47%, increase in service charges and fees during the quarter to $5.6 million from $3.8 million reported in the linked quarter. Of this $1.8 million increase, $1.5 million is due to the growth in gross loan level hedge income for the quarter ended June 30, 2015. Secondarily, the Company reported a $619,000 increase in mortgage banking activity income during the quarter ended June 30, 2015 to $3.0 million, compared to $2.4 million in the linked quarter.

Non-interest income in the second quarter of 2015 includes the recognition of a $916,000 loss related to limited partnership investments, while in the linked quarter the Company reported a $430,000 loss related to limited partnership investments. The most recent limited partnership investments are primarily related to solar 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 second quarter of 2015 and the linked quarter.

Non-Interest Expense

Non-interest expense for the quarter ended June 30, 2015 totaled $30.4 million and decreased by $300,000, or 1%, from the linked quarter. The Company reported a decrease in each of its non-interest expense categories, with the exceptions of salaries and benefits expense and other expense, both of which reported increases related to significant revenue enhancements. Salaries and benefits expense increased slightly by $23,000. Other expense increased during the second quarter of 2015 by $1.2 million, or 26%, the majority of which was related to growth in variable costs required to generate additional loan level hedge and consumer lending revenue.

Business Line Discussions

Commercial Banking

Total commercial loans increased by $114 million, or 19% annualized, during the second quarter of 2015 while average commercial loans decreased during the quarter by $40 million. The decrease in average commercial loans reflects that a majority of the production was introduced late in the second quarter when commercial loan originations benefited from the production ramp up of new teams introduced in late 2014 and early 2015, as well as the typical seasonal rebound experienced in the second quarter in general. For the quarter ended June 30, 2015, commercial loan activity was comprised of a $72 million, or 4%, increase in the commercial real estate portfolio, a $31 million, or 5%, increase in the commercial business portfolio and an $11 million, or 8%, increase in the commercial construction portfolio. The Company is leveraging the investment made in commercial banking, in new teams combined with the existing teams, and as a result is experiencing strong momentum in this line of business, including a robust commercial loan pipeline and a continued expectation for strong growth in the third quarter.

Commercial banking profitability was augmented further by significant increases in loan level hedging fee income which increased by $1.5 million to $2.3 million for the quarter ended June 30, 2015 from $752,000  in the linked quarter. Customers have expressed a preference for fixed rate loans in this low interest rate environment and the Company has been able to successfully meet the customer needs, while prudently managing interest rate risk and increasing fee income.

Consumer Lending

In the second quarter of 2015, the Company reported its fourth consecutive quarter of record origination volume for residential mortgage loans due to the investments made in this line of business in prior years. On a linked quarter basis, residential mortgage originations increased by $35 million, or 21%, to $203 million from $168 million in the first quarter of 2015. During the second quarter, mortgage originations increased by $121 million from $82 million in the same period of the prior year and purchase mortgage activity increased year-over-year to $115 million from $64 million in the prior year period. The Company sold residential mortgage loans totaling $257 million during the past four quarters. Our non-mortgage consumer lending production increased by 73% over the linked quarter, indicative of the Company's strategy to drive higher origination volumes through this delivery channel.  

Funding & Deposits

Deposits totaled $4.18 billion at June 30, 2015 and increased by $25 million, or 1%, from $4.16 billion at March 31, 2015, reflecting a $12 million, or 2%, increase in non-interest bearing deposits and a $13 million, increase in interest bearing deposits. For the year-to-date, total deposits increased by $147 million, or 4%, funding 73% of the $202 million increase in earning assets over that same time period. The cost of total interest bearing deposits increased by 8 basis points to 0.63% in the quarter ending June 30, 2015 from 0.55% in the linked quarter, driven primarily by the impact of money market specials utilized in target market areas during the second quarter of 2015.

Asset Quality

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. Non-performing assets decreased $1.8 million to $35.6 million at June 30, 2015 from $37.4 million at March 31, 2015. The ratio of non-performing assets to total assets decreased 5 basis points to 0.63% at June 30, 2015 from 0.68% at March 31, 2015. The allowance for loan losses as a percentage of total covered loans outstanding remained flat at 1.06% for June 30, 2015 and March 31, 2015.

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 July 31, 2015 and payable on August 12, 2015. This dividend equates to a 3.72% annualized yield based on the $12.91 average closing price of the Company's common stock in the second 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 37 consecutive quarters.

Tangible Book Value

Tangible book value per share increased to $9.87 at June 30, 2015 from $9.86 at March 31, 2015; primarily due to the impact of the Company's net income of $13.3 million, offset in part by the cash dividend payment to shareholders of $0.12 per share. Additionally, during the second quarter of 2015 the investment portfolio negatively impacted tangible book value by $0.15, net of the balance sheet hedge valuation. The market value of the available for sale portfolio was impacted in part by the increase in the ten year treasury yield during the quarter, as well as the widening of credit spreads within the municipal sleeve of the portfolio. At June 30, 2015, the investment portfolio had a duration of 3.45 years, which is prudently positioned at this time.

Capital Management

The Company reported Tangible Common Equity ("TCE") of $488 million, or 8.79%, at June 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 June 30, 2015, and has remaining authorization to purchase an additional 254,394 shares. The Company anticipates leveraging its capital through organic loan growth.

Management Comments

"I want to thank my United Bank teammates and Directors for their relentless focus on the pursuit of excellence for our customers, employees, communities and shareholders," stated William H. W. Crawford, IV, Chief Executive Officer of United Financial Bancorp, Inc. and United Bank. "For the remainder of 2015, we will be focused on driving continued strong operating leverage to maximize the benefits of our merger which positions us as a revenue growth company with an attractive cost structure and conservative risk profile all fueled by our ability to attract and retain top talent throughout our Company."

Investor Conference Call

United Financial Bancorp, Inc. will host a conference call on Wednesday, July 22, 2015 at 10:00 a.m. Eastern Time (ET) to discuss the Company's second 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 August 5, 2015 by calling 1-877-344-7529 and entering conference number 10068673. 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 filed a visual slide presentation to accompany the earnings press release and investor conference call. The presentation has been filed 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 $5.6 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.

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SOURCE United Financial Bancorp, Inc.

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